<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 2, 1998
------------------------
ATRIUM COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 333-20095 75-2642488
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification
Number)
</TABLE>
<TABLE>
<S> <C>
1341 W. MOCKINGBIRD LANE 75247
SUITE 1200W (Zip code)
DALLAS, TEXAS
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code: (214) 630-5757
N/A
(former address if changed since last report)
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<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 1. CHANGE IN CONTROL OF REGISTRANT AND ITEM 2. ACQUISITION OF ASSETS
On August 3, 1998, D and W Holdings, Inc. ("Holdings"), a Delaware
corporation, entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Atrium Corporation ("Atrium Corp."), D and W Acquisition Corp.
("Merger Sub") and the securityholders listed therein, to acquire all of the
outstanding capital stock of Atrium Corp. through a series of transactions (the
"Transactions") described below. Atrium Corp., owns 100% of the outstanding
capital stock of Atrium Companies, Inc. (the "Registrant" or "Atrium"). GE
Investment Private Placement Partners II, a Limited Partnership ("GEIPPPII") and
Ardatrium L.L.C. ("Ardatrium") formed Holdings by acquiring all of its
outstanding common stock for an aggregate purchase price of $50.0 million (the
"Merger Sub Contribution"). GEIPPPII is a private equity partnership affiliated
with GE Investments, a wholly-owned investment management subsidiary of General
Electric Company. Ardatrium is an affiliate of Ardshiel, Inc. ("Ardshiel"), a
private equity investment firm based in New York.
The acquisition of Atrium Corp. by Holdings was effected through a merger on
October 2, 1998 of Merger Sub, a wholly owned subsidiary of Holdings, with and
into Atrium Corp. (the "Merger") pursuant to the terms of the Merger Agreement.
Prior to the Merger, Holdings formed Merger Sub as a wholly owned subsidiary and
contributed the Merger Sub Contribution in exchange for all of Merger Sub's
outstanding common stock. As a result of the Merger, Atrium Corp. became a
direct wholly owned subsidiary of Holdings, and the Registrant became an
indirect wholly owned subsidiary of Holdings. Upon completion of the
Transactions, GEIPPPII and Ardshiel and its affiliates beneficially own
approximately 97.0% of the outstanding common stock of Holdings. Prior to the
consummation of the Transactions, Atrium Corp. and the Registrant were
controlled by affiliates of Hicks, Muse, Tate & Furst Incorporated.
Pursuant to the terms of the Merger Agreement, substantially all of the
outstanding equity securities of Atrium Corp. were converted into the right to
receive the merger consideration of $97.2 million (the "Merger Consideration")
in cash. The Merger Considerations was derived by reducing the Atrium Corp.
purchase price of $225.0 million by transaction costs of $2.4 million, assumed
indebtedness of $122.7 million and $2.7 million of equity securities of Atrium
Corp., owned by certain members of management of Atrium Corp., which were
converted into comparable equity securities of Holdings. The Merger
Consideration was funded with (i) $50.0 million in cash comprising the Merger
Sub Contribution that became an asset of Atrium Corp. in the Merger, (ii) $20.0
million in cash proceeds from the issuance of Senior Discount Debentures due
2010 by Atrium Corp. to GEIPPPII and Ardatrium (the "Discount Debentures"),
(iii) $24.0 million in cash proceeds from a loan from the Registrant (the
"Intercompany Loan") which was funded by a portion of the proceeds of a term
loan to the Registrant under the Credit Facility (as defined below), (iv) $3.0
million of expenses paid by the Registrant on behalf of Atrium Corp.'s selling
shareholders and (v) $0.2 million in cash proceeds from the issuance of common
stock of Holdings to certain members of management of Atrium followed by a
capital contribution of such proceeds by Holdings to Atrium Corp.
Prior to the Merger, GEIPPPII, Ardshiel and certain other stockholders held
investments in debt and equity securities of Wing Industries Holdings, Inc.
("Wing Holdings", and together with its subsidiary, Wing Industries, Inc.,
"WIH") and Door Holdings, Inc. ("Door Holdings", and together with its
subsidiaries, R.G. Darby Company, Inc. and Total Trim, Inc., "Door").
Immediately prior to the consummation of the Merger, all of the outstanding
subordinated debt and associated warrants to purchase common stock of Wing
Holdings and Door Holdings were converted into common stock of WIH and Door,
respectively. The stockholders of Wing Holdings and Door Holdings contributed
their common stock in WIH and Door to Holdings in exchange for common stock of
Holdings. Immediately after the consummation of the Merger, Holdings contributed
all of the common stock of Wing Holdings and Door Holdings to Atrium Corp.,
which in turn contributed the common stock of Wing Holdings and Door Holdings to
the Registrant.
Consummation of the Merger constituted a change of control (the "Change of
Control") under Section 4.8 of the Indenture (as amended and supplemented
through the date hereof, the "Indenture"),
2
<PAGE>
dated as of November 27, 1996, as amended, by and among Atrium, the Subsidiary
Guarantors (as defined in the Indenture) and United States Trust Company of New
York, as trustee. Such Change of Control allows the holders of Atrium's 10 1/2%
Senior Subordinated Notes (the "Notes") due November 15, 2006, to cause Atrium
to purchase the Notes at a purchase price in cash equal to 101% of the
outstanding principal plus accrued and unpaid interest to the date of purchase
(the "Change of Control Offer"). The Change of Control Offer expires November 6,
1998 (the "Change of Control Expiration Date").
To finance the payment of a portion of the Merger Consideration, the
repayment of certain indebtedness of each of WIH, Door and Atrium (the "Existing
Debt Repayment"), a portion of the Change of Control Offer and related fees and
expenses, Atrium entered into the $205,000,000 Credit Agreement, dated as of
October 2, 1998, between Atrium Companies, Inc., as Borrower, D and W Holdings,
Inc., as Parent, the Guarantors party thereto, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Lead Arranger, Syndication Agent
and Documentation Agent, and BankBoston, N.A., as Administrative Agent, and the
Lenders party thereto (the "Credit Facility"). The Credit Facility is comprised
of two term loan facilities in the amounts of $75.0 million and $100.0 million
and, except as provided below, have maturity dates of June 30, 2005 and June 30,
2006, respectively and a revolving credit facility and letter of credit sub
facility in the amounts of $30.0 million and $5.0 million, respectively. The
revolving credit facility matures on June 30, 2004. Borrowings under the Credit
Facility bear interest at the Issuer's option at either (a) the greater of (i)
the Administrative Agent's corporate base rate and (ii) the federal funds rate
plus 0.5% per annum, plus in each case, the applicable margin, as defined in the
Credit Facility or (b) LIBOR plus the applicable margin.
Upon consummation of the Merger, $75.0 million of the $100.0 million term
loan facility was placed in an escrow account to fund a portion of the amounts
payable, if any, in the Change of Control Offer. If any of the $75.0 million
remains in escrow after the Change of Control Expiration Date, the remaining
proceeds mature on the next succeeding day. In addition, GEIPPPII and Ardatrium
deposited into escrow $25.0 million through the additional issuance of Discount
Debentures by Atrium Corp. In the event proceeds from the issuance of the
additional Discount Debentures remain in escrow after the Change of Control
Expiration Date, such proceeds will be used to repay the Discount Debentures.
The balance (which will not exceed $1.0 million, plus accrued and unpaid
interest on the Notes, if any), if any, of amounts payable in excess of $100.0
million in the Change of Control Offer will be paid from available cash or
financed with the proceeds of revolving loans under the Credit Facility.
Pursuant to a Stockholders Agreement, dated October 2, 1998, by and among
GEIPPPII, Ardatrium and certain of its affiliates and certain other stockholders
of Holdings (the "Stockholders Agreement"), the Stockholders (as defined in the
Stockholders Agreement) have agreed that the authorized number of directors of
Holdings shall consist of up to nine directors. In the event that there are less
than seven directors, the directors shall include one director designated by
GEIPPPII, so long as it is a Stockholder; Randall Fojtasek, as long as he is an
employee of Holdings or any of its subsidiaries and holds equity securities or
securities convertible into equity securities of Holdings; and each other
director shall be designated by Ardshiel and its affiliates so long as any of
them are Stockholders. In the event the Board of Directors consists of seven or
more members, GEIPPPII, so long as it is a Stockholder, shall be entitled to
designate two directors; Mr. Fojtasek, so long as he is an employee of Holdings
or any of its subsidiaries and holds equity securities or securities convertible
into equity securities of Holdings, shall be a director, and Ardshiel and its
affiliates shall designate the remainder of the directors. Notwithstanding the
foregoing, in the event Holdings or any of its subsidiaries, subject to
applicable grace periods and certain exceptions, default in the payment of
principal or interest on indebtedness, the aggregate outstanding principal
amount of which is greater than $15,000,000 or if the final maturity of any such
indebtedness is accelerated, Ardshiel's and its affiliate's rights to designate
directors shall be limited to the designation of two directors and GEIPPPII
shall, as long as it is a Stockholder, shall be entitled to designate the
remainder of the directors which Ardshiel and its affiliates would otherwise
have been entitled to elect. Upon the occurrence of an Initial Public Offering
(as defined in the Stockholder Agreement), GEIPPPII's rights to designate any
director and Mr. Fojtasek's right to be a director shall terminate and
Ardshiel's and its affiliate's rights shall be limited to the designation of two
directors, so long as it is a Stockholder.
3
<PAGE>
Effective October 2, 1998, the following directors of Atrium Corp. resigned:
John R. Muse, Michael J. Levitt, Stephen M. Humphrey, C. Dean Metropoulos,
Michel Reichert and Randall S. Fojtasek. Pursuant to the Stockholders Agreement,
the following were elected directors of Holdings: Randall S. Fojtasek, R. L.
Gilmer, Sam A. Wing, Jr., Daniel T. Morley, James G. Turner, Roger A. Knight,
Andreas Hildebrand, Donald W. Torey and Nimrod Natan. Messrs. Hildebrand and
Torey are the GEIPPPII designees and the remaining directors, other than Mr.
Fojtasek, are the Ardshiel designees.
There are no arrangements that would result in a change of control on any
subsequent date.
Information regarding the Transaction of Atrium, WIH and Door disclosed in
Atrium's Notice of Change of Control and Offer to Purchase filed as Exhibit 20.1
hereto is hereby incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The financial statements are listed in the accompanying Index to
Financial Statements on page F-1 of this report.
(b) Pro Forma Financial Information
Atrium Companies, Inc. and Subsidiaries:
Unaudited Pro Forma Consolidated Financial Statements (page 5)
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1998 (page
7)
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of June 30,
1998 (page 8)
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended
December 31, 1997 (page 10)
Notes to Unaudited Pro Forma Consolidated Statement of Income for the
Year Ended
December 31, 1997 (page 11)
Unaudited Pro Forma Consolidated Statement of Income for the Period Ended
June 30, 1998 (page 15)
(c) Exhibits
<TABLE>
<C> <S>
*2.1 Agreement and Plan of Merger by and among D and W Holdings, Inc.,
D and W Acquisition Corp., Atrium Corporation, and the securityholders
therein dated as of August 3, 1998.
*4.1 Stockholders Agreement, dated as of October 2, 1998, by and among D and W
Holdings, Inc., a Delaware Corporation (the "Company"), and each of the
individuals and entities signatory hereto (each a "Stockholder" and
together the "Stockholders").
*20.1 Notice of Change of Control and Offer to Purchase, dated as of October 9,
1998, by Atrium Companies, Inc. for any and all of its 10 1/2% Senior
Subordinated Notes due November 15, 2006, Series B.
*20.2 Supplemental Letter to Notice of Change of Control and Offer to Purchase,
dated October 19, 1998.
*99.1 Credit Agreement dated as of October 2, 1998 by and among Atrium Companies,
Inc., as Borrower, D and W Holdings, Inc., as Parent, the Guarantors party
thereto, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Lead Arranger, Syndication Agent and Documentation Agent,
and BankBoston, N.A., as Administrative Agent, and the Lenders party
thereto.
*99.2 Press Release
</TABLE>
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* Filed herewith.
4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements
("Unaudited Pro Forma Financial Statements") of the Combined Company are based
on the audited and unaudited historical financial statements listed in Item 7 of
this Current Report on Form 8-K. The Combined Company shall mean Atrium
Companies, Inc. and its subsidiaries after giving effect to the Transactions,
and therefore shall include WIH, Door and their respective subsidiaries.
The Unaudited Pro Forma Financial Statements have been prepared to give
effect to the Transactions. For financial statement purposes, WIH is deemed to
be the "accounting acquiror" in a reverse acquisition transaction.
Prior to the Transactions, GEIPPPII owned a significant interest in both WIH
and Door. As a result of the Transactions, GEIPPPII now owns approximately 94.5%
of Holdings. To the extent GEIPPPII acquired additional minority interest in WIH
and Door, such interest has been recorded at GEIPPPII's acquisition cost or
"fair value". GEIPPPII also recorded its acquisition of a 94.5% interest in
Atrium Corp. at "fair value". For purposes of the Unaudited Pro Forma Financial
Statements, GEIPPPII's basis in the companies which are a part of the
Transactions have been "pushed down" to the Unaudited Pro Forma Financial
Statements. The Unaudited Pro Forma Financial Statements also reflect various
other effects of the Transactions such as capital contributions, retirement of
existing debt and write-off of related financing costs, issuance of new debt and
transaction expenses.
The Unaudited Consolidated Pro Forma Balance Sheet has been prepared to give
effect to the Transactions as if they occurred on June 30, 1998. The Unaudited
Pro Forma Consolidated Statements of Income give effect to the Transactions as
if they occurred on January 1, 1997.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Combined Company believes are reasonable. The
Unaudited Pro Forma Financial Statements and the accompanying notes should be
read in conjunction with the historical financial statements listed in the Index
to Financial Statements in Item 7 of this Current Report on Form 8-K and the
history of the Combined Company as presented below.
The Combined Company was formed through a series of transactions and
acquisitions. The following summary should be considered in conjunction with
reading the unaudited pro forma consolidated financial information:
July 3, 1995--The common stock of Atrium (formerly known as Fojtasek
Companies, Inc.), was acquired by a wholly owned subsidiary of Heritage Fund I,
L.P. in a transaction that was accounted for as a recapitalization (the
"Heritage Transaction"). Atrium manufactures and sells doors, windows and
various building materials throughout the United States. Atrium was founded in
1948 as a leading vertically-integrated domestic manufacturer and distributor of
a full line of residential windows and doors and began manufacturing operations
in 1953.
September 1, 1996--Atrium purchased certain assets of Keller Aluminum
Products of Texas ("Keller"), a division of Keller Building Products, which was
owned by Keller Industries, Inc. The assets were recorded at cost.
September 30, 1996--Atrium Corp. acquired Atrium Door and Window Company of
the Northeast ("ADW--Northeast"), formerly known as Bishop Manufacturing
Company, Incorporated ("Bishop"), a manufacturer of vinyl replacement windows
and doors for the residential market in the northeast region of the United
States. Atrium Corp. contributed the capital stock of ADW--Northeast to Atrium.
The transaction was recorded under the purchase method of accounting.
October 25, 1996--WIH acquired (the "Wing Acquisition") 100% of the
outstanding common stock of Wing Industries, Inc. ("Wing"), and Wing Acquisition
Corporation ("WAC"), a Delaware corporation
5
<PAGE>
and a wholly owned subsidiary of WIH, was merged with and into Wing, with Wing
being the surviving corporation. WIH did not have any significant activity prior
to the Wing Acquisition. Wing was founded in 1924 and incorporated in 1941. Wing
manufactures and markets bifold, louver, stile and rail, and flush doors, and
related products for the home improvement and home building industries.
November 27, 1996--Atrium was effectively recapitalized in a transaction in
which affiliates of Hicks Muse Tate & Furst Incorporated purchased approximately
82% of Atrium Corp.'s newly issued common stock and redeemed the equity
interests of selling securityholders of Atrium (the "Hicks Muse Transaction").
The redemption payments were funded through the issuance of the Notes and the
other outstanding debt of Atrium was refinanced. The transaction was accounted
for as a recapitalization.
July 1, 1997--Atrium purchased the assets of the Western Window Division of
Gentek Building Products, Inc. ("Gentek") (the results of operations associated
with these assets are referred to as "Gentek"). Gentek, located in Anaheim,
California, is engaged in the manufacture and sale of vinyl replacement windows
to independent remodelers and contractors. The acquisition was accounted for
under the purchase method of accounting.
November 10, 1997--Wing purchased certain assets of the Door Division of
Super Millwork, Inc. ("Super Millwork") in a transaction accounted for under the
purchase method of accounting (the "Super Millwork Acquisition"). The Door
Division of Super Millwork, located in Melville, New York, is engaged in the
distribution, manufacture and sale of doors and other millwork. The Door
Division, along with Marvin Windows, comprised the consolidated entity of Super
Millwork.
January 8, 1998--Door acquired all of the outstanding common stock of Darby
(the "Darby Acquisition") in a transaction accounted for under the purchase
method of accounting. Darby, founded in 1983, provides interior and exterior
doors, vanity mirrors, door knobs and locks, shelving, molding, and related
installation to contractors of apartment buildings and hotels.
March 27, 1998--Atrium purchased substantially all of the assets (the
"Masterview Acquisition") of Masterview Window Company, LLC ("Masterview"), a
privately held window and door company located in Phoenix, Arizona in a
transaction accounted for under the purchase method of accounting.
These transactions have been presented in the Unaudited Pro Forma
Consolidated Statement of Income as if they occurred on January 1, 1997. All of
the transactions have been recorded in the historical balance sheets of the
respective acquiring companies as of June 30, 1998. The Unaudited Pro Forma
Financial Statements are not indicative of either future results of operations
or the results that might have occurred if the Transactions had been consummated
on the indicated dates.
6
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ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- ----------------------------------
ATRIUM WING DOOR ADJUSTMENTS CONSOLIDATED
-------- ------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 1 $ 139 $ 182 $ -- $ 322
Equity securities--available for
sale................................ 113 -- -- -- 113
Accounts receivable, net.............. 34,005 6,476 3,487 -- 43,968
Inventories........................... 19,091 18,748 1,448 -- 39,287
Prepaid expenses and other current
assets.............................. 988 935 175 -- 2,098
Deferred tax asset.................... 692 -- -- -- 692
-------- ------- ------- -------- ------------
Total current assets.............. 54,890 26,298 5,292 -- 86,480
PROPERTY, PLANT AND EQUIPMENT, net...... 18,540 7,942 585 -- 27,067
GOODWILL, net........................... 37,550 22,130 22,220 81,598(1) 218,030
2,359(2)
223(3)
51,950(4)
DEFERRED FINANCING COSTS, net........... 5,143 1,151 198 8,653(4) 15,145
OTHER ASSETS............................ 4,067 756 3 -- 4,826
-------- ------- ------- -------- ------------
Total assets.......................... $120,190 $58,277 $28,298 $144,783 $351,548
-------- ------- ------- -------- ------------
-------- ------- ------- -------- ------------
CURRENT LIABILITIES:
Current portion of notes payable...... $ 1,900 $ 3,367 $ 500 $ (5,767)(4) $ 1,750
1,750(4)
Accounts payable...................... 17,350 4,746 1,166 -- 23,262
Accrued liabilities................... 8,122 3,542 1,245 (819)(4) 12,090
-------- ------- ------- -------- ------------
Total current liabilities............. 27,372 11,655 2,911 (4,836) 37,102
LONG-TERM LIABILITIES:
Notes payable......................... 123,058 32,091 14,285 (11,337)(5) 218,250
(5,286)(6)
(52,811)(4)
118,250(4)
Deferred tax liability................ 1,058 449 -- -- 1,507
Other liabilities..................... 300 2,500 4,000 -- 6,800
-------- ------- ------- -------- ------------
Total long-term liabilities........... 124,416 35,040 18,285 48,816 226,557
-------- ------- ------- -------- ------------
Total liabilities..................... 151,788 46,695 21,196 43,980 263,659
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock.......................... -- 1 1 (2)(7) --
Paid-in-capital....................... 33,512 9,891 6,468 11,337(5) 85,895
5,286(6)
16,488(1)
2,359(2)
223(3)
331(7)
Retained earnings (accumulated
deficit)............................ (65,117) 1,690 633 65,117(1) 1,994
(329)(7)
Accumulated other comprehensive
income.............................. 7 -- -- (7)(1) --
-------- ------- ------- -------- ------------
Total stockholder's equity
(deficit)........................... (31,598) 11,582 7,102 100,803 87,889
-------- ------- ------- -------- ------------
Total liabilities and stockholder's
equity (deficit).................. $120,190 $58,277 $28,298 $144,783 $351,548
-------- ------- ------- -------- ------------
-------- ------- ------- -------- ------------
</TABLE>
7
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(1) Elimination of Atrium's accumulated deficit of $65,117 and unrealized
gain on equity securities available for sale of $7 and recording GEIPPPII's and
Ardshiel's basis in Atrium as follows:
<TABLE>
<S> <C> <C>
GEIPPPII's contribution...................................... $ 49,500
Ardatrium's contribution..................................... 500
Elimination of Atrium's historical paid-in capital........... (33,512)
---------
Net increase in Atrium's paid-in capital..................... $ 16,488
---------
---------
As a result of the above entries, the following details the
net increase in goodwill:
Elimination of Atrium's accumulated deficit................ $ 65,117
Elimination of unrealized gain on equity securities
available for sale....................................... (7)
Net increase in Atrium's paid-in capital................... 16,488
---------
Net increase in goodwill................................... $ 81,598
---------
---------
</TABLE>
(2) Recording of GEIPPPII's purchase of additional interest of WIH of 5.03%
from 89.47% fully converted basis prior to the Transactions to 94.50%
immediately after the Transactions as follows:
<TABLE>
<S> <C> <C>
GEIPPPII's basis in WIH prior to the Transactions.......... $ 22,160
GEIPPPII's purchase of minority interest................... 1,818
Basis of remaining minority interest....................... 1,300
---------
Adjusted basis in WIH...................................... 25,278
Historical equity of WIH................................... 11,582
Conversion of exchangeable subordinated notes payable
(5)...................................................... 11,337
---------
Adjusted equity of WIH after conversion of debt............ 22,919
---------
Net increase in equity related to the acquisition of WIH's
minority
interest................................................. $ 2,359
---------
---------
</TABLE>
(3) Recording of GEIPPPII's purchase of additional interest of Door of 2.19%
from 92.31% fully converted basis prior to the Transactions to 94.50%
immediately after the Transactions as follows:
<TABLE>
<S> <C> <C>
GEIPPPII's basis in Door prior to the Transactions......... $ 11,391
GEIPPPII's purchase of minority interest................... 379
Basis of remaining minority interest....................... 841
---------
Adjusted basis in Door..................................... 12,611
Historical equity of Door.................................. 7,102
Conversion of subordinated note payable (6)................ 5,286
---------
Adjusted equity of Door after conversion of debt........... 12,388
---------
Net increase in equity related to the acquisition of Door's
minority
interest................................................. $ 223
---------
---------
</TABLE>
8
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(4) To record borrowings under the Credit Facility, including related
deferred financing costs, to record the Existing Debt Repayment and the
write-off of associated deferred financing costs.
<TABLE>
<S> <C> <C>
NOTES PAYABLE
Borrowings under the Credit Facility
B Tranche............................................. $ 75,000
C Tranche............................................. 25,000
Discount Debentures issued by Atrium Corp............... 20,000
---------
Total Notes Payable (including $1,750 of current
portion).............................................. $ 120,000
Less Existing Debt Repayment:
Atrium Notes Payable--Current Portion................. (1,900)
WIH Notes Payable--Current Portion.................... (3,367)
Door Notes Payable--Current Portion................... (500)
---------
(5,767)
Atrium Notes Payable--Long Term Portion............... (23,058)
WIH Notes Payable--Long Term Portion (including
capital leases)..................................... (20,754)
Door Notes Payable--Long Term Portion................. (8,999)
---------
(52,811)
Atrium accrued interest............................... (162)
WIH accrued interest.................................. (633)
Door accrued interest................................. (24)
---------
(819)
DEBT FINANCING COSTS
Debt financing costs capitalized........................ (11,000)
Write off of associated deferred financing costs
Atrium................................................ 998
WIH................................................... 1,151
Door.................................................. 198
---------
Net increase in deferred financing costs................ (8,653)
---------
Net increase in goodwill................................ $ 51,950
---------
---------
</TABLE>
(5) Conversion of GEIPPPII's and Ardshiel's or its affiliates' interest in
WIH's exchangeable subordinated notes payable of $12,460 and $40, respectively,
less $1,163 of unamortized discount related to detachable warrants converted to
common stock pursuant to the Transactions.
(6) Conversion of GEIPPPII's and Ardshiel's or its affiliates' interest in
Door's subordinated note payable of $5,940 and $60, respectively, less $714 of
unamortized discount related to detachable warrants converted to common stock
pursuant to the Transactions.
(7) Elimination of Door's retained earnings and common stock and the
elimination of WIH common stock as Atrium's Common Stock remains outstanding.
Note: No adjustment has been made in the Unaudited Pro Forma Financial
Statements to conform the accounting policies of Atrium, WIH and Door. The
Combined Company believes there will not be material adjustments to the
balance sheet, other than as shown above, in the application of the
purchase price.
9
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
1997 AND 1998 COMPLETED
COMPLETED PRO FORMA ACQUISITIONS PRO FORMA
HISTORICAL ACQUISITIONS ---------------------------- HISTORICAL ------------ -----------
--------- ------------------ ACQUISITIONS ATRIUM BEFORE ---------- SUPER ACQUISITION
ATRIUM GENTEK MASTERVIEW ADJUSTMENTS TRANSACTIONS WIH MILLWORK ADJUSTMENTS
--------- ------- ---------- ----------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES........... $186,764 $ 6,733 $25,007 $-- $218,504 $99,059 $23,351 $--
COST OF GOODS
SOLD.............. 121,301 5,083 19,056 -- 145,440 78,270 18,085 --
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
Gross profit...... 65,463 1,650 5,951 -- 73,064 20,789 5,266 --
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses........ 44,486 982 3,105 (124)(a) 48,449 16,445 4,487 225(b)
Stock option
compensation
expense......... 307 -- -- -- 307 -- -- --
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
44,793 982 3,105 (124) 48,756 16,445 4,487 225
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
Income (loss)
from
operations.... 20,670 668 2,846 124 24,308 4,344 779 (225)
INTEREST EXPENSE.... 11,523 -- 779 1,654(f) 13,956 2,953 169 708(g)
OTHER INCOME
(EXPENSE), net.... 1,088 -- (30) -- 1,058 -- -- --
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
Income before
income
taxes......... 10,235 668 2,037 (1,530) 11,410 1,391 610 (933)
PROVISION (BENEFIT)
FOR INCOME
TAXES............. 4,068 267 -- 172(j) 4,507 695 -- (110)(k)
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
NET INCOME (LOSS)... $ 6,167 $ 401 $ 2,037 $(1,702) $ 6,903 $ 696 $ 610 $(823)
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
--------- ------- ---------- ----------- -------------- ---------- ------------ -----
<CAPTION>
PRO FORMA
------------ THE
PRO FORMA THE COMBINED COMBINED
HISTORICAL ------------------------ COMPANY ADJUSTMENTS COMPANY
WIH BEFORE ---------- ACQUISITION DOOR BEFORE BEFORE AFTER AFTER
TRANSACTIONS DOOR ADJUSTMENTS TRANSACTIONS TRANSACTIONS TRANSACTIONS TRANSACTIONS
-------------- ---------- ----------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES........... $122,410 $16,956 $ -- $16,956 $357,870 $-- $357,870
COST OF GOODS
SOLD.............. 96,355 10,227 -- 10,227 252,022 -- 252,022
-------------- ---------- ----------- ----------- ------------ ------------ ----------
Gross profit...... 26,055 6,729 -- 6,729 105,848 -- 105,848
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses........ 21,157 4,707 (1,013)(c) 3,694 73,300 3,391(d) 76,691
Stock option
compensation
expense......... -- -- -- -- 307 208(e) 515
-------------- ---------- ----------- ----------- ------------ ------------ ----------
21,157 4,707 (1,013) 3,694 73,607 3,599 77,206
-------------- ---------- ----------- ----------- ------------ ------------ ----------
Income (loss)
from
operations.... 4,898 2,022 1,013 3,035 32,241 (3,599) 28,642
INTEREST EXPENSE.... 3,830 61 1,510(h) 1,571 19,357 4,606(i) 23,963
OTHER INCOME
(EXPENSE), net.... -- 90 -- 90 1,148 -- 1,148
-------------- ---------- ----------- ----------- ------------ ------------ ----------
Income before
income
taxes......... 1,068 2,051 (497) 1,554 14,032 (8,205) 5,827
PROVISION (BENEFIT)
FOR INCOME
TAXES............. 585 -- 528(l) 528 5,620 (1,637)(m) 3,983
-------------- ---------- ----------- ----------- ------------ ------------ ----------
NET INCOME (LOSS)... $ 483 $ 2,051 $ (1,025) $ 1,026 $ 8,412 $(6,568) $ 1,844
-------------- ---------- ----------- ----------- ------------ ------------ ----------
-------------- ---------- ----------- ----------- ------------ ------------ ----------
</TABLE>
10
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(a) Reflects net decrease in the amortization expense relating to goodwill
as a result of Atrium's acquisition of Gentek and Masterview on July 1, 1997 and
March 27, 1998, respectively, as follows:
<TABLE>
<S> <C>
Amortization expense of Gentek goodwill of $3,320 being amortized
over 40 years...................................................... $ 42
Elimination of Masterview's historical amortization expense of
goodwill of $10,689 being amortized over 15 years.................. (698)
Amortization expense of goodwill of $21,282 being amortized over 40
years.............................................................. 532
---------
$ (124)
---------
---------
</TABLE>
(b) Reflects net increase in selling, delivery, general and administrative
expenses resulting from the elimination of certain one-time costs, and the
amortization expense relating to goodwill and non-compete agreement as a result
of the Super Millwork Acquisition on November 10, 1997, as follows:
<TABLE>
<S> <C>
Elimination of a one-time transaction bonus and associated payroll
taxes paid to senior executive in connection with the Super
Millwork Acquisition............................................... $ (32)
Amortization expense of goodwill of $9,945 being amortized over 40
years.............................................................. 207
Amortization of non-compete agreement being amortized over 5 years... 50
---------
$ 225
---------
---------
</TABLE>
(c) Reflects net decrease in selling, delivery, general and administrative
expenses for amortization expense relating to goodwill and compensation expense
resulting from Door's acquisition of the common stock of Darby as follows:
<TABLE>
<S> <C>
Reduction of compensation expense paid to a former stockholder's
salary and bonus compensation that will be received pursuant to a
three year employment agreement.................................. $ (1,676)
Compensation expense paid to a former stockholder pursuant to a
three year employment agreement.................................. 100
Amortization of goodwill of $22,503 being amortized over 40
years............................................................ 563
---------
$ (1,013)
---------
---------
</TABLE>
(d) Reflects net increase in amortization expense relating to goodwill as a
result of the Transactions:
<TABLE>
<S> <C>
Elimination of historical goodwill amortization.................... $ (2,060)
Amortization of $218,030 of goodwill being amortized over 40
years............................................................ 5,451
---------
$ 3,391
---------
---------
</TABLE>
11
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(e) Reflects net increase in stock option compensation expense as a result
of the Transactions:
<TABLE>
<S> <C>
Elimination of historical stock option compensation.................. $ (307)
Stock option compensation related to 2,600,000 shares issued at $.01
with a fair market value of $1.00 vesting over five years.......... 515
---------
$ 208
---------
---------
</TABLE>
(f) Reflects net increase in interest expense resulting from Atrium's
acquisition of Gentek and Masterview as follows:
<TABLE>
<S> <C>
Interest expense resulting from the borrowing of $6,500 on Atrium's
revolving credit facility at 7.9% for Gentek...................... $ 257
Elimination of historical interest expense of Masterview related to
debt that was paid off including the amortization of related
deferred financing
costs............................................................. (779)
Interest expense resulting from borrowings under a $17,500 term loan
at 7.875% for Masterview.......................................... 1,378
Interest expense resulting from the borrowing of $9,029 on Atrium's
revolving credit facility at 7.9% for Masterview.................. 713
Amortization of deferred financing costs of $508 related to the
issuance of the term loan and amendment of the revolving credit
facility for Masterview........................................... 85
---------
$ 1,654
---------
---------
</TABLE>
(g) Reflects net increase in interest expense resulting from the Super
Millwork Acquisition as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense........................... $ (169)
Interest expense resulting from the borrowing of $194 under Wing's
revolving credit facility at 10.0%................................. 16
Interest expense resulting from the borrowing of $6,750 under Wing's
term loan facility at 8.8%......................................... 495
Interest expense resulting from the borrowing of $4,000 exchangeable
subordinated debt at 11.0%......................................... 366
---------
$ 708
---------
---------
</TABLE>
12
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(h) Reflects net increase in interest expense resulting from Door's
acquisition of the common stock of Darby as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense.......................... $ (61)
Interest expense resulting from the issuance of $10,000 senior debt
at 8.5%........................................................... 850
Interest expense resulting from the issuance of $6,000 subordinated
debt at 11.5%..................................................... 690
Amortization of deferred financing costs being amortized over 7
years............................................................. 31
---------
$ 1,510
---------
---------
</TABLE>
(i) Reflects net increase in interest expense resulting from the
Transactions:
<TABLE>
<S> <C>
Elimination of historical interest expense related to debt to be
repaid, including amortization of deferred financing costs....... $ (8,365)
Interest expense resulting from the borrowing of $100,000 at 9%
pursuant to the Credit Facility.................................. 9,000
Interest expense resulting from the borrowing of $20,000 Discount
Debentures at 12% issued by Atrium Corp. (non-cash
payment-in-kind by Atrium Corp.)................................. 2,400
Amortization of deferred financing costs of $11,000 related to the
Credit Facility.................................................. 1,571
---------
$ 4,606
---------
---------
</TABLE>
The Pro Forma Consolidated Statement of Income has been prepared assuming
that none of the Notes will be tendered in the Change of Control Offer. In the
event all of the Notes were tendered in the Change of Control Offer, adjusted
net interest expense would decrease by $1,500.
Borrowings under the Credit Facility bear interest at a variable rate. A one
percentage point increase or decrease in the applicable interest rate would
increase or decrease adjusted net interest expense by $1,000.
(j) Reflects the income tax provision related to the historical earnings of
Gentek and Masterview and the income tax effect of the pro forma adjustments
discussed in (a) and (f) using the federal statutory income tax rate of 34%.
Prior to the Masterview Acquisition, Masterview, a limited liability company,
was classified as a partnership for federal and state income tax purposes with
income or loss accruing directly to the members. Accordingly, no provisions or
credits for federal or state income taxes are reflected in the Masterview
historical financial statements.
(k) Reflects the income tax provision related to the historical earnings of
Super Millwork and the income tax effect of the pro forma adjustments discussed
in (b) and (g) using the federal statutory income tax rate of 34%. Prior to the
acquisition, Super Millwork was classified as an S-corporation for federal and
state income tax purposes with income or loss accruing directly to the
shareholders. Accordingly, no provisions or credits for federal or state income
taxes are reflected in the Super Millwork historical financial statements.
13
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(l) Reflects the income tax provision related to the historical earnings of
Darby and the income tax effect of the pro forma adjustments discussed in (c)
and (h) using the federal statutory income tax rate of 34%. Prior to the
acquisition, Darby was classified as an S-corporation for federal and state
income tax purposes with income or loss accruing directly to the shareholders.
Accordingly, no provisions or credits for federal or state income taxes are
reflected in the Darby historical financial statements.
(m) Reflects the income tax effect of the pro forma adjustments discussed in
(e) and (i) using the federal statutory income tax rate of 34%. No income tax
effect has been reflected for the pro forma adjustment discussed in (j) as the
additional goodwill recorded as a result of the Transactions is non-deductible
for federal tax purposes.
14
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 PRO FORMA
COMPLETED ----------------------------- THE COMBINED
HISTORICAL ACQUISITION ATRIUM HISTORICAL COMPANY
----------- ------------- ACQUISITIONS BEFORE -------------------- BEFORE
ATRIUM MASTERVIEW ADJUSTMENTS TRANSACTIONS WIH DOOR TRANSACTIONS
----------- ------------- --------------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES.................. $ 106,482 $ 6,219 $ -- $ 112,701 $ 71,848 $ 10,432 $ 194,981
COST OF GOODS SOLD......... 70,526 4,687 -- 75,213 56,197 6,386 137,796
----------- ------ ----- ------------ --------- --------- -------------
Gross profit............. 35,956 1,532 -- 37,488 15,651 4,046 57,185
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses............... 24,377 834 (45)(b) 25,166 12,180 2,043 39,389
Stock option compensation
expense................ 447 -- -- 447 -- -- 447
----------- ------ ----- ------------ --------- --------- -------------
24,824 834 (45) 25,613 12,180 2,043 39,836
----------- ------ ----- ------------ --------- --------- -------------
Income from
operations........... 11,132 698 45 11,875 3,471 2,003 17,349
INTEREST EXPENSE........... 6,241 158 386(d) 6,785 2,105 789 9,679
OTHER INCOME (EXPENSE),
net...................... (223) (173) 171(f) (225) -- 5 (220)
----------- ------ ----- ------------ --------- --------- -------------
Income before income
taxes.................. 4,668 367 (170) 4,865 1,366 1,219 7,450
PROVISION FOR INCOME
TAXES.................... 1,711 -- 67(g) 1,778 675 586 3,039
----------- ------ ----- ------------ --------- --------- -------------
NET INCOME................. $ 2,957 $ 367 $ (237) $ 3,087 $ 691 $ 633 $ 4,411
----------- ------ ----- ------------ --------- --------- -------------
----------- ------ ----- ------------ --------- --------- -------------
<CAPTION>
PRO FORMA
----------------------------
THE COMBINED
ADJUSTMENTS COMPANY
AFTER AFTER
TRANSACTIONS TRANSACTIONS
------------- -------------
<S> <C> <C>
NET SALES.................. $ (232)(a) $ 194,749
COST OF GOODS SOLD......... (232)(a) 137,564
------------- -------------
Gross profit............. -- 57,185
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses............... 1,626(c) 41,015
Stock option compensation
expense................ -- 447
------------- -------------
1,626 41,462
------------- -------------
Income from
operations........... (1,626) 15,723
INTEREST EXPENSE........... 2,303(e) 11,982
OTHER INCOME (EXPENSE),
net...................... (220)
------------- -------------
Income before income
taxes.................. (3,929) 3,521
PROVISION FOR INCOME
TAXES.................... (783)(h) 2,256
------------- -------------
NET INCOME................. $ (3,146) $ 1,265
------------- -------------
------------- -------------
</TABLE>
15
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(a) Represents the elimination of intercompany sales of $232 from WIH to
Door during the first six months of 1998.
(b) Reflects net decrease in the amortization expense relating to goodwill
as a result of the Masterview Acquisition as follows:
<TABLE>
<S> <C>
Elimination of historical amortization of goodwill of $10,689 being
amortized over 15 years............................................ $ (178)
Amortization of goodwill of $21,282 associated with the Transactions
being amortized over 40 years...................................... 133
---------
$ (45)
---------
---------
</TABLE>
(c) Reflects net increase in amortization expense relating to goodwill as a
result of the Transactions:
<TABLE>
<S> <C>
Elimination of historical goodwill amortization.................... $ (1,099)
Amortization of $218,030 of goodwill being amortized over 40
years............................................................ 2,725
---------
$ 1,626
---------
---------
</TABLE>
(d) Reflects net increase in interest expense as a result of the Masterview
Acquisition as follows:
<TABLE>
<S> <C>
Elimination of historical interest expenses related to debt that was
paid off including the amortization of related deferred financing
costs.............................................................. $ (158)
Interest expense resulting from the issuance of $17,500 term loan at
7.875%............................................................. 345
Interest expense resulting from the borrowing of $9,029 on Atrium's
revolving credit facility at 7.9%.................................. 178
Amortization of deferred financing costs of $508 related to the
issuance of the term loan and amendment of the revolving credit
facility........................................................... 21
---------
$ 386
---------
---------
</TABLE>
(e) Reflects net increase in interest expense resulting from the
Transactions:
<TABLE>
<S> <C>
Elimination of historical interest expense related to debt to be
repaid, including amortization of deferred financing costs....... $ (4,183)
Interest expense resulting from the borrowing of $100,000 at 9%
pursuant to the Credit Facility.................................. 4,500
Interest expense resulting from the borrowing of $20,000 Discount
Debentures at 12% issued by Atrium Corp. (non-cash
payment-in-kind by Atrium Corp.)................................. 1,200
Amortization of deferred financing costs of $11,000 related to the
Credit Facility.................................................. 786
---------
$ 2,303
---------
---------
</TABLE>
16
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
The Pro Forma Consolidated Statement of Income has been prepared assuming
that none of the Notes will be tendered in the Change of Control Offer. In the
event all of the Notes were tendered in the Change of Control Offer, adjusted
net interest expense would decrease by $750.
Borrowings under the Credit Facility bear interest at a variable rate. A one
percentage point increase or decrease in the applicable interest rate would
increase or decrease adjusted net interest expense by $500.
(f) Reflects the elimination of one-time bonuses and associated payroll
taxes aggregating $171 paid to certain members of senior management of
Masterview in connection with the Masterview Acquisition.
(g) Reflects the income tax provision related to the historical earnings of
Masterview and the income tax effect of the pro forma adjustments discussed in
notes (b), (d) and (f) using the federal statutory income tax rate of 34%. Prior
to the acquisition, Masterview, a limited liability company, was classified as a
partnership for federal and state income tax purposes with income or loss
accruing directly to the memebers. Accordingly, no provisions or credits for
federal or state income taxes are reflected in the Masterview historical
financial statements.
(h) Reflects the income tax effect of the pro forma adjustment discussed in
(e) using the statutory federal income tax rate of 34%. No income tax effect has
been reflected for the pro forma adjustment discussed in (f) as the additional
goodwill recorded as a result of the Transactions is non-deductible for federal
tax purposes.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
ATRIUM COMPANIES, INC.
By: /s/ JEFF L. HULL
-----------------------------------------
Name: Jeff L. Hull
Title: CHIEF FINANCIAL OFFICER, SECRETARY
AND TREASURER
</TABLE>
Date: October 19, 1998
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ATRIUM COMPANIES, INC.
Report of Independent Accountants.......................................................................... F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-4
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995................... F-5
Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 1997, 1996 and
1995................................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995............... F-7
Notes to Consolidated Financial Statements................................................................. F-9
MASTERVIEW WINDOW COMPANY, LLC
Report of Independent Accountants.......................................................................... F-27
Financial Statements:
Statement of Financial Position as of December 31, 1997.................................................. F-28
Statement of Income for the year ended December 31, 1997................................................. F-29
Statement of Changes in Members' Equity for the year ended December 31, 1997............................. F-30
Statement of Cash Flows for the year ended December 31, 1997............................................. F-31
Notes to Financial Statements.............................................................................. F-32
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
Report of Independent Accountants.......................................................................... F-38
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-39
Consolidated Statements of Income for the year ended December 31, 1997, the periods ended December 31,
1996 and October 25, 1996 and the year ended December 31, 1995......................................... F-40
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1997, the periods ended
December 31, 1996 and October 25, 1996 and the year ended December 31, 1995............................ F-41
Consolidated Statements of Cash Flows for the year ended December 31, 1997, the periods ended December
31, 1996 and October 25, 1996 and the year ended December 31, 1995..................................... F-42
Notes to Consolidated Financial Statements................................................................. F-43
DOOR DIVISION OF SUPER MILLWORK, INC.
Report of Independent Accountants.......................................................................... F-60
Carve-out Financial Statements:
Carve-out Balance Sheets as of November 10, 1997 and December 31, 1996................................... F-61
Carve-out Statements of Income and Changes in Business Unit Equity for the period from January 1, 1997 to
November 10, 1997 and for the year ended December 31, 1996............................................. F-62
Carve-out Statements of Cash Flows for the period from January 1, 1997 to November 10, 1997 and for the
year ended December 31, 1996........................................................................... F-63
Notes to Carve-out Financial Statements.................................................................... F-64
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
Report of Independent Accountants.......................................................................... F-68
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1997 and 1996................................................. F-69
Combined Statements of Income for the years ended December 31, 1997 and 1996............................. F-70
Combined Statements of Stockholder's Equity for the years ended
December 31, 1997 and 1996............................................................................. F-71
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996......................... F-72
Notes to Combined Financial Statements..................................................................... F-73
ATRIUM COMPANIES, INC.
Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheet as of June 30, 1998........................................................... F-77
Consolidated Statements of Income for the six months ended June 30, 1998 and 1997........................ F-78
Consolidated Statements of Comprehensive Income for the six months ended June 30, 1998 and 1997.......... F-79
Consolidated Statement of Stockholder's Equity (Deficit) for the six months ended June 30, 1998.......... F-80
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997.................... F-81
Notes to Consolidated Financial Statements................................................................. F-82
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheet as of June 30, 1998........................................................... F-86
Consolidated Statements of Income for the six months ended June 30, 1998 and 1997........................ F-87
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 1998.................... F-88
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997.................... F-89
Notes to Consolidated Financial Statements................................................................. F-90
DOOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheet as of June 30, 1998........................................................... F-92
Consolidated Statements of Income for the six months ended June 30, 1998 and 1997........................ F-93
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 1998.................... F-94
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997.................... F-95
Notes to Consolidated Financial Statements................................................................. F-96
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Atrium Corporation:
We have audited the accompanying consolidated balance sheets of Atrium
Companies, Inc. and its subsidiaries, (the "Company"), a wholly-owned subsidiary
of Atrium Corporation, as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholder's equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Atrium
Companies, Inc. and its subsidiaries as of December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 27, 1998
F-3
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 1 $ 617
Equity securities--available for sale................................................... 27 --
Accounts receivable, net................................................................ 24,376 21,975
Inventories............................................................................. 16,534 13,474
Prepaid expenses and other current assets............................................... 1,608 1,765
Deferred tax asset...................................................................... 692 2,555
---------- ----------
Total current assets.................................................................... 43,238 40,386
PROPERTY, PLANT AND EQUIPMENT, net........................................................ 16,388 13,970
GOODWILL, net............................................................................. 14,884 11,963
DEFERRED FINANCING COSTS, net............................................................. 4,961 5,173
OTHER ASSETS.............................................................................. 3,904 3,258
---------- ----------
Total assets............................................................................ $ 83,375 $ 74,750
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 10,007 $ 8,528
Current portion of notes payable........................................................ -- --
Accrued liabilities..................................................................... 7,102 6,580
---------- ----------
Total current liabilities............................................................... 17,109 15,108
LONG-TERM LIABILITIES:
Notes payable........................................................................... 100,000 100,000
Deferred tax liability.................................................................. 1,058 818
---------- ----------
Total long-term liabilities............................................................. 101,058 100,818
---------- ----------
Total liabilities....................................................................... 118,167 115,926
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and
outstanding........................................................................... -- --
Paid-in capital......................................................................... 32,790 31,936
Accumulated deficit..................................................................... (67,503) (73,112)
Unrealized loss on equity securities--available for sale................................ (79) --
---------- ----------
Total stockholder's deficit............................................................. (34,792) (41,176)
---------- ----------
Total liabilities and stockholder's deficit............................................. $ 83,375 $ 74,750
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES.................................................................... $ 186,764 $ 156,269 $ 135,478
COST OF GOODS SOLD........................................................... 121,301 102,341 93,975
---------- ---------- ----------
Gross profit............................................................... 65,463 53,928 41,503
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses..................... 44,486 34,815 29,303
Special charges............................................................ -- 3,044 7,188
Stock option compensation expense.......................................... 307 3,023 308
---------- ---------- ----------
44,793 40,882 36,799
---------- ---------- ----------
Income from operations..................................................... 20,670 13,046 4,704
INTEREST EXPENSE............................................................. 11,523 4,786 2,753
OTHER INCOME (EXPENSE), net.................................................. 1,088 (182) 1,442
---------- ---------- ----------
Income before income taxes and extraordinary charge........................ 10,235 8,078 3,393
PROVISION FOR INCOME TAXES................................................... 4,068 2,699 1,544
---------- ---------- ----------
Income before extraordinary charge......................................... 6,167 5,379 1,849
EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT (net of income tax benefit
of $720)................................................................... -- 1,176 --
---------- ---------- ----------
NET INCOME................................................................... $ 6,167 $ 4,203 $ 1,849
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
RETAINED LOSS ON EQUITY TOTAL
COMMON STOCK EARNINGS SECURITIES STOCKHOLDER'S
--------------- PAID IN (ACCUMULATED AVAILABLE EQUITY
SHARES AMOUNT CAPITAL DEFICIT) FOR SALE (DEFICIT)
------ ------ ------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 100 $-- $ 484 $ 39,881 --$ $ 40,365
Capital contribution.................. -- -- 22,100 -- -- 22,100
Net distributions to stockholders..... -- -- -- (79,741) -- (79,741)
Land contribution..................... -- -- 575 -- -- 575
Stock option compensation expense..... -- -- 308 -- -- 308
Net income............................ -- -- -- 1,849 -- 1,849
------ ------ ------- ------------ ----- -------------
BALANCE, December 31, 1995.............. 100 -- 23,467 (38,011) -- (14,544)
Capital contributions................. -- -- 5,025 -- -- 5,025
Net distributions to Holding.......... -- -- -- (39,304) -- (39,304)
Stock option compensation expense..... -- -- 3,023 -- -- 3,023
Income tax benefit upon exercise of
Holding's stock options............. -- -- 421 -- -- 421
Net income............................ -- -- -- 4,203 -- 4,203
------ ------ ------- ------------ ----- -------------
BALANCE, December 31, 1996.............. 100 -- 31,936 (73,112) -- (41,176)
Contributions from Holding............ -- -- 476 -- -- 476
Distributions to Holding.............. -- -- -- (558) -- (558)
Stock option compensation expense..... -- -- 307 -- -- 307
Unrealized loss on equity securities
available for sale.................. -- -- -- -- (79) (79)
Income tax benefit upon exercise of
Holding's stock options............. -- -- 71 -- -- 71
Net income............................ -- -- -- 6,167 -- 6,167
------ ------ ------- ------------ ----- -------------
BALANCE, December 31, 1997.............. 100 $-- $32,790 $(67,503) $(79) $(34,792)
------ ------ ------- ------------ ----- -------------
------ ------ ------- ------------ ----- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 6,167 $ 4,203 $ 1,849
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge, net of income tax benefit............................... -- 1,176 --
Depreciation and amortization................................................. 3,278 2,205 1,779
Amortization of deferred financing costs...................................... 642 279 138
Noncash bonuses............................................................... -- -- 1,609
Gain on retirement of assets.................................................. (38) (10) (429)
Gain on sale of equity securities............................................. (2) -- --
Stock option compensation expense............................................. 307 3,023 308
Deferred tax provision (benefit).............................................. 2,102 (1,303) 202
Changes in assets and liabilities, net of acquisitions in 1997 and 1996:
Accounts receivable, net...................................................... (640) (3,056) (523)
Inventories................................................................... (1,688) 2,252 540
Prepaid expenses and other current assets..................................... 197 (730) 171
Accounts payable.............................................................. (1,165) 815 722
Accrued liabilities........................................................... (57) (87) 541
--------- --------- ---------
Net cash provided by operating activities................................... 9,103 8,767 6,907
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment...................................... (3,438) (3,380) (2,337)
Proceeds from sales of assets................................................... 68 25 784
Purchases of equity securities.................................................. (480) -- --
Proceeds from sales of equity securities........................................ 375 -- --
Increase in other assets........................................................ (1,377) (1,134) (1,677)
Payment for acquisition, net of cash acquired................................... (6,561) (10,243) --
--------- --------- ---------
Net cash used in investing activities......................................... (11,413) (14,732) (3,230)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable........................................................ -- (62,928) (8,605)
Net borrowings under revolving credit facility.................................. -- 7,740 --
Proceeds from issuance of senior subordinated notes............................. -- 100,000 --
Proceeds from issuance of notes payable......................................... -- 6,000 57,155
Checks drawn in excess of bank balances......................................... 2,135 -- 946
Deferred financing costs........................................................ (430) (5,457) (2,127)
Capital contributions........................................................... -- 25 22,100
Contributions from Holding...................................................... 476 -- --
Net distributions to stockholders............................................... -- -- (74,268)
Net distributions to Holding.................................................... (558) (39,304) --
Income tax benefit upon exercise of Holding's stock options..................... 71 421 --
--------- --------- ---------
Net cash provided by (used in) financing activities........................... 1,694 6,497 (4,799)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. (616) 532 (1,122)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 617 85 1,207
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................ $ 1 $ 617 $ 85
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-7
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest...................................................................... $ 10,393 $ 3,699 $ 2,420
Income taxes.................................................................. 2,737 4,514 1,064
Noncash distributions......................................................... -- -- 4,899
Noncash contribution from Holding............................................. -- 5,000 --
</TABLE>
During 1996, the Company acquired all of the capital stock of ADW--Northeast
for a combined purchase price of $19,531 of which $10,243 was paid in cash, as
follows:
<TABLE>
<S> <C>
Fair value of net assets acquired............................... $ 20,705
Payable to seller............................................... (1,000)
Cash acquired................................................... (3,288)
Common stock issued by Holding.................................. (5,000)
Liabilities assumed............................................. (1,174)
---------
Cash paid for capital stock of ADW--Northeast................... $ 10,243
---------
---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Atrium Companies, Inc. (the "Company"), (formerly Fojtasek Companies, Inc.,
a Texas corporation), is engaged in the manufacture and sale of doors, windows
and various building materials throughout the United States. A significant
portion of the Company's sales relates to new home construction activity, which
is cyclical in nature.
On July 3, 1995, the stockholders of Fojtasek Companies, Inc. ("Fojtasek")
executed a stock purchase agreement (the "Heritage Transaction") whereby all of
Fojtasek's common stock was acquired by FCI Holding Corp. ("FCI Holding"), a
Delaware holding company which was established in connection with the Heritage
Transaction (Note 12). On September 30, 1996, Atrium Corporation ("Holding"), a
Delaware parent company which owned 100% of FCI Holding (which owned 100% of
Fojtasek) acquired Atrium Door and Window Company of the Northeast
("ADW--Northeast," formerly Bishop), a manufacturer of vinyl replacement windows
and doors and contributed the capital stock of ADW--Northeast to Fojtasek (Note
15). On November 8, 1996, in connection with the Hicks Muse Transaction (the
"Hicks Muse Transaction"), Fojtasek, which was a Texas corporation, was merged
with and into FCI Holding (Note 12). The two companies were merged to achieve
certain business objectives related to brand-name recognition. The surviving
Delaware corporation was renamed "Atrium Companies, Inc.," (the "Company") which
is a direct, wholly-owned subsidiary of Holding. The merger was accounted for as
a merger of companies under common control and the assets were valued at
historical cost.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, ADW--Northeast, acquired in September 1996,
and Atrium Door and Window Company-- West Coast ("ADW--West Coast," formerly H-R
Window Supply, Inc). ADW--Northeast refers to the combined consolidated results
of Atrium Door and Window Company of the Northeast (the merged companies
formerly named Vinyl Building Specialties of Connecticut, Inc. and Bishop
Manufacturing Company, Incorporated), its subsidiary Atrium Door and Window
Company of New England ("ADW-- New England" formerly Bishop Manufacturing
Company of New England, Inc.), and Atrium Door and Window Company of New York
("ADW--New York" formerly Bishop Manufacturing Co. of New York, Inc.) All
significant intercompany transactions and balances have been eliminated in
consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment, the fabrication and
distribution of doors and windows and related components.
REVENUE RECOGNITION
Revenue from the sale of doors and windows and related components is
recorded at the time of delivery and billing to the customer. Allowances are
established to recognize the risk of sales returns from customers.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents.
F-9
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EQUITY SECURITIES--AVAILABLE FOR SALE
Investments in equity securities--available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded in
stockholder's equity.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are net of allowances for doubtful accounts of $608 and
$1,497 as of December 31, 1997 and 1996, respectively.
PROVISION FOR WARRANTY CLAIMS
Estimated warranty costs are provided at the time of the sale of the
warranted product.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company's customers are concentrated in the southern regions of the U.S. and
focus upon the distribution and sale of building products. Sales in the state of
Texas accounted for approximately 38.3% of revenue in 1997. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information. The Company does not believe it is
dependent upon any single customer. No single customer accounted for more than
10% of sales.
INVENTORIES
Inventories are valued at the lower of cost (last-in, first-out or "LIFO")
or market. Management believes that the LIFO method results in a better matching
of current costs with current revenues.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. Prior to January 1, 1997, the Company provided for depreciation
and amortization using straight-line and accelerated methods. For all assets
acquired subsequent to January 1, 1997, the Company depreciates the assets on a
straight-line basis over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-------------
<S> <C>
Buildings and improvements..................................................... 5 - 40 years
Machinery and equipment........................................................ 3 - 12 years
</TABLE>
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the assets sold or retired. Expenditures for
maintenance, minor renewals and repairs are expensed as incurred, while major
replacements and improvements are capitalized.
F-10
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
GOODWILL
Goodwill represents the excess of cost over fair market value of net assets
acquired. Goodwill is being amortized over 40 years on a straight-line basis.
Amortization expense of $340 and $75 was recorded for the years ended December
31, 1997 and 1996. Accumulated amortization at December 31, 1997 and 1996 was
$415 and $75, respectively. Management continually reviews the carrying value of
goodwill for recoverability based on anticipated undiscounted cash flows of the
assets to which it relates. The Company considers operating results, trends and
prospects of the Company, as well as competitive comparisons. The Company also
takes into consideration competition within the building materials industry and
any other events or circumstances which might indicate potential impairment.
When goodwill is determined not to be recoverable, an impairment is recognized
as a charge to operations to the extent the carrying value of related assets
(including goodwill) exceeds the sum of the undiscounted cash flows from those
related assets.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes internal employee costs and external consulting
costs associated with implementing and developing software for internal use.
Internal costs capitalized include payroll and payroll-related costs for
employees who are directly associated with the development, modification and
implementation of the software. External costs include direct expenses related
to consulting and other professional fees consumed in developing, modifying and
implementing the software. Capitalization of costs occurs upon the completion of
the preliminary project stage and when management believes it is probable a
project will be completed and the software will be used to perform the function
intended. Amortization begins when the software is put into place and is
calculated on a straightline basis over five years. Management continually
reviews the carrying value and expected functionality of the accumulated costs
for potential impairment. When it is no longer probable that computer software
being developed will be completed, modified or placed in service, the assets
carrying value will be adjusted to the lower of cost or fair value.
INCOME TAXES
The provision for income taxes is based on pretax income as reported for
financial statement purposes. Deferred income taxes are provided in accordance
with the liability method of accounting for income taxes to recognize the tax
effects of temporary differences between financial statement and income tax
accounting.
FORWARD COMMITMENTS
The Company periodically enters into forward commitments to hedge price
variances in materials. Changes in the market value of forward commitments are
recognized in income when the effects of the related charges in the hedged items
are recognized.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts
F-11
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates. Significant estimates are used in calculating allowance for bad debt,
workers' compensation and warranty accruals, and deferred tax assets and
liabilities.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 balances to
conform to the 1997 presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments," the following
methods have been used in estimating fair value disclosures for significant
financial instruments of the Company.
Estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. Due to the
fact that considerable judgment is required to interpret market data to develop
the estimates of fair value, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market exchange.
Cash and cash equivalents--The carrying amounts reported in the balance
sheet approximate the fair value.
Equity securities--available for sale--The carrying amounts that are
reported in the balance sheet approximate the fair value based on quoted market
prices.
Notes payable--The fair value of the Company's notes is based on quoted
market prices.
Forward aluminum contracts--The unrealized gains and losses are based on
quotes for aluminum as reported on the London Metal Exchange.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................... $ 1 $ 1 $ 617 $ 617
Equity securities--available for sale........ $ 27 $ 27 $ -- $ --
LIABILITIES:
Notes payable................................ $ 100,000 $ 106,000 $ 100,000 $ 102,000
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED NOTIONAL UNREALIZED
AMOUNT GAIN/(LOSS) AMOUNT GAIN/(LOSS)
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
OFF BALANCE SHEET:
Forward aluminum contracts.................... $ 24,960 $ (21) $ 21,656 $ 519
</TABLE>
F-12
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. INVENTORIES:
Inventories are valued at the lower of cost or market using the LIFO method
of accounting. Work-in-process and finished goods inventories consist of
materials, labor, and manufacturing overhead. Inventories consisted of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 13,653 $ 11,765
Work-in-process......................................................... 705 563
Finished goods.......................................................... 4,056 2,526
--------- ---------
18,414 14,854
LIFO reserve............................................................ (1,880) (1,380)
--------- ---------
$ 16,534 $ 13,474
--------- ---------
--------- ---------
</TABLE>
The change in the LIFO reserve for the years ended December 31, 1997, 1996
and 1995 resulted in an increase in cost of sales of $500 and a decrease in cost
of sales by $491 and $851, respectively.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land.................................................................... $ 682 $ 682
Buildings and improvements.............................................. 7,596 7,139
Machinery and equipment................................................. 16,238 11,970
Construction-in-process................................................. 434 705
--------- ---------
Total............................................................... 24,950 20,496
Less accumulated depreciation and amortization.......................... (8,562) (6,526)
--------- ---------
$ 16,388 $ 13,970
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $2,217, $1,681, and $1,554 for the years ended
December 31, 1997, 1996, and 1995, respectively.
5. OTHER ASSETS:
Other assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Capitalized software costs, net............................................ $ 2,406 $ 1,355
Non-compete agreements, net................................................ 1,125 1,575
Deposits, notes receivable and other....................................... 373 328
--------- ---------
$ 3,904 $ 3,258
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. OTHER ASSETS: (CONTINUED)
The costs of the non-compete agreements are being amortized over the terms
of the related agreements, which are five years. Amortization expense for the
years ended December 31, 1997, 1996 and 1995 was $450, $450 and $225,
respectively, resulting in accumulated amortization at December 31, 1997 and
1996 of $1,125 and $675, respectively. Amortization expense of $271 was recorded
for the year ended December 31, 1997 for costs related to capitalized software
costs.
6. DEFERRED FINANCING COSTS:
The deferred financing costs relate to costs incurred in the placement of
the Company's debt and are being amortized using the effective interest method
over the terms of the related debt, which range from five to ten years.
Amortization expense for the years ended December 31, 1997, 1996 and 1995 was
$642, $279 and $138, respectively and was recorded as interest expense in the
accompanying Consolidated Statements of Income.
7. ACCRUED LIABILITIES:
Accrued liabilities include the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accrued salaries and wages................................................. $ 2,627 $ 2,100
Accrued interest........................................................... 1,358 1,003
Accrued taxes payable...................................................... 1,263 601
Contingent payable related to
ADW--Northeast acquisition............................................. -- 1,000
Warranty and litigation reserve............................................ 781 961
Workers' compensation reserve.............................................. 250 500
Other...................................................................... 823 415
--------- ---------
$ 7,102 $ 6,580
--------- ---------
--------- ---------
</TABLE>
8. NOTES PAYABLE:
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Senior subordinated notes............................................. $ 100,000 $ 100,000
Less current maturities............................................... -- --
---------- ----------
$ 100,000 $ 100,000
---------- ----------
---------- ----------
</TABLE>
In November 1996, the Company issued $100,000 aggregate principal amount of
10 1/2% Senior Subordinated Notes (the "Notes") due November 15, 2006 under the
Indenture dated as of November 27, 1996. Interest on the Notes is payable
semiannually on May 15 and November 15 of each year, commencing on May 15, 1997.
The Notes mature on November 15, 2006. The Company may redeem the Notes based on
certain triggering events. In addition, under certain circumstances the Company
will be
F-14
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. NOTES PAYABLE: (CONTINUED)
obligated to make an offer to repurchase the Notes at 100% of the principal
amount, plus accrued and unpaid interest to the date of repurchase, with the net
cash proceeds of certain sales or other dispositions of assets.
The Notes are fully and unconditionally guaranteed, jointly and severally,
on an unsecured, senior subordinated basis, by each of the Company's
subsidiaries (see Note 18). The Indenture permits the Company to incur
additional indebtedness (including Senior Indebtedness) of up to $45,000 as of
December 31, 1997, subject to certain limitations. The Indenture restricts the
Company's ability to pay dividends or make certain other restricted payments,
consummate certain asset sales, or otherwise dispose of all or substantially all
of the assets of the Company and its subsidiaries.
The Company has also entered into a Credit Agreement providing for a
revolving credit facility (the "Credit Facility"). The Credit Facility enables
the Company to borrow up to $20,000. The revolving credit loans bear interest at
a rate based upon the lender's prime rate plus a borrowing margin of 1.5% or a
LIBOR-based rate plus a borrowing margin of 2.5%. The Company pays a commitment
fee of .5% based on the unused portion of the Credit Facility. The Credit
Facility terminates in March 2002. The Company had $19,191 of availability under
the Credit Facility as of December 31, 1997, net of outstanding letters of
credit totaling $809. The Credit Facility contains various covenants that
restrict the Company from taking various actions and requires the Company to
achieve and maintain certain financial covenants.
Principal payments due during the next five years on long-term notes payable
as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998.............................................................................. $ --
1999.............................................................................. --
2000.............................................................................. --
2001.............................................................................. --
2002.............................................................................. --
Thereafter........................................................................ 100,000
----------
$ 100,000
----------
----------
</TABLE>
9. FEDERAL INCOME TAX:
In connection with the Heritage Transaction in July 1995, the Company
converted from an S corporation to a C corporation. Accordingly, subsequent to
the Heritage Transaction, the Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes," which requires that deferred
income tax expenses be provided based upon the liability method. Pro forma
federal income tax expense, had the Company been subject to corporate income
taxes for twelve months in 1995, would have been $1,187.
F-15
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. FEDERAL INCOME TAX: (CONTINUED)
Temporary differences that give rise to the deferred income tax assets and
liabilities are as follows as of December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................................ $ -- $ 495
Deferred stock compensation............................................ 572 501
Inventory cost capitalization and valuation............................ 331 660
Non-compete agreement.................................................. 277 167
Accrued vacation....................................................... 178 173
Warranty and litigation................................................ 90 357
Workers' compensation.................................................. 92 185
Other.................................................................. -- 17
--------- ---------
1,540 2,555
Deferred income tax liabilities:
Depreciation........................................................... (1,050) (811)
Capitalized software costs............................................. (830) --
Other.................................................................. (26) (7)
--------- ---------
(1,906) (818)
Net deferred income tax asset (liability)................................ (366) 1,737
Less-current deferred tax asset.......................................... 692 2,555
--------- ---------
Long-term deferred tax liability......................................... $ (1,058) $ (818)
--------- ---------
--------- ---------
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
of or all of the deferred tax assets will not be realized. As of December 31,
1997 and 1996, no valuation reserve was recorded.
The components of the provision for income taxes are as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current federal income tax provision............................. $ 1,543 $ 3,388 $ 1,420
Deferred federal income tax provision (benefit).................. 2,102 (930) 202
State income tax provision (benefit)............................. 423 241 (78)
--------- --------- ---------
Provision for income taxes....................................... $ 4,068 $ 2,699 $ 1,544
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company recognized a tax benefit in 1997 and 1996 of $71 and $421,
respectively, related to Holding's stock options. This benefit was recorded
directly to paid in capital.
F-16
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. FEDERAL INCOME TAX: (CONTINUED)
Reconciliation of the federal statutory income tax rate to the effective tax
rate, was as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax computed at statutory rate................................... $ 3,482 $ 2,777 $ 1,154
State taxes...................................................... 423 241 (78)
Income tax benefit not recognized on S corporation tax
deductions..................................................... -- -- 655
Prior year return to accrual differences......................... -- (352) --
Other............................................................ 163 33 (187)
--------- --------- ---------
Provision for income taxes....................................... $ 4,068 $ 2,699 $ 1,544
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. RELATED PARTIES:
Included in prepaid expenses and other current assets are the following
receivables due from related parties at December 31:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Receivables from stockholders................................................... $ 19 $ 82
Receivables from officers....................................................... $ 20 $ 5
Receivables from employees...................................................... $ 64 $ 80
</TABLE>
MONITORING AND OVERSIGHT AGREEMENT
Holding and the Company have entered into a ten-year monitoring and
oversight agreement with Hicks Muse. Pursuant thereto, Holding and the Company
have agreed to pay to Hicks Muse a minimum annual fee of $320 for ongoing
financial oversight and monitoring services to the Company. The annual fee is
adjustable upward or downward on January 1 of each calendar year to an amount
equal to 0.2% of the budgeted consolidated annual net sales of the Company and
its subsidiaries for the then-current fiscal year, provided that such fee shall
at no time be less than $320 per year. In the year ended December 31, 1997, $437
was paid to Hicks Muse under this agreement.
FINANCIAL ADVISORY AGREEMENT
Holding and the Company are parties to a ten-year financial advisory
agreement (the "Financial Advisory Agreement") with Hicks Muse pursuant to which
Hicks Muse received a financial advisory fee of $2,000 on the closing date of
the Hicks Muse Transaction as compensation for its services as financial advisor
to the Company in connection with the Hicks Muse Transaction. Pursuant to the
Financial Advisory Agreement, Hicks Muse is also entitled to receive a fee equal
to 1.5% of the transaction value (as defined in the Financial Advisory
Agreement) for each add-on transaction in which the Company or any of its
subsidiaries is involved. In connection with the ADW--West Coast asset
acquisition (see Note 15), the Company paid $92 to Hicks Muse.
F-17
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company has entered into operating lease agreements for office and
manufacturing space with unrelated third parties and with certain affiliates of
certain stockholders of the Company. Total rent expense for the years ended
December 31, 1997, 1996 and 1995 was $4,339, $2,012 and $3,156, respectively. Of
these totals, amounts paid to related parties were $753, $605 and $313 in 1997,
1996 and 1995, respectively. Future minimum rents due under operating leases
with initial or remaining terms greater than twelve months are as follows:
<TABLE>
<CAPTION>
RELATED OTHER
PARTIES PARTIES TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1998......................................................... $ 1,030 $ 1,768 $ 2,798
1999......................................................... 1,180 1,371 2,551
2000......................................................... 1,180 1,111 2,291
2001......................................................... 1,245 828 2,073
2002......................................................... 1,311 409 1,720
Thereafter................................................... 7,603 174 7,777
--------- --------- ---------
$ 13,549 $ 5,661 $ 19,210
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has contracts with various suppliers to purchase aluminum for
use in the manufacturing process. The contracts vary from one to twelve months
and are at fixed quantities and fixed and floating prices. As of December 31,
1997 and 1996, the Company had forward commitments totaling $24,960 and $21,656
for delivery through December 1998 and 1997 for 28.6 and 28.7 million pounds of
aluminum, of which 14.3 and 10.0 million pounds were at fixed prices,
respectively.
The Company has entered into employment agreements with several key
executives of the Company including its President and Chief Executive Officer,
its Chief Financial Officer and several Divisional Presidents, Vice Presidents,
General Managers and Sales Managers of the Company's divisions. The agreements
generally provide for terms of employment, annual salaries, bonuses, and
eligibility for option awards and severance benefits.
CONTINGENCIES
The Company is party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such kind, or involve such amounts,
that an unfavorable disposition would not have a material effect on the
financial position, results of operations or liquidity of the Company.
During 1993, factory employees voted to unionize and become members of
Amalgamated Clothing and Textile Workers Union. A three-year union contract was
executed during 1995. In addition, in connection with the Kel-Star acquisition,
the Company became a party to collective bargaining arrangements due to expire
in 2001.
The Company is involved in various stages of investigation and cleanup
relative to environmental protection matters, some of which relate to waste
disposal sites. The potential costs related to such matters
F-18
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
and the possible impact thereof on future operations are uncertain due in part
to: the uncertainty as to the extent of pollution; the complexity of Government
laws and regulations and their interpretations; the varying costs and
effectiveness of alternative cleanup technologies and methods; the uncertain
level of insurance or other types of recovery; and the questionable level of the
Company's involvement. The Company was named in 1988 as a potentially
responsible party ("PRP") in two superfund sites pursuant to the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (the
Chemical Recycling, Inc. site in Wylie, Texas, and the Diaz Refinery site in
Little Rock, Arkansas). The Company believes that based on the information
currently available, including the substantial number of other PRP's and
relatively small share allocated to it at such sites, its liability, if any,
associated with either of these sites will not have a material adverse effect on
the Company's financial position, results of operations or liquidity.
12. STOCK PURCHASE AGREEMENT:
HERITAGE TRANSACTION
On June 23, 1995, Heritage Fund I, L.P. ("Heritage") formed two Delaware
corporations, FCI Holding and its wholly-owned subsidiary, Fojtasek/Heritage
Acquisition Company ("Acquisition Corp."). Heritage contributed approximately
$22,000 to FCI Holding in exchange for 18,318,352 shares of voting common stock,
11,824,398 shares of nonvoting common stock and 11,000 shares of nonvoting
preferred stock of FCI Holding. Additionally, FCI Holding issued 95,854 shares
of voting common stock to a member of management whom had an equity interest in
the voting common stock of Fojtasek prior to the transaction for approximately
$50. In a simultaneous transaction, (i) Acquisition Corp. used the $22,050
proceeds contributed from FCI Holding plus approximately $57,200 borrowed under
a term loan agreement and a revolving line of credit to purchase a majority of
the voting common stock from the Fojtasek shareholders and pay transaction costs
of approximately $5,000 (ii) Fojtasek shareholders exchanged their remaining
1,643,985 shares of Fojtasek voting stock (the "Rollover Stock") to FCI Holding
for 18,318,352 shares of FCI Holding voting common stock, (iii) the Rollover
Stock was contributed by FCI Holding to Acquisition Corp. for shares of
Acquisition Corp. stock issued to FCI Holding and (iv) Acquisition Corp. was
merged into Fojtasek. The transaction was accounted for as a recapitalization as
it did not result in a change of control. Accordingly, the assets and
liabilities of Fojtasek were not revalued. The transaction resulted in an
increase to stockholder's deficit of $57,000.
After the Heritage Transaction, the voting common stock of FCI Holding was
held by Heritage (49.8%), the Fojtasek shareholders (49.8%) and the management
shareholder (0.4%). FCI Holding owned 100% of the interest in Fojtasek (the
surviving company from the merger with Acquisition Corp.) As a result of its
purchase of nonvoting common stock in the transaction, Heritage held
approximately 68% of the economic interest of FCI Holding.
In connection with the Heritage Transaction, certain assets and liabilities
were excluded from the assets and liabilities of Fojtasek and distributed as
follows. Fojtasek distributed the land, building, and improvements related to
two of its primary operating divisions to certain Fojtasek shareholders. The
book value of the property distributed totaled approximately $9,300. The
shareholders also assumed the industrial development revenue bonds of $4,400,
which were collateralized by the property. Fojtasek also distributed its
investments in rental real estate to certain Fojtasek shareholders. The net book
value of the properties distributed was approximately $3,100. The shareholders
also assumed the related notes payable,
F-19
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. STOCK PURCHASE AGREEMENT: (CONTINUED)
which were collateralized by the property. The outstanding balance of the notes
payable transferred was approximately $2,300. These assets were distributed at
fair market value, resulting in a net loss of $205, which was recorded in the
accompanying 1995 Consolidated Statement of Income.
HICKS MUSE TRANSACTION
The Hicks Muse Transaction refers to a recapitalization transaction that
closed concurrent with the closing of the issuance of the Notes in which
affiliates of Hicks Muse purchased a number of newly issued shares of Holding's
Common Stock for $32,000 pursuant to a Stock Purchase Agreement dated November
7, 1996, and certain outstanding shares, and certain options and warrants to
acquire shares of Holding's Common Stock and all outstanding shares of preferred
stock of Holding were redeemed.
This transaction, which was completed on November 27, 1996, required
approximately $134,500 to complete, consisting of $59,417 in redemption payments
to the selling securityholders, $54,369 representing all outstanding
indebtedness under the old credit facility and debt assumed in connection with
its acquisition of ADW--Northeast, $12,472 in redemption payments to preferred
stockholders of Holding (including cumulative dividends in arrears) and
approximately $8,242 of fees and expenses. The funds required to consummate the
Hicks Muse Transaction were provided by (i) the proceeds of the issuance of the
Notes, (ii) $32,000 in equity financing, (iii) drawings of $2,000 under the
Company's Credit Facility, and (iv) other cash provided by the Company of $500.
The shares issued to Hicks Muse, after giving effect to the other elements of
the Hicks Muse Transaction, represent approximately 82.0% of the outstanding
common stock of Holding. The Hicks Muse Transaction has been accounted for as a
recapitalization.
13. SPECIAL CHARGES AND STOCK OPTION COMPENSATION EXPENSE:
Included in special charges in the 1996 Consolidated Statement of Income are
officer bonuses of $3,044 incurred in connection with the Hicks Muse
Transaction. Special charges in 1995 consisted of consulting fees of $408,
officer and management bonuses of $6,380, and restructuring charges of $400
incurred in connection with the Heritage Transaction.
Included in stock option compensation expense are charges associated with
the issuance of new stock options at exercise prices below the fair value of the
underlying common stock, the expense associated with the cash redemption of
certain options, and amortization of deferred compensation expense related to
previously issued options.
14. OTHER INCOME (EXPENSE), NET:
Other income (expense), net consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Insurance settlement............................................. $ 1,193 $ -- $ --
Rental, interest, and other income............................... 65 49 1,013
Gain on sale of assets........................................... 38 10 429
Other............................................................ (208) (241) --
--------- --------- ---------
$ 1,088 $ (182) $ 1,442
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-20
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. ACQUISITIONS:
ADW--WEST COAST (FORMERLY GENTEK) ASSET PURCHASE:
On July 1, 1997, the Company purchased through its wholly-owned subsidiary,
ADW--West Coast (formerly H-R Window Supply, Inc.), the assets of the Western
Window Division of Gentek Building Products, Inc., located in Anaheim,
California. The purchase price (including transactions expenses) was
approximately $6,562 and was funded from borrowings under the Company's
revolving credit facility. The transaction was accounted for under the purchase
method of accounting. The purchase allocation, preliminary in nature and subject
to change, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and advances to the Company.................................................... $ 1
Accounts receivable, net............................................................ 1,760
Inventories......................................................................... 1,372
Other current assets................................................................ 39
Property, plant and equipment, net.................................................. 1,131
Other noncurrent assets............................................................. 28
Goodwill............................................................................ 3,320
Current liabilities................................................................. (1,089)
---------
Total purchase price............................................................ $ 6,562
---------
---------
</TABLE>
ADW--NORTHEAST (FORMERLY BISHOP):
Effective September 30, 1996, the Company acquired the capital stock of
ADW--Northeast, a manufacturer of vinyl replacement windows and doors for the
residential market in the northeast region of the United States, for
approximately $19,531. To consummate the acquisition, the Company paid
approximately $13,531 to ADW--Northeast's shareholders (the "Sellers"), agreed
to a $1,000 payable to the Sellers to be paid if certain earnings targets are
met, and issued $5,000 of Holding common stock in exchange for all of
ADW--Northeast's capital stock. The $1,000 was recorded as an accrued liability
in the Company's financial statements at December 31, 1996. During 1997, the
Company paid $500 of the amount and adjusted the purchase price by the remaining
balance (this amount was recorded as a reduction in goodwill). Holding
subsequently contributed the ADW--Northeast capital stock to the Company.
Consequently, as of September 30, 1996, ADW--Northeast became a wholly-owned
subsidiary of the Company. The ADW--Northeast acquisition has been accounted for
under the purchase method of
F-21
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. ACQUISITIONS: (CONTINUED)
accounting. Accordingly, the purchase price has been allocated to the assets and
liabilities based upon their estimated fair values at the date of acquisition as
follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and advances to the Company................................................... $ 3,288
Accounts receivable, net........................................................... 2,073
Inventories........................................................................ 1,774
Other current assets............................................................... 256
Property, plant and equipment, net................................................. 1,206
Other noncurrent assets............................................................ 70
Goodwill........................................................................... 12,038
Current liabilities................................................................ (986)
Other noncurrent liabilities....................................................... (188)
---------
Total purchase price........................................................... $ 19,531
---------
---------
</TABLE>
The Company's Consolidated Statements of Income for the years ended December
31, 1997 and 1996 includes ADW--West Coast's and ADW--Northeast's operations
from the dates of acquisition, July 1, 1997 and September 30, 1996,
respectively. The following table presents the historical consolidated operating
results of the Company for the years ended December 31, 1997 and 1996, compared
to pro forma operating results for such periods. The following unaudited pro
forma information presents consolidated operating results as though the
acquisitions of ADW--West Coast and ADW--Northeast had occurred at the beginning
of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------- -----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 186,764 $ 193,497 $ 156,269 $ 182,099
Income before extraordinary charge........... 6,167 6,568 5,379 6,358
Net income................................... 6,167 6,568 4,203 5,182
</TABLE>
KELLER ASSET PURCHASE:
In June 1996, the Company purchased certain assets from a division of Keller
Building Products for $1,150. In September 1996, the Company purchased the
division's inventory for $500. These asset purchases were recorded at cost.
16. STOCK OPTIONS:
In connection with the Heritage Transaction, FCI Holding issued options (the
"Substitute Options") to certain members of Fojtasek management to purchase FCI
Holding's nonvoting common stock. The options vested ratably over five years or
immediately upon a public offering or a sale of substantially all the assets of
FCI Holding or a subsidiary. In connection with this issuance, $1,350 in
compensation expense representing the difference between the market value of the
underlying common stock and the exercise price of the option was deferred and
amortized over the vesting period. To effect the acquisition of ADW--Northeast,
FCI Holding formed Holding. The Substitute Option holders exchanged 2,875,922
F-22
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. STOCK OPTIONS: (CONTINUED)
options for equivalent nonvoting common stock options (the "Replacement
Options") in Holding's 1996 Original Stock Option Plan (the "Original Plan"). In
conjunction with the Hicks Muse Transaction, 2,875,922 options of Holding were
tendered at an exercise price of $.01, of which 1,050,000 were exchanged for
Replacement Options of Holding. In connection with the exchanged options, $1,040
was deferred and is being amortized over the new 5 year vesting period. Under
certain circumstances, if the option holders terminate employment prior to the
exercise of such option, they have the right to receive $1.00 per option (net of
the exercise price). Compensation expense of approximately $307, $926 and $308
related to the options was recognized by the Company for the years ended
December 31, 1997, 1996 and 1995, respectively.
FCI Holding also issued stock options (the "Disposition Options") to certain
members of Fojtasek management. Value was recognized on these options based on
the market value of the Company, which became exercisable upon a public offering
or a sale of substantially all the assets of FCI Holding or a subsidiary of FCI
Holding. In connection with the Hicks Muse Transaction, the options vested and
were redeemed and the resultant compensation expense of $743 was recorded in
stock option compensation expense in the 1996 Consolidated Statement of Income.
Upon completion of the Hicks Muse Transaction, Holding adopted the 1996
Stock Option Plan (the "New Plan") authorizing the issuance of 3,500,000 options
to acquire common stock. Holding's New Plan gives certain individuals and key
employees of Holding and any subsidiary corporation thereof who are responsible
for the continued growth of Holding an opportunity to acquire a proprietary
interest in Holding and thus to create in such persons an increased interest in
and a greater concern for the welfare of Holding or any subsidiary. Through
December 31, 1997 and 1996, the Board of Directors of Holding has granted
2,185,390 and 1,910,390 options, respectively, under the New Plan at a weighted
average price of $1.00 per share which represented fair market value on the
dates of grant. The Company applies APB Opinion 25 and related interpretations
in accounting for the Plan.
The following table summarizes the transactions of the Original Plan and the
New Plan for the periods ended December 31, 1997, 1996 and 1995 (all outstanding
options were granted to management of the Company):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding options, beginning of period.............................. 2,960,390 2,875,922 --
Granted............................................................... 275,000 2,960,390 2,875,922
Canceled or expired................................................... (504,645) -- --
Exchanged............................................................. -- (1,050,000) --
Exercised............................................................. (355,708) (1,825,922) --
------------ ------------ ------------
Outstanding options, end of year...................................... 2,375,037 2,960,390 2,875,922
------------ ------------ ------------
------------ ------------ ------------
Weighted average exercise price of options exercised.................. $ .72 $ .01 --
Weighted average exercise price of options granted.................... $ 1.00 $ .62 $ .01
Weighted average exercise price, end of period........................ $ .60 $ .65 $ .01
Options exercisable, end of period.................................... 420,007 24,500 --
Options available for future grant.................................... 1,819,255 1,589,610 --
</TABLE>
F-23
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. STOCK OPTIONS: (CONTINUED)
The options vest over periods ranging from three to five years.
On November 27, 1996, Holding issued a warrant (the "Warrant") to the
President and Chief Executive Officer (the "Executive") of the Company. Pursuant
to the terms of the Warrant, the Executive is entitled to purchase 1,333,333
shares of Holding common stock at any time subsequent to the Hicks Muse
Transaction. The exercise price of the Warrant is $.01 per share. An additional
861,889 shares may be purchased under the Warrant at an exercise price of $1.00,
representing the fair market value on the date of grant upon the realization of
an 8.0% internal rate of return. The 861,889 options vest ratably each day for
three years. The Warrant will terminate on November 27, 2006. The Company
recorded non cash compensation expense of $1,320 for the period ended December
31, 1996 in connection with the difference between the fair market value of the
stock at the date of issuance ($1.00) and the exercise price ($.01).
The following table summarizes information about stock options and warrants
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------
WEIGHTED WEIGHTED
RANGE OF WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
- -------------- ----------- ------------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Options:
$ .01 950,000 107 $ .01 190,000 $ .01
$1.00 1,425,037 107 $ 1.00 230,007 $ 1.00
Warrants:
$ .01 1,333,333 107 $ .01 1,333,333 $ .01
$1.00 861,889 107 $ 1.00 314,058 $ 1.00
</TABLE>
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation" ("SFAS 123") which, if fully adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
stock-based plans. Adoption of the cost recognition provisions of SFAS 123 is
optional and the Company has decided not to elect these provisions of SFAS 123.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below.
In 1997 and 1996, the Company granted only nonqualified stock options under the
plans.
The fair value of each stock option granted is estimated on the date of
grant using the minimum value method of option pricing with the following
weighted-average assumptions for grants in 1997 and 1996: dividend yield of
0.0%; risk-free interest rate of 7.0%; and the expected life of 10 years. (In
determining the "minimum value" SFAS 123 does not require the volatility of the
Company's common stock underlying the options to be calculated or considered
because the Company was not publicly-traded when the options were granted).
Had the compensation cost for the Company's stock-based compensation plans
and warrants been determined consistent with SFAS 123, the Company's net income
for 1997, 1996 and 1995 would have been $6,105, $3,934 and $1,949, respectively.
F-24
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. STOCK OPTIONS: (CONTINUED)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.
17. EMPLOYEE BENEFIT PLANS:
STOCK PURCHASE PLAN
Holding's 1996 Stock Purchase Plan gives certain key employees of Holding or
related entities who are expected to contribute materially to the success of
Holding or related entities an opportunity to acquire a proprietary interest in
Holding, and thus to retain such persons and create in such persons an increased
interest in and a greater concern for the welfare of Holding and any Related
Entities. The Board of Directors is authorized to offer 500,000 shares for
purchase. As of December 31, 1997 and 1996, 425,000 and 375,000 shares,
respectively, have been purchased under the plan.
401(K)
During 1996, the Company established an employee benefit plan in accordance
with Section 401(k) of the Internal Revenue Code for all employees not covered
under a collective bargaining agreement. The Company may at its discretion match
employee contributions. During the years ended December 31, 1997 and 1996, the
Company incurred no expense.
18. SUBSIDIARY GUARANTORS:
In connection with the Note offering, the Company's payment obligations
under the Notes are fully and unconditionally guaranteed, jointly and severally
(collectively, the Subsidiary Guarantees) on a senior subordinated basis by its
wholly-owned subsidiaries: ADW--Northeast and ADW--West Coast (collectively, the
Subsidiary Guarantors). The Company has no non-guarantor direct or indirect
subsidiaries. The operations related to the assets of ADW--Northeast and
ADW--West Coast are included since September 30, 1996 and July 1, 1997,
respectively, the dates of acquisition. In the opinion of management, separate
financial statements of the respective Subsidiary Guarantors would not provide
additional material information, which would be useful in assessing the
financial composition of the Subsidiary Guarantors. No single Subsidiary
Guarantor has any significant legal restrictions on the ability of investors or
creditors to obtain access to its assets in event of default on the Subsidiary
Guarantee other than its subordination to senior indebtedness.
F-25
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
18. SUBSIDIARY GUARANTORS: (CONTINUED)
Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets................................................... $ 12,399 $ 7,939
Noncurrent assets................................................ 17,148 13,242
Current liabilities.............................................. 1,906 1,135
Noncurrent liabilities........................................... -- --
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER
31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales.................................................... $ 20,162 $ 5,020 $ 771
Gross profit................................................. 8,374 2,289 372
Net income (loss) from continuing operations................. 1,495 561 (29)
</TABLE>
The Notes and the Subsidiary Guarantees are subordinated to all existing and
future Senior Indebtedness of the Company. The indenture governing the Notes
contains limitations on the amount of additional indebtedness (including Senior
Indebtedness) which the Company may incur. As of December 31, 1997, the maximum
amount of Senior Indebtedness the Company and its Subsidiary Guarantors
collectively, and in the aggregate, could incur was $45,000.
19. SUBSEQUENT EVENTS:
On March 4, 1998, the Company signed an agreement to purchase substantially
all of the assets of Masterview Window Company, LLC. (the "Acquisition" or
"Masterview"), a privately held aluminum window and door company located in
Phoenix, Arizona, for approximately $27,000 including fees and other expenses.
On March 27, 1998, the Company completed the transaction. The Company financed
the Acquisition through a new amended and restated credit agreement provided by
Bankers Trust Company. The new facility includes a $17,500 term loan with the
remainder of the purchase price of $10,000 being drawn from the present $20,000
revolving credit facility. The amended and restated credit agreement is for six
and one-half years expiring September 2004.
The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." The
aggregate purchase price will be allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the date
of acquisition, with the remainder allocated to goodwill. Based on preliminary
estimates which will be finalized at a later date, the excess of purchase price
over the fair value of the net assets acquired ("goodwill") was approximately
$20,000, which will be amortized over 40 years. The results of operations for
the acquired business will be included in the Company's consolidated financial
statements beginning March 27, 1998.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Members of
Masterview Window Company, LLC
We have audited the accompanying statement of financial position of
Masterview Window Company, LLC as of December 31, 1997, and the related
statements of income, changes in members' equity, and cash flows for the year
ended December 31, 1997. 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 audit.
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 the 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 Masterview Window Company,
LLC as of December 31, 1997 and the results of its operations and its cash flows
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Phoenix, Arizona
March 9, 1998
F-27
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
STATEMENT OF FINANCIAL POSITION
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 4
Restricted cash................................................................................... 209
Accounts receivable, net.......................................................................... 3,299
Inventories....................................................................................... 1,665
Prepaid expenses and other current assets......................................................... 78
------------
Total current assets.............................................................................. 5,255
PROPERTY, PLANT AND EQUIPMENT, net.................................................................. 2,767
GOODWILL, net....................................................................................... 9,858
DEFERRED FINANCING COSTS, net....................................................................... 156
------------
Total assets...................................................................................... $ 18,036
------------
------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 1,598
Accrued liabilities............................................................................... 602
Bank overdraft.................................................................................... 183
Current maturities of long-term debt.............................................................. 800
Deferred revenue.................................................................................. 381
Other current liabilities......................................................................... 17
------------
Total current liabilities......................................................................... 3,581
LONG-TERM LIABILITIES:
Long-term debt.................................................................................... 6,409
------------
Total liabilities................................................................................. 9,990
MEMBERS' EQUITY:
Class A units, 3,210.0 units authorized, issued and outstanding................................... 3,210
Class B units, 45,161.3 units authorized, issued, and outstanding................................. 4,836
------------
Total members' equity............................................................................. 8,046
------------
Total liabilities and members' equity............................................................. $ 18,036
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------
<S> <C>
NET SALES.............................................................................................. $ 25,007
COST OF SALES.......................................................................................... 19,056
---------
Gross profit......................................................................................... 5,951
OPERATING EXPENSES:
Selling, general and administrative expenses......................................................... 3,105
---------
Income from operations............................................................................... 2,846
INTEREST EXPENSE....................................................................................... 779
OTHER INCOME (EXPENSES), net........................................................................... (30)
---------
NET INCOME............................................................................................. $ 2,037
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
MEMBERS MEMBERS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
BALANCE, December 31, 1996........................................................ $ 3,045 $ 3,587 $ 6,632
Net income...................................................................... 282 1,755 2,037
Distributions to members........................................................ (117) (506) (623)
----------- ----------- ---------
BALANCE, December 31, 1997........................................................ $ 3,210 $ 4,836 $ 8,046
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................................... $ 2,037
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................................... 1,064
Loss on disposal of property and equipment.......................................................... 18
Change in operating assets and liabilities, net:
Accounts receivable............................................................................... (79)
Inventories....................................................................................... 380
Prepaid expenses and other current assets......................................................... 207
Accounts payable.................................................................................. (415)
Accrued liabilities............................................................................... (896)
Deferred revenue.................................................................................. 26
Other current liabilities......................................................................... (20)
----------
Net cash provided by operating activities....................................................... 2,322
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........................................................... (221)
Sale of property, plant and equipment............................................................... 27
Decrease in restricted cash......................................................................... 83
----------
Net cash used in investing activities............................................................... (111)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdrafts..................................................................................... 124
Proceeds from long-term debt........................................................................ 24,157
Repayments of long-term debt........................................................................ (25,867)
Distributions to members............................................................................ (623)
----------
Net cash used in financing activities............................................................... (2,209)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................................................. 2
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......................................................... 2
----------
CASH AND CASH EQUIVALENTS, END OF YEAR................................................................ $ 4
----------
----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest.......................................................................................... $ 738
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
1. NATURE OF BUSINESS AND ORGANIZATION:
Masterview Window Company, LLC (the "Company") is engaged in the manufacture
and distribution of windows for residential construction. The Company sells
windows primarily to large home-builders in Arizona, Nevada, and Southern
California.
The Company was formed as a limited liability company on October 30, 1996
pursuant to the provisions of Section 18-101 of the Delaware Limited Liability
Company Act ("the Act") to acquire substantially all of the assets and
liabilities of Publicker Industries, Inc.'s ("Publicker") wholly-owned
subsidiary, Masterview Window Company, Inc., on October 31, 1996. The
acquisition has been accounted for as a purchase. The purchase price has been
allocated to the assets acquired and liabilities assumed based on their fair
values at the date of purchase in accordance with APB 16, Business Combinations.
The excess of the purchase price over the fair value of the net assets acquired
has been allocated to goodwill.
2. MEMBERSHIP INTERESTS:
The Company has two classes of members, holders of Class A units and Class B
units. The Class A units are non-voting units with a liquidation value of $1,000
per unit. Class A units are entitled to preferential distributions which accrue
at 9% per annum of the liquidation value, payable on the last day of each fiscal
quarter. If prohibited by a financing agreement, the preferential distributions
are to be paid through the issuance of additional Class A units. During 1997,
282,302 additional Class A units were issued as a preferential distribution. All
Class A units are redeemable on October 31, 2001, at the liquidation value plus
any accrued and unpaid preferential distributions.
Class B units have full voting rights. Net income and losses on these units
are allocated to the members based on each member's percentage ownership
interest in the Company. Class B Minority Members [as defined in Masterview's
Limited Liability Company Agreement (the "Agreement")] may elect, after seven
years, to have their shares repurchased at the then current fair market value as
determined by an independent appraisal.
Each member's liability for the debts and obligations of the Company is
limited as set forth in the Agreement. The term of the Company commenced on
October 31, 1996 and shall continue until December 31, 2046, unless dissolved
before such date in accordance with the provisions of the Agreement.
3. SIGNIFICANT ACCOUNTING POLICIES:
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
by the first-in, first-out (FIFO) method.
F-32
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is being depreciated
using the straight-line method over the estimated useful lives of the related
assets which are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 7 - 24 years
Machinery and equipment....................................... 5 years
Transportation equipment...................................... 3 years
Furniture and fixtures........................................ 7 years
</TABLE>
Maintenance and repairs are expensed as incurred. Costs of assets sold,
retired, or abandoned and the related accumulated depreciation are eliminated
from the appropriate accounts in the year of disposition, and the resulting gain
or loss is included in income.
GOODWILL
The excess of the purchase price over the fair value of the net assets
acquired is being amortized using the straight-line method over 15 years. The
Company periodically assesses the recoverability of goodwill based on the
expected future undiscounted operating cash flows of the related assets.
DEFERRED FINANCING COSTS
Financing costs related to the acquisition of debt are deferred and
amortized over the term of the related debt using the effective interest method.
DEFERRED REVENUE
Amounts relating to the installation of glass doors and window screens are
billed in advance and deferred until the installation process is complete.
INCOME TAXES
The Company, as a LLC, is classified as a partnership for federal and state
income tax purposes with income or loss accruing directly to the members.
Accordingly, no provisions or credits for federal or state income taxes are
reflected in these financial statements.
4. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions. At
times, such cash balances may be in excess of the FDIC insurance limit.
The Company performs ongoing credit evaluations within the context of the
industry in which it operates and maintains reserves for potential credit losses
on customer accounts when deemed necessary. During the year ended December 31,
1997, two customers accounted for 37% of the Company's revenues. At December 31,
1997, two customers accounted for 28% of the Company's receivables.
F-33
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
4. CONCENTRATIONS OF CREDIT RISK: (CONTINUED)
The Company is a regional manufacturer of windows with market concentration
in the residential construction industry. The Company's business is, therefore,
dependent upon economic activity within Arizona, Nevada, and Southern
California.
5. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Raw materials................................................................... $ 1,380
Work-in-process................................................................. 80
Finished goods.................................................................. 205
------------
$ 1,665
------------
------------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Land............................................................................ $ 507
Buildings and improvements...................................................... 1,309
Machinery and equipment......................................................... 931
Transportation equipment........................................................ 324
Furniture and fixtures.......................................................... 66
------------
Total......................................................................... 3,137
Less accumulated depreciation................................................... (370)
------------
$ 2,767
------------
------------
</TABLE>
7. GOODWILL:
Goodwill consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Goodwill........................................................................ $ 10,689
Less accumulated amortization................................................... (831)
------------
$ 9,858
------------
------------
</TABLE>
F-34
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
8. DEFERRED FINANCING COSTS:
Deferred financing costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
---------------
<S> <C>
Deferred financing costs........................................................ $ 203
Less accumulated amortization................................................... (47)
-----
$ 156
-----
-----
</TABLE>
9. CREDIT FACILITY:
On October 31, 1996, the Company entered into a Loan and Security Agreement
with Fleet Capital Corporation (the "credit facility") which expires on October
31, 2001. The credit facility provides for an initial term loan of $7,200 and a
revolving line of credit. The revolving line of credit allows for borrowings up
to $3,000, less the amount by which the term loan exceeds $7,000, and is based
upon a borrowing base of eligible accounts receivable and inventory. The credit
facility is collateralized by substantially all of the Company's assets. The
revolving line of credit bears interest (at the option of the Company) at the
bank's prime rate plus 1.25% or a LIBOR Rate (as defined in the credit facility)
plus 2.5%. The term loan bears interest (at the option of the Company) at the
bank's prime rate plus 1.5% or a LIBOR Rate (as defined in the credit facility)
plus 2.75%. A commitment fee equal to .5% per annum on the average monthly
unused balance of the revolving line of credit is also payable by the Company.
Availability under the revolving line of credit was $2,271 at December 31, 1997.
The credit facility agreement requires all amounts collected from trade
receivables to be held in a restricted cash account to be applied against the
credit facility.
The credit facility agreement contains covenants which limit the Company's
ability to incur additional indebtedness, pay distributions, and make capital
expenditures and requires the Company to maintain a minimum net worth and
certain financial ratios as defined in the credit facility.
Outstanding balances on the credit facility were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Revolving line of credit........................................................ $ 729
Term loan....................................................................... 6,480
------
7,209
Less current maturities......................................................... 800
------
$ 6,409
------
------
</TABLE>
F-35
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
9. CREDIT FACILITY: (CONTINUED)
The annual amount of principal maturities of long-term debt outstanding at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 800
1999................................................................ 1,050
2000................................................................ 1,250
2001................................................................ 1,500
2002................................................................ 2,609
---------
$ 7,209
---------
---------
</TABLE>
10. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) defined contribution plan for all eligible
employees. Eligible employees may contribute up to 15% of their annual salary
within certain limitations. The Company makes matching contributions equal to
25% of the first 6% contributed by the employee. Participants are immediately
vested in their voluntary contributions and vest 100% in the Company's
contributions after two years. The Company contributed $27 for the year ended
December 31, 1997.
11. UNIT OPTIONS:
On October 31, 1996, the Company granted options for 950.8 Class B units to
three officers of the Company. The options were granted with an exercise price
of $100 which was the estimated fair market price on the grant date and may be
exercised only within ten years from the date of grant. The option agreements
call for the options to be vested ratably over a five-year period and have a
weighted average grant date fair value of $26.175.
On October 31, 1996, the Company also granted options for 950.8 Class B
units to three officers of the company to be vested over a five-year period if
the actual EBITDA (as defined) is 90% or more of the budgeted EBITDA (as
defined) in each of the five years. The options were granted with an exercise
price of $100 which was the estimated fair market price on the grant date. The
weighted average grant date fair value was $26.175.
All of the outstanding options have a weighted average remaining contractual
life of 108 months at December 31, 1997. At December 31, 1997, 380.32 options
were vested.
The Company has adopted the disclosure-only provisions of the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the unit option plan.
Had the Company elected to adopt the recognition provision of SFAS 123, net
income would have been reduced by $10 for the year ended December 31, 1997.
The fair value of options granted in 1996 was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.07%, expected life of five years, and
no expected dividends.
F-36
<PAGE>
MASTERVIEW WINDOW COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)
12. COMMITMENTS:
The Company leases certain machinery and equipment under operating leases.
Certain of these leases contain renewal provisions and purchase options.
At December 31, 1997, the future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR OPERATING
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1998............................................................................... $ 176
1999............................................................................... 176
2000............................................................................... 174
2001............................................................................... 168
2002............................................................................... 78
-----
$ 772
-----
-----
</TABLE>
Rental expense under noncancelable operating leases totaled $152 for the
year ended December 31, 1997.
13. SUBSEQUENT EVENTS:
ACQUISITION BY ATRIUM COMPANIES, INC.
On March 4, 1998, the Company entered into an agreement to be acquired by
Atrium Companies, Inc. ("Atrium"). The agreement calls for the Company to sell
substantially all of its assets and for Atrium to acquire certain liabilities.
The total purchase price will be approximately $25,500. Completion of the
acquisition, which is expected to occur by the end of March 1998, is contingent
on customary conditions, including the successful cash tender offer and
expiration or termination of the Hart-Scott-Rodino Act waiting period
requirements. The Company will use the proceeds from the sale to repay the
credit facility. As a condition of the credit facility, a finance charge of $102
will be incurred by the Company for the early retirement of the obligations.
MEMBER DISTRIBUTION
On January 12, 1998, a cash distribution to members of $316 was made for the
payment of taxes on earnings generated during the fourth quarter of 1997.
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Wing Industries Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Wing
Industries Holdings, Inc. and Subsidiary (the "Company") at December 31, 1997
and 1996, and the results of their operations and their cash flows for the year
ended December 31, 1997 and the period ended December 31, 1996 and of its
predecessor for the period ended October 25, 1996 and the year ended December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Dallas, Texas
September 23, 1998
F-38
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................. $ 34 $ 40
Accounts receivable, net.................................................................. 9,187 7,238
Inventories............................................................................... 13,557 8,027
Prepaid expenses and other current assets................................................. 832 615
--------- ---------
Total current assets...................................................................... 23,610 15,920
PROPERTY, PLANT AND EQUIPMENT, net.......................................................... 7,553 6,321
GOODWILL, net............................................................................... 22,394 12,825
DEFERRED FINANCING COSTS, net............................................................... 1,374 1,228
OTHER ASSETS................................................................................ 452 110
--------- ---------
Total assets.............................................................................. $ 55,383 $ 36,404
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.......................................................... $ 3,128 $ 1,313
Current portion of capital lease obligation............................................... 236 --
Accounts payable.......................................................................... 6,438 4,313
Accrued liabilities....................................................................... 2,517 1,141
Deferred tax liability.................................................................... 566 353
--------- ---------
Total current liabilities................................................................. 12,885 7,120
LONG-TERM LIABILITIES:
Notes payable............................................................................. 28,340 19,176
Capital lease obligation.................................................................. 534 --
Deferred tax liability.................................................................... 449 478
Other long-term liabilities............................................................... 2,500 --
--------- ---------
Total long-term liabilities............................................................... 31,823 19,654
--------- ---------
Total liabilities......................................................................... 44,708 26,774
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock; $.01 par value; 2,000 shares authorized; none issued..................... -- --
Class A voting common stock; $.01 par value; 225,000 shares authorized; 25,501 shares
issued and outstanding.................................................................. -- --
Class B nonvoting common stock; $.01 par value; 100,000 shares authorized; 54,500 shares
issued and outstanding (convertible at option of holder into Class A voting common
stock).................................................................................. 1 1
Paid-in capital........................................................................... 9,675 9,326
Retained earnings......................................................................... 999 303
--------- ---------
Total stockholders' equity................................................................ 10,675 9,630
--------- ---------
Total liabilities and stockholders' equity................................................ $ 55,383 $ 36,404
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-39
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997, THE PERIODS ENDED DECEMBER 31, 1996
AND OCTOBER 25, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------ ------------------------
PERIOD PERIOD
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER DECEMBER OCTOBER 25, DECEMBER
31, 1997 31, 1996 1996 31, 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES.................................. $ 99,059 $ 13,200 $ 62,880 $ 68,481
COST OF GOODS SOLD......................... 78,270 9,927 47,311 53,020
----------- ----------- ----------- -----------
Gross profit............................. 20,789 3,273 15,569 15,461
OPERATING EXPENSES:
Selling, delivery, general and
administrative expenses................ 16,445 2,367 13,271 13,931
----------- ----------- ----------- -----------
Income from operations................... 4,344 906 2,298 1,530
INTEREST EXPENSE........................... 2,953 374 509 1,039
----------- ----------- ----------- -----------
Income before income taxes............... 1,391 532 1,789 491
PROVISION FOR INCOME TAXES................. 695 229 670 212
----------- ----------- ----------- -----------
NET INCOME................................. $ 696 $ 303 $ 1,119 $ 279
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997, THE PERIODS ENDED DECEMBER 31, 1996
AND OCTOBER 25, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
CLASS A VOTING NONVOTING
COMMON STOCK COMMON STOCK TOTAL
--------------- -------------- TREASURY PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL EARNINGS EQUITY
------- ------ ------ ------ --------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE, December 31, 1994......... 511,814 $256 -- $-- $ -- $ 188 $3,892 $ 4,336
Net income....................... 279 279
Exercise of stock options........ 13,010 7 45 52
Purchase of Treasury Stock....... (12,500) (156) (156)
------- ------ ------ ------ --------- ------- -------- -------------
BALANCE, December 31, 1995......... 512,324 263 -- -- (156) 233 4,171 4,511
Net income....................... 1,119 1,119
Exercise of stock options........ 59,040 30 409 439
Tax benefit related to option
exercises...................... 253 253
------- ------ ------ ------ --------- ------- -------- -------------
BALANCE, October 25, 1996.......... 571,364 $293 -- $-- $ (156) $ 895 $5,290 $ 6,322
------- ------ ------ ------ --------- ------- -------- -------------
------- ------ ------ ------ --------- ------- -------- -------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
THE COMPANY
BALANCE, October 26, 1996.......... -- $-- -- $-- $ -- $ -- $-- $--
Net income....................... 303 303
Initial issuance of common
stock.......................... 25,501 54,500 1 7,999 8,000
Issuance of warrants............. 1,327 1,327
------- ------ ------ ------ --------- ------- -------- -------------
BALANCE, December 31, 1996......... 25,501 54,500 1 -- 9,326 303 9,630
Net income....................... 696 696
Issuance of warrants............. 349 349
------- ------ ------ ------ --------- ------- -------- -------------
BALANCE, December 31, 1997......... 25,501 $-- 54,500 $ 1 $ -- $9,675 $ 999 $10,675
------- ------ ------ ------ --------- ------- -------- -------------
------- ------ ------ ------ --------- ------- -------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997, THE PERIODS ENDED DECEMBER 31, 1996
AND OCTOBER 25, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
--------------------------- ---------------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 25, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 696 $ 303 $ 1,119 $ 279
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,492 260 716 844
Amortization of deferred financing costs....................... 390 30 -- --
Provision for bad debts........................................ 1,791 287 1,274 2,706
Deferred tax provision (benefit)............................... 184 60 (71) (172)
Accretion of discount.......................................... 113 33 -- --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.......................................... (1,949) 582 (2,116) (2,042)
Inventories.................................................. (2,990) (229) (621) 2,241
Prepaid expenses and other current assets.................... (166) 93 219 209
Other assets................................................. -- -- 28 82
Accounts payable............................................. 354 (462) 253 (2,246)
Accrued liabilities.......................................... 1,233 155 (335) 1,487
Other long-term liabilities.................................. -- -- 266 21
------------ ------------ ------------ ------------
Net cash provided by operating activities.................. 1,148 1,112 732 3,409
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment..................... (1,355) (122) (962) (1,667)
Payment for acquisitions....................................... (10,408) (29,143) -- --
------------ ------------ ------------ ------------
Net cash used in investing activities...................... (11,763) (29,265) (962) (1,667)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable....................................... (1,032) -- (2,492) (588)
Payments of capital lease obligation........................... (70) -- -- --
Net borrowings (payments) under revolving credit facility...... 1,497 2,951 2,122 (1,184)
Proceeds from issuance of senior subordinated notes............ 3,960 -- -- --
Proceeds from issuance of notes payable........................ 6,790 18,500 -- --
Deferred financing costs....................................... (536) (1,258) -- --
Proceeds from initial issuance of common stock................. -- 8,000 -- --
Proceeds from exercise of stock options........................ -- -- 439 52
Purchase of treasury stock..................................... -- -- -- (156)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities........ 10,609 28,193 69 (1,876)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (6) 40 (161) (134)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 40 -- 161 295
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 34 $ 40 $-- $ 161
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest..................................................... $ 2,620 $ 167 $ 510 $ 1,056
Income taxes................................................. 550 -- 927 322
Non cash investing and financing activities:.....................
Capital lease obligations...................................... 840 -- -- --
Payable to seller.............................................. 2,500 -- -- --
Issuance of common stock warrants.............................. -- 332 -- --
Tax benefit related to option exercises........................ -- -- 253 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Wing Industries, Inc. ("WII") was founded in 1924 and incorporated in 1941.
WII manufacturers and markets bifold, louver, stile and rail, and flush doors,
and related products for the home improvement and home building industries.
On October 25, 1996, Wing Acquisition Corporation ("WAC"), a Delaware
corporation and a 100% owned subsidiary of Wing Industries Holdings, Inc.
("Holdings"), a Delaware corporation, purchased 100% of the outstanding common
stock from the selling shareholders of WII, a Texas corporation. Concurrent with
the acquisition, WAC merged with and into WII with WII being the surviving
corporation (the "Transaction"). Holdings did not have any significant activity
prior to the Transaction.
The Transaction resulted in Holdings effectively acquiring 100% of the
common stock of WII, for an aggregate purchase price of approximately $28,500
(hereafter, Holdings and/or WII will be referred to as the "Company"). The total
cost of the acquisition including direct costs incurred aggregated $29,143. The
purchase price was funded with borrowings under a line of credit of
approximately $2,643, term loan borrowings of $10,000, the issuance of $8,500 of
subordinated notes with attached warrants as well as the issuance of $8,000 of
common stock.
The acquisition was accounted for using the purchase method of accounting.
The continuing interest in the Company attributable to management's ownership
interest was not significant. The purchase price allocation was as follows:
<TABLE>
<S> <C>
Accounts and other receivables..................................... $ 8,106
Inventories........................................................ 7,798
Other current assets............................................... 708
Property, plant and equipment, net................................. 6,364
Other noncurrent assets............................................ 110
Goodwill........................................................... 12,920
Accounts payable (inclusive of $201 of checks drawn in excess of
bank balances)................................................... (4,777)
Accrued liabilities................................................ (1,233)
Deferred tax liability............................................. (771)
Other.............................................................. (82)
---------
Total purchase price......................................... $ 29,143
---------
---------
</TABLE>
Included in accounts payable is approximately $507 payable to selling
shareholders for income tax benefits associated with expenses incurred in
connection with the Transaction. This amount remains outstanding at December 31,
1997.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany transactions and balances have
been eliminated in consolidation.
F-43
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INDUSTRY SEGMENT
The Company operates in a single industry segment, the fabrication and
distribution of interior and exterior doors and related products.
REVENUE RECOGNITION
Revenue from the sale of doors and related components is recorded at the
time of delivery and billing to the customer. Allowances are established to
recognize the risk of sales returns from customers.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are net of allowances for doubtful accounts of $725 and
$830 as of December 31, 1997 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The Company's
customers are located in all 50 states and 18 different countries. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information. Two customers accounted for
approximately 65% of gross sales for 1997, 55% for the periods ended December
31, 1996 and October 25, 1996 and 45% for 1995.
INVENTORIES
Inventories are valued at the lower of cost (last-in, first-out or "LIFO")
or market. Inventory costs include direct materials, labor and manufacturing
overhead. Management believes that the LIFO method results in a better matching
of current costs with current revenues.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Major renewals and
betterments are capitalized, while maintenance and repairs are expensed as
incurred. Upon disposition of an asset, the related costs and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
F-44
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Depreciation is provided principally on the straight-line method for financial
reporting purposes, using the following estimated useful lives for the
respective assets:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-------------
<S> <C>
Buildings and improvements..................................................... 5 - 40 years
Machinery and equipment........................................................ 3 - 10 years
</TABLE>
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the assets sold or retired. Expenditures for
maintenance, minor renewals and repairs are expensed as incurred, while major
replacements and improvements are capitalized.
GOODWILL
Goodwill represents the excess of cost over fair market value of net assets
acquired. Goodwill is being amortized over 40 years on a straight-line basis.
Amortization expense of $376 and $95 was recorded for the year ended December
31, 1997 and the period ended December 31, 1996. There was no goodwill
recognized during the period ended October 25, 1996 or the year ended December
31, 1995. Accumulated amortization at December 31, 1997 and 1996 was $471 and
$95, respectively. Management continually reviews the carrying value of goodwill
for recoverability based on anticipated undiscounted cash flows of the assets to
which it relates. The Company considers operating results, trends and prospects
of the Company, as well as competitive comparisons. The Company also takes into
consideration competition within the building materials industry and any other
events or circumstances which might indicate potential impairment. When goodwill
is determined not to be recoverable, an impairment is recognized as a charge to
operations to the extent the carrying value of related assets (including
goodwill) exceeds the sum of the undiscounted cash flows from those related
assets.
INCOME TAXES
The provision for income taxes is based on pretax income as reported for
financial statement purposes. Deferred income taxes are provided in accordance
with the liability method of accounting for income taxes to recognize the tax
effects of temporary differences between financial statement and income tax
accounting.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates are used in calculating allowance for bad debt, workers' compensation
and deferred tax assets and liabilities.
F-45
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed when incurred and were $1,800, $128, $1,222
and $1,255 for the year ended December 31, 1997, the periods ended December 31,
1996 and October 25, 1996, and the year ended December 31, 1995, respectively.
These costs are reflected in "selling, delivery, general and administrative" in
the consolidated statements of income.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, ("SFAS 130") "Reporting
Comprehensive Income". SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 is effective for financial statement
periods beginning after December 15, 1997. Management does not anticipate that
SFAS 130 will have a significant effect on the Company's consolidated financial
statements and related disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances to conform
with current year presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments," the following methods
have been used in estimating fair value disclosures for significant financial
instruments of the Company.
As of December 31, 1997 and 1996, the carrying amounts of certain financial
instruments employed by the Company, including cash, accounts receivable, and
trade accounts payable are representative of fair value because of the
short-term maturity of these instruments. The carrying amount of notes payable,
other than the exchangeable subordinated note, approximate fair value due to the
floating nature of the interest rates. Management estimates that the effective
interest rate for the exchangeable subordinated note approximates market for
similar instruments with comparable maturities. The fair value of all derivative
financial instruments which, as of December 31, 1997, include only an interest
rate swap agreement, is the amount at which they could be settled, based on
estimates obtained from the lender.
On March 31, 1997, the Company entered into an interest rate swap agreement
with a lender. Under the agreement, the Company pays a fixed rate of 6.5% and
receives a floating rate based on LIBOR on the aggregate notional principal
amount as determined in three month intervals. The transaction effectively
changes a portion of the Company's interest rate exposure from a floating rate
to a fixed rate basis. At December 31, 1997, the aggregate notional principal
amount of the swap agreement was $2,938 with a fair value of $19.
F-46
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. INVENTORIES:
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Work-in process and finished goods
inventories consist of materials, labor, and manufacturing overhead. Inventories
consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials............................................................ $ 6,816 $ 4,492
Work-in-process.......................................................... 1,591 1,590
Finished goods........................................................... 5,247 1,947
--------- ---------
13,654 8,029
LIFO reserve............................................................. (97) (2)
--------- ---------
$ 13,557 $ 8,027
--------- ---------
--------- ---------
</TABLE>
The change in the LIFO reserve for the year ended December 31, 1997 resulted
in an increase in cost of sales of $95 and a decrease in cost of sales for the
periods ended December 31, 1996 and October 25, 1996 and the year ended December
31, 1995 of $2, $360, and $340, respectively.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, stated at cost, consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land...................................................................... $ 40 $ 40
Buildings and improvements................................................ 1,812 1,800
Machinery and equipment................................................... 6,204 4,646
Leased computer equipment and software.................................... 770 --
--------- ---------
Total................................................................. 8,826 6,486
Less accumulated depreciation............................................. (1,273) (165)
--------- ---------
$ 7,553 $ 6,321
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $1,108, $165, $716 and $844 for the year ended
December 31, 1997, the periods ended December 31, 1996 and October 25, 1996 and
the year ended December 31, 1995, respectively.
5. OTHER ASSETS:
Other assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Non-compete agreement, net.................................................... $ 292 $ --
Deposits and other............................................................ 160 110
--------- ---------
$ 452 $ 110
--------- ---------
--------- ---------
</TABLE>
F-47
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. OTHER ASSETS: (CONTINUED)
The cost of the non-compete agreement is being amortized over the terms of
the related agreement, which is five years. Amortization expense for the year
ended December 31, 1997 was $8.
6. DEFERRED FINANCING COSTS:
The deferred financing costs relate to costs incurred in the placement of
the Company's debt and are being amortized using the effective interest method
over the terms of the related debt which range from five to ten years.
Amortization expense for the year ended December 31, 1997 and for the period
ended December 31, 1996 was $390, and $30, respectively. No amortization expense
was recorded for the period ended October 25, 1996 or the year ended December
31, 1995.
7. ACCRUED LIABILITIES:
Accrued liabilities include the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accrued salaries and wages................................................. $ 804 $ 460
Accrued interest........................................................... 540 207
Accrued taxes payable...................................................... 446 270
Accrued professional fees.................................................. 542 --
Other...................................................................... 185 204
--------- ---------
$ 2,517 $ 1,141
--------- ---------
--------- ---------
</TABLE>
F-48
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. NOTES PAYABLE:
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$14,500 revolving line of credit with BHF-Bank, dated October 25, 1996, as amended and
restated as of November 10, 1997.......................................................... $ 4,448 $ 2,951
$6,750 note payable to BHF-Bank, due in quarterly installments of $219 through September 30,
2002 and $591 through maturity, November 6, 2003, plus interest at the base rate (which
approximates prime) plus 1.5 percentage points (10% at December 31, 1997). Under terms of
the agreement, a portion of the note balance can be transferred to different interest rate
contracts. $6,531 was transferred to different interest rates equal to the three month
LIBOR plus three percentage points during the period (8.9062% at December 15, 1997)....... 6,750 --
$3,960 exchangeable subordinated note payable to GE Investment Private Placement Partners II
("GEIPPPII"), payable interest only in quarterly installments at 11% on the unpaid face
amount, due November 10, 2004, exchangeable into approximately 22,048 shares of common
stock. Valuation assigned to common stock warrants (approximately 6,175 shares) issued in
conjunction with this note resulted in a discount of $345 resulting in an effective
interest of approximately 12.9052%........................................................ 3,960 --
$40 exchangeable subordinated note payable to Ardwing L.L.C., payable interest only in
quarterly installments at 11% on the unpaid face amount, due November 10, 2004
exchangeable into approximately 78 shares of common stock. Valuation assigned to common
stock warrants (approximately 62 shares) issued in conjunction with this note resulted in
a discount of $4 resulting in an effective interest of 12.893%............................ 40 --
$10,000 note payable to BHF-Bank, due in quarterly installments of $250 through September
30, 1997 and $562 through maturity, October 25, 2001, plus interest at the base rate
(which approximates prime) plus 1.5 percentage points (10% and 9.75% at December 31, 1997
and 1996, respectively). Under terms of the agreement, a portion of the note balance can
be transferred to different interest rate contracts. $4,000, $5,000 and $3,438 were
transferred to contracts with interest rates equal to the six month LIBOR plus three
percentage points during the period (8.5625% at November 8, 1996, 8.8750% at August 13,
1997 and 8.8438% at November 7, 1997)..................................................... 9,000 10,000
$8,500 exchangeable subordinated note payable to GEIPPPII, payable interest only in
quarterly installments at 11% on the unpaid face amount due October 25, 2003, exchangeable
into approximately 46,669 shares of common stock. Valuation assigned to common stock
warrants (approximately 17,141 shares) issued in conjunction with this note resulted in a
discount of $995 resulting in an effective interest of approximately 13.6%................ 8,500 8,500
--------- ---------
32,698 21,451
Less:
Unamortized discount on exchangeable subordinated notes payable........................... (1,230) (962)
Current maturities of long-term debt...................................................... (3,128) (1,313)
--------- ---------
Long-term debt.......................................................................... $ 28,340 $ 19,176
--------- ---------
--------- ---------
</TABLE>
F-49
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. NOTES PAYABLE: (CONTINUED)
Under provisions of the revolving line of credit, the Company can borrow up
to $14,500 subject to a borrowing base equal to the sum of 85% of the aggregate
amount of eligible accounts receivable and 50% of the aggregate value of
eligible inventory, as defined. Approximately $448 and $2,451 at December 31,
1997 and 1996, respectively, of the outstanding borrowings bear interest at the
bank's base rate (which approximates prime) plus one and one-half basis points
(10% and 9.75% at December 31, 1997 and 1996, respectively). The remaining
borrowings of $1,300 and $2,700 for 1997 and $500 in 1996, bear interest at the
applicable LIBOR rates at the time of the agreements plus three percentage
points (8.9063% at December 18, 1997, 8.875% at August 14, 1997, and 8.5% at
December 9, 1996).
The revolving line of credit expires on December 25, 2001 and repayments are
only required if the borrowing base falls below amounts borrowed. There are no
current maturities under this agreement based upon management's expected future
borrowing base levels, the fact that the agreement extends through 2001 and
management intends to finance future receivables and inventory for more than one
year. At December 31, 1997 and 1996, the Company had approximately $10,000 and
$6,550 of available borrowing capacity under the revolving line of credit,
respectively.
The Company has the ability to issue letters of credit for up to $1,000.
Issuance of letters of credit are applied against availability under the
revolving line of credit. At December 31, 1997 and 1996, no letters of credit
had been issued in conjunction with this agreement.
The note agreements contain certain covenants, including, among others,
requirements that the Company comply with certain financial and operational
results and ratios. In addition, the loan agreements place certain limitations
on the ability to pay dividends, to incur indebtedness, to change its present
method of doing business, to make certain investments (including capital
expenditures) or to sell assets. Substantially all of the Company's assets and
capital stock are collateralized under the BHF-Bank agreements. The $10,000 and
$6,750 term loan contains an "excess cash flow" provision mandating additional
principal payments if certain cash flow targets are met during each fiscal year.
No additional principal payments are required as of December 31, 1997 as related
to this provision for fiscal 1997.
Principal payments due during the next five years on long-term notes payable
as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 3,128
1999............................................................... 3,128
2000............................................................... 3,128
2001............................................................... 7,576
2002............................................................... 878
Thereafter......................................................... 14,860
---------
$ 32,698
---------
---------
</TABLE>
F-50
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. FEDERAL INCOME TAX:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------ ------------------------
DECEMBER DECEMBER OCTOBER 25, DECEMBER
31, 1997 31, 1996 1996 31, 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................... $ 462 $ 153 $ 441 $ 348
State..................... 49 16 47 36
Deferred:
Federal................... 165 54 164 (156)
State..................... 19 6 18 (16)
----------- ----------- ----------- -----------
Provision for income
taxes................. $ 695 $ 229 $ 670 $ 212
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective tax
rate, was as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, OCTOBER 25, DECEMBER 31,
1997 1996 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Tax computed at statutory
rate...................... $ 473 $ 181 $ 606 $ 167
State taxes................. 67 22 40 20
Goodwill amortization....... 110 18 -- --
Other....................... 45 8 24 25
----- ----- ----- -----
Provision for income
taxes..................... $ 695 $ 229 $ 670 $ 212
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
F-51
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. FEDERAL INCOME TAX: (CONTINUED)
Temporary differences which give rise to the deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Inventory reserves..................................................... $ 72 $ 123
Vacation accrual....................................................... 80 82
Accounts receivable reserve............................................ 52 285
Deferred rent.......................................................... 28 30
Other.................................................................. 31 24
--------- ---------
263 544
Deferred income tax liabilities:
Depreciation........................................................... (449) (478)
LIFO reserve........................................................... (829) (897)
--------- ---------
(1,278) (1,375)
--------- ---------
Net deferred income tax liability........................................ (1,015) (831)
Less current deferred tax liability...................................... (566) (353)
--------- ---------
Long-term deferred tax liability......................................... $ (449) $ (478)
--------- ---------
--------- ---------
</TABLE>
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
of or all of the deferred tax assets will not be realized. As of December 31,
1997 and 1996, no valuation reserve was recorded.
10. PREFERRED STOCK:
The Board of Directors is authorized to provide for the issuance of
preferred stock in one or more series and to determine the designation, relative
powers, preferences and rights, and the qualifications, limitations or
restrictions of all shares of any such series.
Certain of the authorized but unissued shares of preferred stock are
reserved for exchange under the exchangeable subordinated notes held by
GEIPPPII.
11. RELATED PARTIES:
MANAGEMENT AND INVESTMENT BANKING AGREEMENT
In November 1997, the Company amended its ten-year Management and Investment
Banking Agreement (the "Management Agreement") with Ardshiel, Inc. ("Ardshiel").
Pursuant thereto, the Company has agreed to pay Ardshiel an annual fee of $375
plus expenses for ongoing management advisory services to the Company. The
Management Agreement gives Ardshiel the first opportunity, in most instances, to
perform investment banking services for the Company until such time as Ardshiel
and certain of its affiliates cease to be affiliates of the Company.
F-52
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. RELATED PARTIES: (CONTINUED)
The Management Agreement makes available on an ongoing basis the resources
of Ardshiel concerning a variety of financial and operational matters. The
services that have been and will continue to be provided by Ardshiel could not
otherwise be obtained by the Company without the addition of personnel or the
engagement of outside professional advisors.
FINANCIAL ADVISORY FEE
Ardshiel received a financial advisory fee of $600 plus expenses on the
closing date of the Transaction as compensation for its services as financial
advisor to the Company in connection with the Transaction. In addition, Ardshiel
received warrants to obtain 5,714 shares of Class A voting common stock at no
additional cost. Such warrants can be converted into Class A voting common stock
at any time. The warrants were valued at $332 and were included in the total
purchase price for the Transaction.
Ardshiel received an investment banking fee of $250 plus expenses on the
closing date of the Door Division of Super Millwork, Inc. acquisition as
compensation for its services to the Company in connection with the acquisition.
CAPITALIZATION
Ardshiel holds one share of the Class A voting common stock of the Company.
In addition, certain affiliates of Ardshiel control Ardwing L.L.C., which is the
General Partner of Wing Partners, L.P. Wing Partners, L.P. holds 6,152 shares of
Class A voting common stock. Also, J.O. Hambro holds 4,348 shares of Class A
voting common stock. Three officers of the Company hold 2,500 shares of Class A
voting common stock. Through agreements with the officers and agreements with
J.O. Hambro, Ardshiel has an irrevocable proxy to vote the 2,500 shares and the
4,348 shares, respectively. Through various agreements, Wing Partners, L.P. has
the right to designate a majority of the Company's Directors.
GEIPPPII holds 12,500 shares of Class A voting common stock, 54,500 shares
of Class B nonvoting common stock and warrants to obtain 17,141 shares of Class
A voting common stock at no additional cost. Such warrants can be converted into
Class A voting common stock at any time. These warrants were valued at $995 at
the Transaction date. In addition, Ardshiel has received warrants to obtain
5,714 shares of Class A voting common stock at no additional cost. Such warrants
can be converted into Class A voting stock at any time. The value of these
warrants has been included in the total purchase price for the Wing Industries,
Inc., as appropriate.
GEIPPPII and Ardwing L.L.C. received warrants to obtain 6,175 and 62 shares
of Class A voting common stock, respectively, at no additional cost. Such
warrants can be converted into Class A common stock at any time. These warrants
were valued at $349 at the date of the acquisition of the Door Division of Super
Millwork, Inc.
12. CAPITAL LEASES:
The Company leases computer hardware and software under capital leases which
expire in 2001.
F-53
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. CAPITAL LEASES: (CONTINUED)
Future minimum lease payments and their present value as of December 31,
1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
1998................................................................................. $ 259
1999................................................................................. 259
2000................................................................................. 259
2001................................................................................. 130
-----
Total minimum lease payments......................................................... 907
Less interest........................................................................ (137)
-----
Present value of minimum lease payments.............................................. $ 770
-----
-----
</TABLE>
13. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with three executives
including its President and Chief Executive Officer as well as two Vice
Presidents. The agreements generally provide for terms of employment, annual
salaries, bonuses, eligibility for stock option awards and severance benefits.
Severance benefits for termination without cause are equal to one year's salary.
The terms of the employment agreements are three years.
CONSULTING AGREEMENTS
In October 1997, the Company entered into agreements with related parties to
provide consulting services to the Company over a two year period. Annual
minimum payments under the agreements are $205.
LITIGATION
The Company is party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such kind, or involve such amounts,
that an unfavorable disposition would not have a material effect on the
consolidated financial position, results of operations or liquidity of the
Company.
OPERATING LEASES
The Company leases automobiles, machinery and equipment, three manufacturing
facilities and its corporate offices under noncancelable operating leases which
expire at various times from 1998 to 2009.
F-54
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Future minimum rentals due under operating leases with initial or remaining
terms greater than twelve months are as follows:
<TABLE>
<CAPTION>
AUTOMOBILES,
MACHINERY AND
REAL ESTATE EQUIPMENT TOTAL
----------- --------------- ---------
<S> <C> <C> <C>
1998................................................... $ 734 $ 211 $ 945
1999................................................... 630 114 744
2000................................................... 594 62 656
2001................................................... 416 45 461
2002................................................... 416 8 424
Thereafter............................................. 907 -- 907
----------- ------ ---------
$ 3,697 $ 440 $ 4,137
----------- ------ ---------
----------- ------ ---------
</TABLE>
Rental expense for all operating leases was $1,189, $172, $691 and $1,007
for the year ended December 31, 1997 for the periods ended December 31, 1996 and
October 25, 1996 and the year ended December 31, 1995.
14. ACQUISITION:
On November 10, 1997, the Company purchased certain assets of the Door
Division of Super Millwork, Inc. (SMI), a New York corporation for $12,500,
including contingent payments of $2,500 based on future operating results. The
total cost of the acquisition including transaction costs incurred aggregated
$13,444. The purchase price was funded with borrowings under a line of credit of
approximately $194, term loan borrowings of $6,750, and the issuance of
exchangeable subordinated notes of $4,000 with warrants. The purchase price
allocation is as follows:
<TABLE>
<S> <C>
Accounts receivable................................................ $ 1,791
Inventories........................................................ 2,540
Other current assets............................................... 31
Property, plant and equipment, net................................. 215
Other noncurrent assets............................................ 300
Deferred financing costs........................................... 536
Goodwill........................................................... 9,945
Current liabilities................................................ (1,914)
---------
Total purchase price........................................... $ 13,444
---------
---------
</TABLE>
F-55
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
14. ACQUISITION: (CONTINUED)
The Company's Consolidated Statement of Income for the year ended December
31, 1997 includes SMI's operations from the date of acquisition, November 10,
1997. The following table presents the historical consolidated operating results
of the Company for the year ended December 31, 1997, and the periods ended
December 31, 1996 and October 25, 1996, compared to pro forma operating results
for such year and periods. The unaudited pro forma information presents
consolidated operating results as though the acquisition of SMI had occurred at
the beginning of the year and periods presented.
<TABLE>
<CAPTION>
THE COMPANY
----------------------
1997 ACTUAL PRO FORMA
- ----------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Net sales.............................................................. $ 99,059 $ 122,410
Income before income taxes............................................. 1,391 2,001
Net income............................................................. 696 1,306
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
------------------------ PREDECESSOR
ACTUAL PRO FORMA ------------------------
PERIOD PERIOD ACTUAL PRO FORMA
ENDED ENDED PERIOD PERIOD
DECEMBER DECEMBER ENDED ENDED
1996 31, 31, OCTOBER 25, OCTOBER 25,
- ----------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................... $ 13,200 $ 15,444 $ 62,880 $ 87,568
Income before income taxes... 532 634 1,789 2,916
Net income................... 303 405 1,119 2,246
</TABLE>
15. STOCK OPTIONS:
Wing Industries, Inc. adopted stock option plans in 1981 and 1994
(collectively referred to as the "Original Plan"). The total number of shares
available for grant under the Original Plan was 125,000. Option prices (ranging
from $3.93 to $8.40 per share) were not less than fair market value (as
determined by the Board of Directors) on the date of grant. Both Incentive Stock
Options and Nonqualified Stock Options were issued as part of the Original Plan
(see definitions below). In conjunction with the Ardshiel transaction on October
25, 1996, all remaining unexercised options as of that date were exercised and
the related shares of stock were sold thus terminating the Original Plan. No
compensation expense was recorded during the period ended October 25, 1996 or
the year ended December 31, 1995.
The Wing Industries Holdings, Inc. Stock Option Plan (the "Plan") was
adopted on October 25, 1996 to provide certain employees, officers and directors
of the Company an opportunity to purchase Class A voting common stock of
Holdings. Options that may be granted under this plan include (1) "Incentive
Stock Options" as such term is defined in Section 422 of the Internal Revenue
Code of 1986, as amended and (2) Nonqualified Stock Options which are options
which do not constitute Incentive Stock Options.
An aggregate of 18,500 shares of Holdings' authorized but unissued Class A
common stock, subject to adjustment, as defined, may be granted under the Plan.
The price for each share issuable pursuant to the exercise of an Incentive
Stock Option shall not be less than the fair market value of a share of the
stock on the date the option is granted. The price for each share issuable
pursuant to the exercise of a Nonqualified Stock Option may be less than, equal
to or greater than the fair market value of the stock on the date such option is
granted.
F-56
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
Unless specifically provided for in an individual participant's stock option
agreement, each Incentive Stock Option shall expire no later than ten years
after the date the option is granted. The term of Nonqualified Stock Options is
determined at the discretion of the Compensation Committee at the time of the
grant. Vesting periods are determined by the Compensation Committee at the time
options are granted.
As of December 31, 1997, Nonqualified Stock Options for a total of 11,415
shares of Class A common stock of Holdings had been granted to three executives
of the Company. The options granted consist of three traunches: (a) "Free
options"--options to purchase 3,805 shares at a strike price of $.01 per share.
These options are exercisable only upon the occurrence of a value event. A value
event is defined as: (1) Holdings sells common stock in an offering registered
with the Securities and Exchange Commission, (2) Holdings is merged or
consolidated with another corporation in a merger in which the surviving
corporation has freely tradeable common stock, or (3) substantially all assets
of Holdings and subsidiary, taken as a whole, are sold or otherwise transferred
(b) "15% options"--options to purchase 3,805 shares at a strike price of $115
per share to November 30, 1997 and then increasing 15% per year thereafter and
(c) "30% options"--options to purchase 3,805 shares at a strike price of $130
per share to November 30, 1997 and then increasing 30% per year thereafter. For
the 15% and the 30% options, if the holder chooses not to exercise at time of
vesting, the strike price increases annually to the next level until expiration.
Vesting for the above compensatory variable options is one third per year for
three years.
As of December 31, 1997, Nonqualified Stock Options for a total of 3,068
shares of Class A common stock of Holdings had been granted to certain employees
(middle managers) of the Company. These options are exercisable only upon the
occurrence of a value event (see definition of value event in the preceding
paragraph; or (4) all of the common stock of the Company is sold or otherwise
transferred). The options vest at such time of occurrence of a value event. The
options carry a strike price of $228.
The following table summarizes the transactions of the Plan for the year
ended December 31, 1997 and the period ended December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Outstanding options, beginning of period................................ 11,415 --
Granted................................................................. 3,068 11,415
--------- ---------
Outstanding options, end of year........................................ 14,483 11,415
--------- ---------
--------- ---------
Weighted average exercise price of options exercised.................... $ -- $ --
Weighted average exercise price of options granted...................... $ 228.00 $ 81.67
Weighted average exercise price, end of period.......................... $ 112.67 $ 81.67
Options exercisable, end of period...................................... 2,537 --
Options available for future grant...................................... 4,017 4,585
</TABLE>
The fair value of each option granted was estimated on the date of grant for
the 15% options and 30% options using the Black-Scholes option pricing model.
The following assumptions were used; dividend yield of 0%; expected volatility
0%; a range of risk free interest rates of 5.7% to 6.4% and expected lives of
between one and five years. Based on the above, the calculated weighted average
fair values were $0 on the grant date. The "Free" options and the options
granted to middle managers are only exercisable upon the occurrence of a value
event, which is not probable at this time.
F-57
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
If a value event were to become probable the difference between the option
price and the then fair market value would be charged to earnings at that time.
No compensation expense was recognized in income for stock based employee
compensation awards during fiscal year 1997 or the period ended December 31,
1996.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
- ---------------------------------------- ------------ -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Options:
$.01 3,805 107 $ .01 -- $ --
$115-130 7,610 107 $ 122.50 2,537 $ 122.50
$228 3,068 119 $ 228.00 -- $ --
</TABLE>
In 1995, the FASB issued FASB Statement No. 123 ("SFAS 123") "Accounting for
Stock-Based Compensation" which, if fully adopted by the Company, would change
the methods the Company applies in recognizing the cost of the stock based
plans. Adoption of the cost recognition provisions of SFAS 123 is optional and
the Company has decided not to elect the provisions of SFAS 123. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
SFAS 123 are required by SFAS 123; however, there is no pro forma effect of
adopting the cost provisions of SFAS 123 for the year ended December 31, 1997,
the periods ended December 31, 1996 and October 25, 1996 and the year ended
December 31, 1995. In 1997 and 1996, the Company granted only nonqualified stock
options and warrants under the plans.
16. EMPLOYEE BENEFIT PLANS:
Prior to the formation of the Company, management announced the curtailment
of the defined benefit pension plan covering substantially all employees. Upon
receipt of a favorable tax determination letter from the Internal Revenue
Service, settlement of the plan occurred during the period ended October 25,
1996, at which time a liquidating distribution of $2,789 was made to the
eligible employees based on years of service and the employee's compensation
during the five consecutive years of employment in which compensation was the
highest. In addition, management retired the two nonqualified, unfunded, and
noncontributory plans for the directors. Settlement of the plans occurred during
the period ended October 25, 1996 at which time a lump-sum payout of $801 was
made to the directors.
The Company maintains an employees' savings plan (the "Plan") under Section
401(k) of the Internal Revenue Code. The Plan covers substantially all
employees. Employees are eligible after one year of service and may enter the
Plan after such time on the quarterly enrollment dates. Under the Plan,
employees generally may elect to exclude up to 15% of their compensation from
amounts subject to income tax as a salary deferral contribution. The Company
makes a discretionary matching contribution to each employee in an amount equal
to 50% of the first 4% of each employee's contributions. The Plan runs on a
calendar year with contributions paid once a year. The Company's matching
contributions to the Plan
F-58
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. EMPLOYEE BENEFIT PLANS: (CONTINUED)
were approximately $85, $78 and $19 for the plan years ending December 31, 1997,
1996 and 1995, respectively.
17. SUBSEQUENT EVENT:
Pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 3, 1998, the Company will become a wholly-owned
subsidiary of Atrium Companies, Inc. and an indirect wholly owned subsidiary of
D and W Holdings, Inc. ("D&W") (the "Merger"). D&W was formed to effect the
Merger by the principal equity holders of the Company and Door Holdings, Inc.
("Door"), an affiliate. Pursuant to the terms of the Merger Agreement, D&W is
also acquiring Atrium Companies, Inc. Transactions contemplated pursuant to the
Merger Agreement are expected to be consummated no later than September 30,
1998.
Immediately prior to the merger, GEIPPPII and Ardshiel, Inc., equity holders
of the Company are expected to increase their respective ownership in the Class
A voting common stock of the Company by converting their respective interests in
exchangeable subordinated notes payable, warrants and Class B nonvoting common
stock.
In connection with the Merger, Management will exchange all their options in
the Company for options to purchase stock in D&W. It is also expected that the
Management Agreement will be terminated and replaced by a new agreement with
D&W.
As a part of the Merger, the notes payable remaining after conversion will
be repaid and the deferred financing cost will be expensed.
F-59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Wing Industries Holdings, Inc.
In our opinion, the accompanying carve-out balance sheets and the related
carve-out statements of income and changes in business unit equity and of
carve-out cash flows present fairly, in all material respects, the financial
position of the Door Division of Super Millwork, Inc. at November 10, 1997 and
December 31, 1996, and the results of its operations and its cash flows for the
period from January 1, 1997 to November 10, 1997 and the year ended December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Dallas, Texas
September 23, 1998
F-60
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC.
CARVE-OUT BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 10, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net........................................................... $ 1,891 $ 1,802
Inventories........................................................................ 2,567 1,720
Prepaid expenses................................................................... 31 91
------ ------
Total current assets............................................................... 4,489 3,613
PROPERTY AND EQUIPMENT, net.......................................................... 222 244
------ ------
Total assets....................................................................... $ 4,711 $ 3,857
------ ------
------ ------
LIABILITIES AND BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................... $ 1,650 $ 350
Accrued liabilities................................................................ 108 661
Payables to former affiliate....................................................... 1,430 1,933
------ ------
Total current liabilities.......................................................... 3,188 2,944
COMMITMENTS AND CONTINGENCIES
BUSINESS UNIT EQUITY:
Business unit equity............................................................... 1,523 913
------ ------
Total liabilities and business unit equity......................................... $ 4,711 $ 3,857
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of the carve-out financial
statements.
F-61
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC.
CARVE-OUT STATEMENTS OF INCOME AND CHANGES IN BUSINESS UNIT EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 10, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 23,351 $ 26,932
COST OF GOODS SOLD.......................................................................... 18,085 20,901
--------- ---------
Gross profit.............................................................................. 5,266 6,031
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses.................................... 4,487 5,433
--------- ---------
Income from operations.................................................................... 779 598
INTEREST EXPENSE............................................................................ 169 230
OTHER INCOME (EXPENSE), net................................................................. -- 861
--------- ---------
NET INCOME.................................................................................. 610 1,229
BUSINESS UNIT EQUITY (DEFICIT), BEGINNING OF PERIOD......................................... 913 (316)
--------- ---------
BUSINESS UNIT EQUITY, END OF PERIOD......................................................... $ 1,523 $ 913
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the carve-out financial
statements.
F-62
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC.
CARVE-OUT STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 10, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................... $ 610 $ 1,229
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of Octagon assets............................................................. -- (861)
Depreciation and amortization.............................................................. 44 93
Changes in assets and liabilities, in 1997 and 1996:
Accounts receivable, net................................................................... (89) (728)
Inventories................................................................................ (847) 690
Prepaid expenses........................................................................... 60 25
Accounts payable........................................................................... 1,300 (294)
Accrued liabilities........................................................................ (553) 317
--------- ---------
Net cash provided by operating activities................................................ 525 471
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................................................... (22) (120)
--------- ---------
Net cash used in investing activities...................................................... (22) (120)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in payables due to former affiliate................................................... (503) (351)
--------- ---------
Net cash used in financing activities...................................................... (503) (351)
NET CHANGE IN CASH AND CASH EQUIVALENTS........................................................ -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................................. -- --
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the carve-out financial
statements.
F-63
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC
NOTES TO CARVE-OUT FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Door Division of Super Millwork, Inc., (the "Company"), located in
Melville, NY, is engaged in the distribution, manufacture and sale of doors and
other millwork throughout the United States. The Company, along with Marvin
Windows, comprised the consolidated entity of Super Millwork, Inc.
The financial statements reflect the "carve-out" financial position of the
Company as of November 10, 1997 and December 31, 1996, and the results of its
operations and its cash flows for the period from January 1, 1997 to November
10, 1997 and the year ended December 31, 1996. The financial statements have
been prepared as if the Company had operated as a stand-alone entity for all
periods presented, and include those assets, liabilities, revenues and expenses
directly attributable to the Company's operations. Certain general and
administrative expenses were allocated to the Company on various bases,
including percentage of sales and others based on relative size of each entity.
In the opinion of management, the allocations are reasonable and reflect all
costs of doing business. However, such expenses are not necessarily indicative
of, and it is not practicable for management to estimate the level of expenses
that might have been incurred if the Company had been operating as a separate
entity.
REVENUE RECOGNITION
Revenue from the sale of doors and related components is recorded at the
time of delivery and billing to the customer. Allowances are established to
recognize the risk of sales returns from customers.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are net of allowance for doubtful accounts of $40 as of
November 10, 1997 and December 31, 1996.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company is a wholesale distributor and manufacturer of doors and related
products, which it sells to commercial end-users, generally on 30-day or less
terms. It performs periodic credit evaluations of its customers and has credit
insurance. The Company believes that any concentration of credit risk related to
trade accounts receivable is limited because of the large number of customers
included in its customer base, and the credit worthiness of its largest customer
which accounted for approximately 65% of sales during the period from January 1,
1997 to November 10, 1997.
INVENTORIES
Inventories consist of doors and other millwork and are valued at the lower
of cost (first-in, first-out or "FIFO") or market. Inventories consist primarily
of raw materials, however small amounts of work-in-process and finished goods
inventories are maintained. Work-in-process and finished goods inventories
consist of materials, labor, and manufacturing overhead.
F-64
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC
NOTES TO CARVE-OUT FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation. The
Company provides for depreciation and amortization using straight-line and
accelerated methods.
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-------------
<S> <C>
Office equipment............................................................... 5 years
Machinery and equipment........................................................ 5 - 10 years
</TABLE>
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the assets sold or retired. Expenditures for
maintenance, minor renewals and repairs are expensed as incurred, while major
replacements and improvements are capitalized.
INCOME TAXES
The Company's shareholders elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. As a result, there is no provision
for federal income taxes in the accompanying financial statements, as such taxes
are the responsibility of the individual shareholders.
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
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments," the Company
evaluates fair value disclosures for significant financial instruments. The
carrying amounts of accounts receivable, accounts payable, accrued expenses and
notes payable approximate fair value due to the short-term maturity of these
instruments.
The Company is not an active participant in financial derivative
transactions.
F-65
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC
NOTES TO CARVE-OUT FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at November 10, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Warehouse equipment...................................................... $ 874 $ 852
Office equipment......................................................... 492 492
--------- ---------
Total.................................................................. 1,366 1,344
Less accumulated depreciation and amortization........................... (1,144) (1,100)
--------- ---------
$ 222 $ 244
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $44 and $93 for the period from January 1, 1997 to
November 10, 1997 and year ended December 31, 1996.
4. PAYABLES TO FORMER AFFILIATE:
Payables to former affiliate consisted of allocated amounts related to a
revolving credit line and cash overdraft for outstanding checks of Super
Millwork, Inc. The revolving credit line enabled the Company and Marvin Windows
to borrow up to $4,500 and bore interest at a rate based upon the lender's prime
rate plus two percent. The revolving credit line was collateralized by
substantially all assets of the Company, personally guaranteed by certain
shareholders, due on demand and contained various covenants that restricted the
Company from taking certain actions. Prior to the transaction described in Note
8, the revolving credit line of the Company of $1,333 was retired.
5. COMMITMENTS AND CONTINGENCIES:
The Company, along with its former affiliate, entered into operating lease
agreements for office and manufacturing space with unrelated third parties.
Total rent expense for the period from January 1, 1997 to November 10, 1997 and
year ended December 31, 1996 was $260 and $227, respectively. The lease remained
with the former affiliate following the sale of the Company as described in Note
8.
6. OTHER INCOME:
Other income consists of a gain on the sale of the Company's Octagon
Division during the year ended December 31, 1996. Assets sold included a
customer list, inventories, property and equipment and prepaid expenses. A
receivable of $598 from the sale was included in accounts receivable at December
31, 1996.
7. EMPLOYEE BENEFIT PLANS:
During 1993, the Company established an employee benefit plan in accordance
with Section 401(k) of the Internal Revenue Code for all employees who meet
certain eligibility criteria who are not covered under a collective bargaining
agreement. The Company matches 50% of each employee contributions up to a
maximum of 4%. During the period from January 1, 1997 to November 10, 1997 and
the year ended December 31, 1996, the Company incurred total expenses of $9 and
$6, respectively.
F-66
<PAGE>
DOOR DIVISION OF SUPER MILLWORK, INC
NOTES TO CARVE-OUT FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. SUBSEQUENT EVENT:
On November 10, 1997, the net assets of the Company, excluding the revolving
credit line portion of payables to former affiliate (see Note 4) were acquired
by Wing Industries Holdings, Inc. for $12,500 including a contingent payment of
$2,500 based on future operating results.
F-67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Door Holdings, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, stockholder's equity and of cash flows present
fairly, in all material respects, the financial position of R. G. Darby Company,
Inc. and Total Trim, Inc. (the "Companies") at December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles. These combined financial statements are the responsibility of the
Companies' management: our responsibility is to express an opinion on these
combined financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Birmingham, Alabama
September 24, 1998
F-68
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $ 722 $ 1,650
Accounts receivable, net..................................................................... 1,807 1,744
Inventories.................................................................................. 1,275 947
Prepaid expenses and other current assets.................................................... 23 397
--------- ---------
Total current assets......................................................................... 3,827 4,738
PROPERTY AND EQUIPMENT, net.................................................................... 451 587
--------- ---------
Total assets................................................................................. $ 4,278 $ 5,325
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit............................................................................... $ 6 $ 690
Current portion of notes payable............................................................. -- 91
Accounts payable............................................................................. 684 569
Accrued liabilities.......................................................................... 874 832
--------- ---------
Total current liabilities.................................................................... 1,564 2,182
LONG-TERM LIABILITIES:
Notes payable................................................................................ -- 153
--------- ---------
Total liabilities............................................................................ 1,564 2,335
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, R.G. Darby Company, Inc.
(1,000 shares at $1 par value authorized and issued)....................................... 1 1
Common stock, Total Trim, Inc. (1,000 shares at $.01 par value authorized, issued and
outstanding)............................................................................... -- --
Retained earnings............................................................................ 2,813 3,089
R.G. Darby Company, Inc. treasury stock (125 shares at cost)................................. (100) (100)
--------- ---------
Total stockholder's equity................................................................... 2,714 2,990
--------- ---------
Total liabilities and stockholder's equity................................................... $ 4,278 $ 5,325
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-69
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 16,956 $ 15,777
COST OF GOODS SOLD.......................................................................... 10,227 9,561
--------- ---------
Gross profit.............................................................................. 6,729 6,216
OPERATING EXPENSES:
Selling, delivery, general and administrative expense..................................... 4,707 4,071
--------- ---------
Income from operations.................................................................... 2,022 2,145
--------- ---------
INTEREST INCOME............................................................................. 61 58
INTEREST EXPENSE............................................................................ (61) (78)
OTHER INCOME (EXPENSE), net................................................................. 29 9
--------- ---------
NET INCOME.................................................................................. $ 2,051 $ 2,134
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-70
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
R.G. DARBY COMPANY
TOTAL TRIM TOTAL
---------------------- ------------------------ RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK EQUITY
----------- --------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995............... 1,000 $ 1 1,000 $ -- $ 2,685 $ (100) $ 2,586
Stockholder distributions,
Total Trim, Inc........................ (506) (506)
Stockholder distributions,
R.G. Darby Company, Inc................ (1,224) (1,224)
Net income............................... 2,134 2,134
----- --------- ----- ----- ----------- ----- ------------
BALANCE, December 31, 1996............... 1,000 1 1,000 -- 3,089 (100) 2,990
Stockholder distributions,
Total Trim, Inc........................ (1,008) (1,008)
Stockholder distributions,
R.G. Darby Company, Inc................ (1,319) (1,319)
Net income............................... 2,051 2,051
----- --------- ----- ----- ----------- ----- ------------
BALANCE, December 31, 1997............... 1,000 $ 1 1,000 $ -- $ 2,813 $ (100) $ 2,714
----- --------- ----- ----- ----------- ----- ------------
----- --------- ----- ----- ----------- ----- ------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-71
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 2,051 $ 2,134
Adjustments to reconcile net income to net cash provided by operating activities:.......
Depreciation.......................................................................... 154 189
Loss on disposal of equipment......................................................... 21 --
Change in assets and liabilities:
Accounts receivable, net.............................................................. (63) 78
Inventories........................................................................... (328) (232)
Prepaid expenses and other current assets............................................. 374 (28)
Accounts payable...................................................................... 115 (105)
Accrued liabilities................................................................... 42 123
---------- ----------
Net cash provided by operating activities......................................... 2,366 2,159
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................................................... (133) (136)
Proceeds from disposal of property and equipment........................................ 94 --
---------- ----------
Net cash used in investing activities............................................. (39) (136)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement............................................. 15,784 15,264
Repayments under revolving credit agreement............................................. (16,468) (15,416)
Proceeds from the issuance of long term debt............................................ -- 32
Repayment of long-term debt............................................................. (244) (141)
Stockholder distributions............................................................... (2,327) (1,730)
---------- ----------
Net cash used in financing activities............................................. (3,255) (1,991)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...................................... (928) 32
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............................................. 1,650 1,618
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................................................... $ 722 $ 1,650
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the year for interest.................................................. $ 67 $ 78
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-72
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION:
DESCRIPTION OF THE COMPANY AND REPORTING ENTITY
R. G. Darby Company, Inc. ("R. G. Darby Company") and Total Trim, Inc.
("Total Trim") (the "Companies"), founded in 1983, provide interior and exterior
doors, vanity mirrors, door knobs and locks, shelving, molding, and related
installation to contractors of apartment buildings and hotels. The Companies are
based in Florence, Alabama and operate out of one facility. The Companies supply
materials and/ or provide contract labor to install purchased materials.
Material requirements, with the exception of doors, are shipped directly from
the manufacturer to the contractor's location. Doors are assembled and shipped
from the Companies' production facility. The Companies consist of three
entities--R. G. Darby Company is the sales company for materials; Darby Doors, a
division of R. G. Darby Company, is the manufacturing division that produces the
doors that are sold through R. G. Darby Company; and Total Trim is responsible
for contracting labor for any installation work. These entities perform work in
approximately 28 states, mainly in the South, Mid-Atlantic and Northeast.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of R. G. Darby
Company and Total Trim after elimination of all significant intercompany
accounts and transactions. Combined financial statements are presented as the
Companies are under the common control of their sole stockholder, R. G. Darby.
See Note 9.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Companies hold
cash and cash equivalents primarily in one major banking institution.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are net of allowances for doubtful accounts of $175 and
$66 as of December 31, 1997 and 1996, respectively.
REVENUE RECOGNITION
The Companies record sales of materials upon delivery of the materials to
the contractor's location. Revenue relating to the installation services is
recorded as the services are provided.
INVENTORIES
Inventories are stated at the lower of cost ( first-in, first-out or "FIFO")
or market and consist primarily of raw materials. Finished goods include direct
materials, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major renewals and betterments
are capitalized, while maintenance and repairs are expensed as incurred. Upon
disposition of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
F-73
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Depreciation is provided principally on the straight-line method for financial
reporting purposes, using the following estimated useful lives of the respective
assets:
<TABLE>
<S> <C>
Furniture and fixtures.................. 7 - 10 years
Vehicles................................ 3 - 5 years
Machinery and equipment................. 7 - 10 years
</TABLE>
INCOME TAXES
The combined financial statements reflect the Companies' S corporation
income tax status. Their taxable income or loss and tax credits are included in
the personal income tax returns of their stockholder and the resulting tax
liabilities or benefits are those of the stockholder.
ACCOUNTING ESTIMATES
The preparation of combined 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. INVENTORIES:
The inventories for R. G. Darby Company at December 31, 1997 and 1996,
respectively, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials.............................................................. $ 1,146 $ 900
Finished goods............................................................. 129 47
--------- ---------
$ 1,275 $ 947
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY AND EQUIPMENT:
The property and equipment for R.G. Darby Company at December 31, 1997 and
1996, respectively, consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Furniture and fixtures..................................................... $ 118 $ 138
Vehicles................................................................... 559 670
Machinery and equipment.................................................... 428 470
--------- ---------
Total.................................................................... 1,105 1,278
Less accumulated depreciation.............................................. (654) (691)
--------- ---------
$ 451 $ 587
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $154 and $189 for the years ended December 31, 1997
and 1996, respectively.
F-74
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. LINE OF CREDIT AND NOTES PAYABLE:
Under R. G. Darby Company's credit facility, which expires in June 1998,
available borrowings are determined by the amounts of eligible assets of R. G.
Darby Company, as defined in the agreement, including accounts receivable and
inventories, with maximum borrowings of $2,000. The interest rate is based upon
the lender's prime rate plus 1% (9.5% and 9.25% at December 31, 1997 and 1996,
respectively). As of December 31, 1997 and 1996, R. G. Darby Company had $6 and
$690, respectively, outstanding under the credit facility. The credit facility
was terminated in connection with the transaction discussed in Note 9.
At December 31, 1996, the Companies had certain notes payable to banks as
follows:
<TABLE>
<S> <C>
Note payable for various loans collateralized by vehicles with
monthly payments of $6, interest rates from 7.9% to 9%, due
April 1997 through March 1998................................... $ 44
Note payable collateralized by plant equipment with annual
payments of $50, interest rate of 9.08%, due May 2000........... 200
---------
$ 244
---------
---------
</TABLE>
Each of the notes payable were repaid in full by R.G. Darby Company in 1997.
As of December 31, 1997, the Company had no other outstanding indebtedness.
6. RELATED PARTY TRANSACTIONS:
The Companies lease their facilities directly from their stockholder. The
lease agreement, as amended on January 8, 1998, requires annual payments of $137
through December 31, 2011. The Companies have the option to extend the lease
agreement for up to three additional five year terms. In addition, the lease
agreement was subsequently amended effective June 1, 1998 to increase the annual
payments to $185 in connection with the lease of additional warehouse and office
space by the Companies. Facility lease payments to the stockholder amounted to
$137 during 1997 and 1996.
The stockholder was paid bonuses of $1,356 and $1,063 from R. G. Darby
Company for the years ended December 31, 1997 and 1996, respectively.
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Companies are party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such a kind, or involve such amounts
that an unfavorable disposition would not have a material effect on the combined
financial position or results of operations of the Companies.
F-75
<PAGE>
R. G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
OPERATING LEASES
The Companies lease automobiles, trucks, and office equipment under
noncancelable operating leases which expire at various times through 2001.
Future minimum lease payments under operating leases having noncancelable terms
of more than one year at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 100
1999................................................................. 99
2000................................................................. 23
2001................................................................. 2
---------
$ 224
---------
---------
</TABLE>
Rental expense for all operating leases was approximately $83 and $61 for
the years ended December 31, 1997 and 1996, respectively. See Note 6 for
discussion of the Companies' related party operating lease agreement.
8. RETIREMENT PLAN:
The Companies maintain an Integrated Profit Sharing Plan (the Plan) under
Section 401 of the Internal Revenue Code. All employees are eligible to
participate in the Plan after six months of service and may enter the Plan after
such time on the annual enrollment date of January 1st. Under the Plan, the
Companies will contribute to the Plan an amount determined at their discretion
and may choose not to contribute to the Plan for a particular plan year. The
Plan does not permit employees to make contributions. The Companies'
contribution to the Plan was approximately $58 for each of the years ended
December 31, 1997 and 1996, respectively.
9. SUBSEQUENT EVENTS:
Effective January 8, 1998, the Companies were sold to Door Holdings, Inc.
("Door"). As specified in the agreement, the sales price was $24,000 plus or
minus any adjustment resulting from the Companies' combined working capital, as
defined in the sale agreement, being above or below $2,323 as of the closing
date. Included in the $24,000 is a contingent payment of $4,000 to be paid to
the former stockholder based on future operating results. An additional $2,000
payment, which has not been recorded in the purchase price, may be paid to the
Seller if these financial targets are substantially exceeded. The purchase price
was funded primarily with $5,700 equity contributions, $16,000 of long-term
debt, and accrual of the deferred payment. Door did not have any significant
activity prior to this transaction.
Pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 3, 1998, Door will become a wholly-owned
subsidiary of Atrium Companies, Inc. and an indirect wholly owned subsidiary of
D and W Holdings, Inc. ("D&W") (the "Merger"). D&W was formed to effect the
Merger by the principal equity holders of Door and Wing Industries Holdings,
Inc., an affiliate of Door. Pursuant to the terms of the Merger Agreement, D&W
is also acquiring Atrium Companies, Inc. Transactions contemplated pursuant to
the Merger Agreement are expected to be consummated no later than September 30,
1998.
F-76
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1998
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................... $ 1
Equity securities--available for sale............................................................... 113
Accounts receivable, net............................................................................ 34,005
Inventories......................................................................................... 19,091
Prepaid expenses and other current assets........................................................... 988
Deferred tax asset.................................................................................. 692
----------
Total current assets................................................................................ 54,890
PROPERTY, PLANT AND EQUIPMENT, net.................................................................... 18,540
GOODWILL, net......................................................................................... 37,550
DEFERRED FINANCING COSTS, net......................................................................... 5,143
OTHER ASSETS.......................................................................................... 4,067
----------
Total assets........................................................................................ $ 120,190
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable.................................................................... $ 1,900
Accounts payable.................................................................................... 17,350
Accrued liabilities................................................................................. 8,122
----------
Total current liabilities........................................................................... 27,372
LONG-TERM LIABILITIES:
Notes payable....................................................................................... 123,058
Deferred tax liability.............................................................................. 1,058
Other long-term liabilities......................................................................... 300
----------
Total long-term liabilities......................................................................... 124,416
----------
Total liabilities................................................................................... 151,788
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares authorized,
100 shares issued and outstanding................................................................. --
Paid-in capital..................................................................................... 33,512
Accumulated deficit................................................................................. (65,117)
Accumulated other comprehensive income.............................................................. 7
----------
Total stockholder's deficit......................................................................... (31,598)
----------
Total liabilities and stockholder's deficit......................................................... $ 120,190
----------
----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-77
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
NET SALES................................................................................. $ 106,482 $ 85,277
COST OF GOODS SOLD........................................................................ 70,526 54,379
---------- ----------
Gross profit............................................................................ 35,956 30,898
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses.................................. 24,377 20,815
Stock option compensation expense....................................................... 447 203
---------- ----------
24,824 21,018
---------- ----------
Income from operations.................................................................. 11,132 9,880
INTEREST EXPENSE.......................................................................... 6,241 5,594
OTHER INCOME (EXPENSE), net............................................................... (223) 1,037
---------- ----------
Income before income taxes.............................................................. 4,668 5,323
PROVISION FOR INCOME TAXES................................................................ 1,711 1,886
---------- ----------
NET INCOME................................................................................ $ 2,957 $ 3,437
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-78
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net income..................................................................................... $ 2,957 $ 3,437
Other comprehensive income:....................................................................
Unrealized gains on securities:..............................................................
Unrealized holding gains arising during the period......................................... 86 10
--------- ---------
Comprehensive income......................................................................... $ 3,043 $ 3,447
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-79
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT INCOME DEFICIT
----------- ----------- --------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997..................... 100 $ -- $ 32,790 $ (67,503) $ (79) $ (34,792)
Contributions from Holding................... -- -- 275 -- -- 275
Distributions to Holding..................... -- -- -- (571) -- (571)
Stock option compensation expense............ -- -- 447 -- -- 447
Other comprehensive income................... -- -- -- -- 86 86
Net income................................... -- -- -- 2,957 -- 2,957
--- ----- --------- ------------ --- ------------
BALANCE, June 30, 1998......................... 100 $ -- $ 33,512 $ (65,117) $ 7 $ (31,598)
--- ----- --------- ------------ --- ------------
--- ----- --------- ------------ --- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-80
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 2,957 $ 3,437
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................................... 2,154 1,533
Amortization of deferred financing costs.............................................. 326 322
Stock option compensation expense..................................................... 447 203
Gain on retirement of assets.......................................................... (37) (9)
Gain on sale of equity securities..................................................... -- (2)
Deferred tax provision................................................................ -- 214
Changes in assets and liabilities, net of acquisition in 1998:
Accounts receivable, net.............................................................. (6,531) (4,824)
Inventories........................................................................... (922) (6,245)
Prepaid expenses and other current assets............................................. 818 (122)
Accounts payable...................................................................... 3,838 3,575
Accrued liabilities................................................................... (299) 1,009
---------- ----------
Net cash provided by (used in) operating activities............................... 2,751 (909)
---------- ----------
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.............................................. (877) (1,259)
Proceeds from sale of assets............................................................ 56 11
Purchases of equity securities.......................................................... -- (480)
Proceeds from sale of equity securities................................................. -- 375
Payment for acquisition, net of cash acquired........................................... (26,780) --
Increase in other assets................................................................ (1,082) (1,168)
---------- ----------
Net cash used in investing activities............................................. (28,683) (2,521)
---------- ----------
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable.................................................. 17,500 --
Payment on note payable................................................................. (400) --
Net borrowings under revolving credit facility.......................................... 7,858 2,447
Checks drawn in excess of bank balances................................................. 1,777 807
Deferred financing costs................................................................ (507) (419)
Contributions from Holding.............................................................. 275 196
Distributions to Holding................................................................ (571) (110)
---------- ----------
Net cash provided by financing activities............................................. 25,932 2,921
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... -- (509)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................ 1 617
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................................. $ 1 $ 108
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE:
Cash paid (received) during the period for:
Interest.............................................................................. $ 5,795 $ 4,915
Income taxes, net of refunds.......................................................... (209) (1,229)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-81
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated results of operations and cash flows of Atrium
Companies, Inc. (the "Company") for the six months ended June 30, 1998 and 1997,
and financial position as of June 30, 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial reporting, the
instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
These consolidated financial statements and footnotes should be read in
conjunction with the Company's audited financial statements for the fiscal years
ended December 31, 1997, 1996 and 1995 included in the Company's Form 10-K as
filed with the Securities and Exchange Commission on March 30, 1998. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the interim
financial information have been included. The results of operations for any
interim period are not necessarily indicative of the results of operations for a
full year. Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. EQUITY SECURITIES--AVAILABLE FOR SALE:
Investments in equity securities--available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded as other
comprehensive income in stockholder's equity.
3. INVENTORIES:
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Work-in-process and finished goods
inventories consist of materials, labor, and manufacturing overhead. Inventories
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
---------
<S> <C>
Raw materials...................................................................... $ 15,293
Work-in-process.................................................................... 681
Finished goods..................................................................... 4,456
---------
20,430
LIFO reserve....................................................................... (1,339)
---------
$ 19,091
---------
---------
</TABLE>
F-82
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
4. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
----------
<S> <C>
Senior subordinated notes......................................................... $ 100,000
Senior term loan facility......................................................... 17,100
Revolving credit facility......................................................... 7,858
----------
124,958
Current portion of notes payable.................................................. 1,900
----------
$ 123,058
----------
----------
</TABLE>
In connection with the acquisition of Masterview Window Company, LLC (the
"Acquisition"), the Company entered into an amended and restated credit
agreement (the "Credit Agreement") with Bankers Trust Company, dated as of March
27, 1998. The Credit Agreement provided for a $17,500 senior term loan facility
and a $20,000 revolving credit facility (collectively, the "Credit Facility").
Annual unused commitment fees are 0.5% of the unborrowed portion of the $20,000
revolving credit facility. Borrowing rates are based upon the lender's prime
rate plus a margin of 1.25% or a Euro-dollar based rate plus a margin of 2.25%.
The term loan is payable in equal quarterly installments aggregating $1,200 in
1998, $2,200 in 1999, $3,000 in 2000, $3,200 in 2001, $3,400 in 2002, $3,600 in
2003, with the remaining payment of $900 due and payable on March 31, 2004.
The Company is required to make mandatory prepayments of the term loan and,
after repayment in full of the term loan, reductions of the revolving credit
commitments (along with a corresponding repayment of revolving loans in excess
of the reduced commitment), at times and subject to certain exceptions, in
respect of (a) 100% of the net proceeds of issuances of equity and debt, sales
of assets, and condemnations and casualty proceeds, and (b) with respect to the
term loans only, 75% of excess cash flow (subject to reductions to 50% based on
the Company meeting a certain leverage ratio). The Credit Facility terminates on
March 31, 2004.
5. CONTINGENCIES:
The Company is party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such kind, or involve such amounts,
that an unfavorable disposition would not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
The Company was named in 1988 as a potentially responsible party ("PRP") in
two superfund sites pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended (the Chemical Recycling, Inc.
site in Wylie, Texas, and the Diaz Refinery site in Little Rock, Arkansas). The
Company believes that based on the information currently available, including
the substantial number of other PRP's and relatively small share allocated to it
at such sites, its liability, if any, associated with either of these sites will
not have a material adverse effect on the Company's financial position, results
of operations or liquidity.
F-83
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
6. ACQUISITION:
MASTERVIEW ASSET PURCHASE
On March 27, 1998, through its newly-formed subsidiary, Atrium Door and
Window Company of Arizona ("ADW-Arizona"), the Company acquired substantially
all of the assets of Masterview Window Company, LLC ("Masterview"), a privately
held window and door company located in Phoenix, Arizona, for approximately
$26,800 including fees and other transaction expenses. The Company financed the
Acquisition through its Credit Facility, which included a $17,500 senior term
loan with the remainder of the purchase price of approximately $9,300 being
drawn from the $20,000 revolving credit facility.
The Acquisition has been accounted for under the purchase method in
accounting. The aggregate purchase price has been allocated to the underlying
assets and liabilities based upon their respective estimated fair market values
at the date of acquisition, with the remainder allocated to goodwill. The
purchase price allocation, preliminary in nature and subject to change, is as
follows:
<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 3
Accounts receivable, net........................................... 3,099
Inventories........................................................ 1,635
Prepaid expenses and other current assets.......................... 206
Property, plant and equipment, net................................. 2,702
Goodwill........................................................... 22,485
Current liabilities................................................ (3,047)
Long-term liabilities.............................................. (300)
---------
Total purchase price............................................. $ 26,783
---------
---------
</TABLE>
The Company's Consolidated Statements of Operations for the six months ended
June 30, 1998 and 1997 include the operations of Atrium Door and Window
Company-West Coast ("ADW-West Coast") and ADW-Arizona from the dates of
acquisition, July 1, 1997 and March 27, 1998, respectively. The following table
presents the historical consolidated operating results of the Company for the
six months ended June 30, 1998 and 1997, compared to pro forma operating results
for such periods. The following unaudited pro forma information presents
consolidated operating results as though the acquisitions of ADW-West Coast and
ADW-Arizona had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------- -----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 106,482 $ 112,701 $ 85,277 $ 104,208
Net income................................... 2,957 3,087 3,437 4,018
</TABLE>
7. SUBSIDIARY GUARANTORS:
In connection with the issuance of the Senior Subordinated Notes (the
"Notes"), the Company's payment obligations under the Notes are fully and
unconditionally guaranteed, jointly and severally on a senior subordinated basis
by its wholly-owned subsidiaries: Atrium Door and Window Company of the
F-84
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
7. SUBSIDIARY GUARANTORS: (CONTINUED)
Northeast ("ADW-Northeast"), ADW-West Coast and ADW-Arizona (collectively, the
Subsidiary Guarantors). The Company has no non-guarantor direct or indirect
subsidiaries. The operations related to the assets of ADW-West Coast and
ADW-Arizona are included since July 1, 1997 and March 27, 1998, respectively,
the dates of acquisition. In the opinion of management, separate financial
statements of the respective Subsidiary Guarantors would not provide additional
material information, which would be useful in assessing the financial
composition of the Subsidiary Guarantors. No single Subsidiary Guarantor has any
significant legal restrictions on the ability of investors or creditors to
obtain access to its assets in event of default on the Subsidiary Guarantee
other than its subordination to senior indebtedness.
Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:
<TABLE>
<CAPTION>
JUNE 30,
1998
---------
<S> <C>
Current assets..................................................................... $ 17,067
Noncurrent assets.................................................................. 42,251
Current liabilities................................................................ 3,457
Noncurrent liabilities............................................................. 300
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................................ $ 17,040 $6,194
Gross profit............................................................. 6,118 2,541
Net income from continuing operations.................................... 996 314
</TABLE>
The Notes and the Subsidiary Guarantees are subordinated to all existing and
future Senior Indebtedness of the Company. The indenture governing the Notes
contains limitations on the amount of additional indebtedness (including Senior
Indebtedness) which the Company may incur. As of June 30, 1998, the maximum
amount of Senior Indebtedness the Company and its Subsidiary Guarantors
collectively, and in the aggregate, could incur was $45,000.
8. SUBSEQUENT EVENT:
Atrium Corporation ("Holding"), parent company of Atrium Companies, Inc.,
entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of August 3, 1998, by and among D and W Holdings, Inc. ("Parent"), D and W
Acquisition Corp. ("Sub") and the Securityholders named therein, pursuant to
which Sub would merge with and into Holding and Holding would become a wholly-
owned subsidiary of Parent (the "Merger"). The Parent and Sub are both newly
formed companies of Ardshiel, Inc., a New York based investment firm and GE
Investment Private Placement Partners II, ("GEIPPPII"), a wholly-owned
investment management subsidiary of General Electric Company, (affiliates of
General Electric Corporation). The transactions contemplated in the Merger
Agreement value the Company at approximately $225,000. The closing of the Merger
is dependent upon the expiration of the Hart-Scott-Rodino waiting period and
other customary closing conditions as set forth in the Merger Agreement.
F-85
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1998
---------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................................ $ 139
Accounts receivable, net............................................................................. 6,476
Inventories.......................................................................................... 18,748
Prepaid expenses and other current assets............................................................ 935
---------
Total current assets................................................................................. 26,298
PROPERTY, PLANT AND EQUIPMENT, net..................................................................... 7,942
GOODWILL, net.......................................................................................... 22,130
DEFERRED FINANCING COSTS, net.......................................................................... 1,151
OTHER ASSETS........................................................................................... 756
---------
Total assets......................................................................................... $ 58,277
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable..................................................................... $ 3,127
Current portion of capital lease obligation.......................................................... 240
Accounts payable..................................................................................... 4,746
Accrued liabilities.................................................................................. 2,976
Deferred tax liability............................................................................... 566
---------
Total current liabilities............................................................................ 11,655
LONG-TERM LIABILITIES:
Notes payable........................................................................................ 31,582
Capital lease obligation............................................................................. 509
Deferred tax liability............................................................................... 449
Other long-term liabilities.......................................................................... 2,500
---------
Total long-term liabilities.......................................................................... 35,040
---------
Total liabilities.................................................................................... 46,695
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock; $.01 par value; 2,000 shares authorized; none issued................................ --
Class A voting common stock; $.01 par value; 225,000 shares authorized; 27,267 shares issued and
outstanding........................................................................................ --
Class B nonvoting common stock; $.01 par value; 100,000 shares authorized; 54,500 shares issued and
outstanding (convertible at option of holder into Class A voting common stock)..................... 1
Paid-in capital...................................................................................... 9,891
Retained earnings.................................................................................... 1,690
---------
Total stockholders' equity........................................................................... 11,582
---------
Total liabilities and stockholders' equity........................................................... $ 58,277
---------
---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-86
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 71,848 $ 47,338
COST OF GOODS SOLD.......................................................................... 56,197 37,070
--------- ---------
Gross profit.............................................................................. 15,651 10,268
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses.................................... 12,180 8,111
--------- ---------
Income from operations.................................................................... 3,471 2,157
INTEREST EXPENSE............................................................................ 2,105 1,416
--------- ---------
Income before income taxes................................................................ 1,366 741
PROVISION FOR INCOME TAXES.................................................................. 675 350
--------- ---------
NET INCOME.................................................................................. $ 691 $ 391
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-87
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A VOTING CLASS B VOTING
COMMON STOCK COMMON STOCK TOTAL
-------------------- -------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997............. 25,501 $ -- 54,500 $ 1 $ 9,675 $ 999 $ 10,675
Net income........................... -- -- -- -- -- 691 691
Exercise of stock options............ 1,766 -- -- -- 216 -- 216
--------- --------- --------- --------- --------- --------- ------------
BALANCE, June 30, 1998................. 27,267 $ -- 54,500 $ 1 $ 9,891 $ 1,690 $ 11,582
--------- --------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- --------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-88
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 691 $ 391
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................................ 913 754
Amortization of deferred financing costs................................................. 223 210
Provision for bad debt................................................................... 1,301 820
Deferred tax provision................................................................... -- 141
Accretion of discount.................................................................... 67 57
Changes in assets and liabilities:
Accounts receivable, net................................................................. 1,410 (61)
Inventories.............................................................................. (5,191) (2,958)
Prepaid expenses and other current assets................................................ (103) (261)
Accounts payable......................................................................... (1,692) (244)
Accrued liabilities...................................................................... 459 543
Other assets............................................................................. (304) (96)
--------- ---------
Net cash used in operating activities.................................................. (2,226) (704)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................................. (1,038) (653)
--------- ---------
Net cash used in investing activities.................................................... (1,038) (653)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable................................................................... (1,563) (530)
Net borrowings under revolving credit facility............................................. 4,737 1,951
Payment of capital lease obligation........................................................ (21) --
Proceeds from exercise of stock options.................................................... 216 --
--------- ---------
Net cash provided by financing activities.............................................. 3,369 1,421
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 105 64
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................... 34 40
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................... $ 139 $ 104
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest................................................................................. $ 2,012 $ 1,200
Income taxes............................................................................. 400 265
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-89
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated results of operations and cash flows of Wing
Industries Holdings, Inc. and Subsidiary (the "Company") for the six months
ended June 30, 1998 and 1997, and financial position as of June 30, 1998 have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
interim financial information have been included. The results of operations for
any interim period are not necessarily indicative of the results of operations
for a full year. Certain prior period amounts have been reclassified to conform
to the current period presentation.
2. INVENTORIES:
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Work-in-process and finished goods
inventories consist of materials, labor, and manufacturing overhead. Inventories
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
---------
<S> <C>
Raw materials...................................................................... $ 9,662
Work-in-process.................................................................... 2,221
Finished goods..................................................................... 6,685
---------
18,568
LIFO reserve....................................................................... 180
---------
$ 18,748
---------
---------
</TABLE>
3. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
---------
<S> <C>
Subordinated notes................................................................. $ 12,500
Term loan facility................................................................. 14,186
Revolving credit facility.......................................................... 9,186
---------
35,872
Less: unamortized discount on exchangeable subordinated notes payable.............. (1,163)
current portion of notes payable.............................................. (3,127)
---------
$ 31,582
---------
---------
</TABLE>
4. CONTINGENCIES:
The Company is party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such kind, or involve
F-90
<PAGE>
WING INDUSTRIES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. CONTINGENCIES: (CONTINUED)
such amounts, that an unfavorable disposition would not have a material adverse
effect on the financial position, results of operations or liquidity of the
Company.
5. STOCK OPTIONS:
In February 1998, certain officers of the Company exercised 1,766 stock
options with exercise prices ranging from $115 to $130.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company entered into two interest rate swap agreements with a lender.
The Company pays a fixed rate of 6.25% and receives a floating rate based on
LIBOR on the aggregate notional principal amount as determined in three month
intervals. These transactions effectively change a portion of the Company's
interest rate exposure from a floating rate to a fixed rate basis. At June 30,
1998, the aggregate notional principal amount of the swap agreement was $3,156
and $2,250 with a fair value of $42 and $15.
7. SUBSEQUENT EVENT:
Pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 3, 1998, the Company will become a wholly-owned
subsidiary of Atrium Companies, Inc. and an indirect wholly owned subsidiary of
D and W Holdings, Inc. ("D&W") ("the Merger"). D&W was formed to effect the
Merger by the principal equity holders of the Company and Door Holdings, Inc.
("Door"), an affiliate. Pursuant to the terms of the Merger Agreement, D&W ("the
Merger") is also acquiring Atrium Companies, Inc. Transactions contemplated
pursuant to the Merger Agreement are expected to be consummated no later than
September 30, 1998.
Immediately prior to the merger, GE Investment Private Placement II
("GEIPPPI") and Ardshiel, Inc. are expected to increase their respective
ownership in the Class A voting common stock of the Company by converting their
respective interests in exchangeable subordinated notes payable, warrants and
Class B nonvoting common stock.
In connection with the Merger, Management will exchange all options in the
Company for options to purchase stock in D&W. The Company has a ten year
Management and Investment Banking Agreement (the "Management Agreement") with
Ardshiel, Inc. for on-going management advisory services to the Company. It is
also expected that the Management agreement will be terminated and replaced by a
new agreement with D&W.
As a part of the Merger, the notes payable remaining after conversion will
be repaid and the deferred financing cost will be expensed.
F-91
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY
JUNE 30,
1998
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................ $ 182
Accounts receivable, net......................................................................... 3,487
Inventories...................................................................................... 1,448
Prepaid expenses and other current assets........................................................ 175
-------------
Total current assets............................................................................. 5,292
PROPERTY AND EQUIPMENT, net........................................................................ 585
GOODWILL, net...................................................................................... 22,220
DEFERRED FINANCING COSTS........................................................................... 198
OTHER ASSETS....................................................................................... 3
-------------
Total assets..................................................................................... $ 28,298
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of note payable.................................................................. $ 500
Accounts payable................................................................................. 1,166
Accrued liabilities.............................................................................. 1,245
-------------
Total current liabilities........................................................................ 2,911
LONG-TERM LIABILITIES:
Notes payable.................................................................................... 14,285
Other long-term liabilities...................................................................... 4,000
-------------
Total liabilities................................................................................ 21,196
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000 shares authorized, 58,952 issued and outstanding........... 1
Paid-in capital.................................................................................. 6,468
Retained earnings................................................................................ 633
-------------
Total stockholders' equity....................................................................... 7,102
-------------
Total liabilities and stockholders' equity....................................................... $ 28,298
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-92
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1998 1997
----------- -----------
<S> <C> <C>
NET SALES........................................................... $ 10,432 $ 8,894
COST OF GOODS SOLD.................................................. 6,386 5,380
----------- -----------
Gross profit...................................................... 4,046 3,514
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses............ 2,043 2,202
----------- -----------
Income from operations.......................................... 2,003 1,312
INTEREST EXPENSE.................................................... (789) (20)
OTHER INCOME (EXPENSE), net......................................... 5 (9)
----------- -----------
Income before income taxes...................................... 1,219 1,283
PROVISION FOR INCOME TAXES.......................................... 586 --
----------- -----------
NET INCOME.......................................................... $ 633 $ 1,283
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-93
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998................................... -- $ -- $ -- $ -- $ --
Initial issuance of common stock......................... 58,952 1 5,699 5,700
Issuance of warrants..................................... 769 769
Net income............................................... 633 633
--------- ----- --------- ----- ------
Balance, June 30, 1998..................................... 58,952 $ 1 $ 6,468 $ 633 $ 7,102
--------- ----- --------- ----- ------
--------- ----- --------- ----- ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-94
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 633 $ 1,283
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:........................................
Depreciation.................................................... 45 71
Amortization of deferred financing costs........................ 15 --
Amortization of goodwill........................................ 283 --
Amortization of discount of note payable........................ 55 --
Loss on retirement of assets.................................... -- 29
Changes in assets and liabilities:................................
Accounts receivable, net........................................ (1,836) (934)
Inventories..................................................... (151) (364)
Prepaid expenses, deferred taxes, and other assets.............. (80) (3)
Accounts payable................................................ 338 288
Accrued liabilities............................................. 6 357
----------- -----------
Net cash (used in) provided by operating activities......... (692) 727
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired................... (19,945) --
Purchases of property and equipment............................... (168) (75)
Proceeds from sale of assets...................................... -- 94
----------- -----------
Net cash (used in) provided by investing activities............. (20,113) 19
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable............................ 16,000 27
Payment on note payable........................................... (73)
Borrowings under revolving credit facility........................ 500 7,687
Payments on revolving credit facility............................. (500) (7,897)
Payments on short term debt....................................... (500) --
Stockholder distributions......................................... -- (1,228)
Proceeds from issuance of common stock............................ 5700 --
Cash paid for financing costs..................................... (213) --
----------- -----------
Net cash (used in) provided by financing activities............. 20,987 (1,484)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 182 (738)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... -- 1,650
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $ 182 $ 912
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest........................................................ $ 734 $ 39
Payable to Seller............................................... 4,000 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-95
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated results of operations and cash flow of Door
Holdings, Inc. (formerly known as R.G. Darby Company, Inc. and Total Trim, Inc.
See Note 2.) for the six months ended June 30, 1998 and 1997, and financial
position as of June 30, 1998 have been prepared in accordance with generally
accepted accounting principles for interim financial reporting. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
These consolidated financial statements and footnotes should be read in
conjunction with the audited combined financial statements of R.G. Darby
Company, Inc. and Total Trim, Inc. for the years ended December 31, 1997 and
1996 included herein. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. The results of operations
for any interim period are not necessarily indicative of the results of
operations for a full year.
2. BASIS OF ACCOUNTING AND CHANGE IN OWNERSHIP:
R.G. Darby Company, Inc. ("R.G. Darby Company") and Total Trim, Inc. ("Total
Trim") (the "Companies") (the "Predecessor"), founded in 1983, provide interior
and exterior doors, vanity mirrors, door knobs and locks, shelving, molding, and
related installation to contractors of apartment buildings and hotels. The
Companies are based in Florence, Alabama and operate out of one facility. The
Companies supply materials and/or provide contract labor to install purchased
materials. Material requirements, with the exception of doors, are shipped
directly from the manufacturer to the contractor's location. Doors are assembled
and shipped from the Companies' production facility. The Companies consist of
three entities-- R.G. Darby Company is the sales company for materials; Darby
Doors, a division of R.G. Darby Company, is the manufacturing division that
produces the doors that are sold through R.G. Darby Company; and Total Trim is
responsible for contracting labor for any installation work. These entities
perform work in approximately 28 states, mainly in the South, Mid-Atlantic and
Northeast.
Effective January 8, 1998, the Companies were sold to Door Holdings, Inc.
("Door"). As specified in the agreement, the sales price was $24,000 plus or
minus any adjustments resulting from the Companies' combined working capital, as
defined in the sale agreement, being above or below $2,323 as of the closing
date. Included in the $24,000 is a contingent payment of $4,000 to be paid to
the former stockholder based on future operating results. An additional $2,000
which has not been recorded in the purchase price may be paid to the seller if
these financial targets are substantially exceeded. The purchase price was
funded primarily with $5,700 equity contributions, $16,000 of long-term debt,
and accrual of the deferred payment. Door did not have any significant activity
prior to this transaction. For the purpose of financial statement presentation,
the change in ownership occurring on January 8, 1998 was considered effective
January 1, 1998.
The Acquisition has been accounted for under the purchase method of
accounting. The aggregate purchase price of $24,520, (which includes $520 of
transaction related expenses) has been allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the date
of
F-96
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
2. BASIS OF ACCOUNTING AND CHANGE IN OWNERSHIP: (CONTINUED)
acquisition, with the remainder allocated to goodwill, being amortized on a
straight line basis over forty years. The preliminary purchase price allocation
is as follows:
<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 575
Accounts receivable, net........................................... 1,651
Inventories........................................................ 1,297
Prepaid expenses and other assets.................................. 101
Property and equipment, net........................................ 462
Goodwill........................................................... 22,503
Accounts payable and accrued liabilities........................... (2,069)
---------
Total purchase price............................................. $ 24,520
---------
---------
</TABLE>
The financial statements for the six months ended June 30, 1997 were
prepared for the Companies on their predecessor basis. No tax provision was
recorded for the six months ended June 30, 1997 as the Companies were S
corporations for income tax purposes. The financial statements for the six
months ended June 30, 1998 reflect the purchase adjustments discussed above.
Door is a C corporation for income tax purposes and therefore an income tax
provision has been recorded for the 1998 period. The primary differences between
the 1998 presentation and the 1997 presentation are the additional amortization
expense, interest expense, and income tax expense reflected in 1998 due to the
purchase transaction discussed above.
3. INVENTORIES:
Inventories, which are valued at the lower of cost or market using the
first-in, first-out (FIFO) method of accounting consisted of the following at
June 30, 1998:
<TABLE>
<S> <C>
Raw materials................................................... $ 1,303
Finished goods.................................................. 145
------
$ 1,448
------
------
</TABLE>
4. NOTES PAYABLE:
In connection with the acquisition discussed in Note 2 above, Door entered
into a $6,000 subordinated note payable to GE Investment Private Placement
Partners II ("GEIPPPII"), payable interest only in quarterly installments at
11.5% on the unpaid face amount, due January 9, 2004. The valuation assigned to
common stock warrants of 11,712 issued in conjunction with this note resulted in
a discount of $769 and an effective interest of approximately 16.78%. The
unamortized discount at June 30, 1998 was $714.
Also, in connection with the acquisition discussed in Note 2 above, Door
entered into a Credit Agreement providing for a $5,000 revolving credit facility
(the "Revolving Credit Facility") and a $10,000 Senior secured term loan
facility (the "Term Loan"). The Revolving Credit Facility and the Term Loan bear
interest at a rate based upon the lender's prime rate plus a borrowing margin of
1.5% or a EURO-based rate plus a borrowing margin of 2.5%. Door pays a
commitment fee of .375% based on the unused portion of both credit facilities.
The Revolving Credit Facility terminates on January 7, 2003. Door had
F-97
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
4. NOTES PAYABLE: (CONTINUED)
$5,000 of availability under the Revolving Credit Facility as of June 30, 1998.
In connection with the acquisition discussed in Note 2 above, Door borrowed
$10,000 under the Term Loan. Principal payments on the Term Loan are due
quarterly at amounts ranging from $250 to $400 through December 31, 2004.
Outstanding borrowings on the Term Loan at June 30, 1998 were $9,500 at an
approximate interest rate of 8.2%. The Credit Agreement contains various
covenants that restrict Door from taking various actions and requires Door to
achieve and maintain certain financial covenants. All tangible and intangible
assets of Door collateralize these credit facilities.
Principal payments due during the next fiscal five years on notes payable as
of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 1,100
2000............................................................................... 1,300
2001............................................................................... 1,500
2002............................................................................... 1,600
2003............................................................................... 1,600
Thereafter......................................................................... 8,399
---------
15,499
Less unamortized discount.......................................................... (714)
---------
$ 14,785
---------
---------
</TABLE>
5. CONTINGENCIES:
Door is party to various claims, legal actions, and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are without merit or are of such kind, or involve such amounts, that an
unfavorable disposition would not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of Door.
6. COMMON STOCK PLAN:
Effective January 9, 1998, the Board of Directors of Door approved the Door
Stock Option Plan (the Plan) that provides for the grant of incentive stock
options and nonqualified stock options to certain employees, officers and
directors of Door and its affiliates, as defined in the Plan. Under the Plan,
10,000 shares of Door's common stock have been reserved for issuance. Incentive
stock options granted under the Plan provide for the purchase of Door's common
stock at not less than fair value on the date the option is granted. However,
incentive stock options granted to any employee owning stock possessing more
than 10% of the total combined voting power of all classes of stock of Door
shall be at least 110% of the fair market value of Door's common stock on the
date the option is granted. Nonqualified stock options granted under the Plan
provide for the purchase of Door's common stock at a price specified by the
Stock Option Committee, which may be less than, equal to, or greater than the
fair market value of the common stock on the date such option is granted.
As of June 30, 1998, incentive stock options for approximately 5,900 shares
of common stock were granted at approximately $117 per share. The option price
of $117 per share will increase annually by 15% for 2,000 shares and 30% for
3,900 shares as defined by the Plan. These options become exercisable over a
F-98
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
6. COMMON STOCK PLAN: (CONTINUED)
three-year period and expire in January 2008. In addition, nonqualified stock
options for approximately 1,600 shares of common stock were granted at
approximately $235 per share. These options become exercisable upon the
happening of a "Value Event" as described in the Plan and expire in January
2008. As of June 30, 1998, there has been no Value Event.
7. RELATED PARTIES:
On January 9, 1998, Door entered into a ten-year Management and Investment
Banking Agreement (the "Management Agreement") with Ardshiel, Inc., ("Ardshiel")
a related party of Arddoor, L.L.C., an equityholder of Door Holdings, Inc.
Pursuant thereto, Door has agreed to pay Ardshiel an annual fee of $200 plus
expenses for on-going management advisory services to Door. The management
agreement also gives Ardshiel the first opportunity, in most instances, to
perform investment banking services for Door, for a fee equal to 2% of the total
transaction price related to any such sale/acquisition under the services
provided. The agreement is terminated in the event Ardshiel and Arddoor, L.L.C.
cease to be affiliates of Door.
8. SUBSEQUENT EVENTS:
Pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of August 3, 1998, Door will become a wholly-owned
subsidiary of Atrium Companies, Inc. and an indirect wholly owned subsidiary of
D and W Holdings, Inc. ("D&W") (the "Merger"). D&W was formed to effect the
Merger by the principal equity holders of Door and Wing Industries Holdings,
Inc., an affiliate. Pursuant to the terms of the Merger Agreement, D&W is also
acquiring Atrium Companies, Inc. Transactions contemplated pursuant to the
Merger Agreement are expected to be consummated no later than September 30,
1998.
Immediately prior to the merger, the subordinated note payable and related
warrants are expected to be converted into common stock of Door.
In connection with the Merger, management will exchange all options in Door
for options to purchase stock in D&W. It is expected that the management
agreement will be terminated and replaced by a new agreement with D&W upon
consummation with the Merger.
As a part of the Merger, the notes payable remaining after conversion will
be repaid and the deferred financing cost will be expensed.
F-99
<PAGE>
EXHIBIT 2.1
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
by and among
D AND W HOLDINGS, INC.,
D AND W ACQUISITION CORP.,
ATRIUM CORPORATION,
and
THE SECURITYHOLDERS NAMED HEREIN
Dated as of August 3, 1998
<PAGE>
ARTICLE 1
DEFINED TERMS
<TABLE>
<C> <S> <C>
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE 2
MERGER OF SUB INTO THE COMPANY
2.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.4 Certificate of Incorporation and By-Laws. . . . . . . . . . . . . . . . .13
2.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . . . . . .13
2.6 Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.7 Treatment of Options. . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.8 Closing of Transfer Books . . . . . . . . . . . . . . . . . . . . . . . .14
2.9 Payment in Connection with Closing. . . . . . . . . . . . . . . . . . . .14
2.10 Indemnification Escrow. . . . . . . . . . . . . . . . . . . . . . . . . .15
2.11 Reductions Notice.. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.13 Stockholder Approval. . . . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company . . . . . . . . . . . . . .17
3.2 Representations and Warranties of Parent and Sub. . . . . . . . . . . . .30
3.3 Representations and Warranties of Securityholders . . . . . . . . . . . .32
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE 5
ADDITIONAL COVENANTS OF THE COMPANY AND THE SECURITYHOLDERS
i
<PAGE>
<C> <S> <C>
5.1 Access and Information. . . . . . . . . . . . . . . . . . . . . . . . . .36
5.2 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . .37
5.3 Notification of Breach. . . . . . . . . . . . . . . . . . . . . . . . . .37
5.4 No Solicitation of Transactions.. . . . . . . . . . . . . . . . . . . . .37
5.5 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . .38
5.6 Termination of Certain Agreements . . . . . . . . . . . . . . . . . . . .38
ARTICLE 6
COVENANTS OF PARENT AND SUB
6.1 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . .38
6.2 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
6.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . .40
6.4 Solvency Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
6.5 Repayment of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
6.6 Indemnification of Officers, Directors, Employees and Agents. . . . . . .42
6.7 Notification of Breach. . . . . . . . . . . . . . . . . . . . . . . . . .42
6.8 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . .42
ARTICLE 7
MUTUAL COVENANTS
7.1 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . .43
7.2 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
7.3 Investigation and Agreement by Parent and Sub; No Other
Representations or Warranties . . . . . . . . . . . . . . . . . . . . . .43
7.4 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . .45
7.5 Option Exercise Prices. . . . . . . . . . . . . . . . . . . . . . . . . .45
7.6 Other Matters Relating to Options . . . . . . . . . . . . . . . . . . . .45
ARTICLE 8
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation . . . . . . . . . . . . . . . . . .45
8.2 Conditions to Obligation of Parent and Sub. . . . . . . . . . . . . . . .46
8.3 Conditions to Obligations of the Company. . . . . . . . . . . . . . . . .46
ARTICLE 9
CLOSING
ii
<PAGE>
<C> <S> <C>
9.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
9.2 Actions to Occur at Closing . . . . . . . . . . . . . . . . . . . . . . .47
9.3 Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . .48
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . .49
10.3 Return of Documentation . . . . . . . . . . . . . . . . . . . . . . . . .50
10.4 Sole and Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . .50
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification of Buyer Indemnified Parties. . . . . . . . . . . . . . .50
11.2 Indemnification of Seller Indemnified Parties . . . . . . . . . . . . . .50
11.3 Defense of Third-Party Claims . . . . . . . . . . . . . . . . . . . . . .50
11.4 Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
11.5 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
11.6 Buyer Indemnified Reductions Costs. . . . . . . . . . . . . . . . . . . .55
ARTICLE 12
THE REPRESENTATIVE
12.1 Authorization of the Representative . . . . . . . . . . . . . . . . . . .55
12.2 Payments of Expenses, Holdbacks . . . . . . . . . . . . . . . . . . . . .57
12.3 Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
12.4 Bank Accounts; Investments. . . . . . . . . . . . . . . . . . . . . . . .58
12.5 Compensation; Exculpation; Indemnity. . . . . . . . . . . . . . . . . . .59
12.6 Removal and Replacement of Representative; Successor Representative;
Action by Representative. . . . . . . . . . . . . . . . . . . . . . . . .60
12.7 Reliance; Limitation as to Parent, Sub and the Surviving Corporation. . .60
ARTICLE 13
GENERAL PROVISIONS
13.1 Survival of Representations, Warranties, Covenants and Agreements . . . .61
iii
<PAGE>
13.2 Amendment and Modification. . . . . . . . . . . . . . . . . . . . . . . .61
13.3 Waiver of Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . .61
13.4 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . .62
13.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
13.6 Expenses and Obligations. . . . . . . . . . . . . . . . . . . . . . . . .62
13.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .62
13.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
13.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
13.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
13.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
13.12 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . .65
13.13 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
13.14 Director and Officer Liability. . . . . . . . . . . . . . . . . . . . . .65
13.15 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
13.16 No Waiver Relating to Claims for Fraud. . . . . . . . . . . . . . . . . .65
</TABLE>
EXHIBITS:
<TABLE>
<S> <C>
*Exhibit A - Form of Letter of Transmittal
*Exhibit B - Form of Option Release
*Exhibit C - Form of Indemnification Escrow Agreement
*Exhibit D - Form of Termination Agreement
</TABLE>
* The above exhibits have been omitted. The Company will provide them to the
Securities and Exchange Commission supplementally upon request.
SCHEDULES:
<TABLE>
<S> <C>
*Schedule I Securityholders' Contribution to
Indemnification Escrow and Company
Transaction Costs Holdback
*Schedule II Stockholders
*Schedule III Optionholders
*Schedule 3.1(a) Subsidiaries
*Schedule 3.1(b) Capital Structure
*Schedule 3.1(d) No Conflict; Required Filings and Consents
*Schedule 3.1(f)(i) Financial Statements
*Schedule 3.1(f)(ii) Material Undisclosed Liabilities
*Schedule 3.1(f)(iii) Ordinary Course - Material Adverse Effect
*Schedule 3.1(g) Compliance with Applicable Laws
*Schedule 3.1(h) Litigation
iv
<PAGE>
*Schedule 3.1(i) Insurance
*Schedule 3.1(j) Owned Real Property
*Schedule 3.1(k) Leased Real Property
*Schedule 3.1(l) Tangible Property
*Schedule 3.1(m) Liens and Encumbrances
*Schedule 3.1(n) Environmental Matters
*Schedule 3.1(o) Taxes
*Schedule 3.1(p) Material Contracts
*Schedule 3.1(q) ERISA Compliance; Labor
*Schedule 3.1(r)(i) Patents, Trademarks, Etc.
*Schedule 3.1(r)(ii) Intellectual Property Ownership Exceptions
*Schedule 3.1(r)(iii) Licenses
*Schedule 3.1(s) Affiliate Relationships
*Schedule 3.1(u) Inventories
*Schedule 3.2(c) No Conflict; Required Filings and Consents
*Schedule 3.2(e) Financing Commitments
*Schedule 3.2(g)(i)(A) Financial Statements
*Schedule 3.(g)(i)(B) Balance Sheet
*Schedule 3.2(g)(ii) Material Undisclosed Liabilities
*Schedule 3.2(g)(iii) Ordinary Course - Material Adverse Effect
*Schedule 3.3(a) Liens on Common Stock and Options
*Schedule 3.3(c) No Conflict; Required Filings and Consents
*Schedule 3.3(e)(i)(A) Combined Financial Statements
*Schedule 3.3(e)(i)(B) Balance Sheet
*Schedule 3.3(e)(ii) Material Undisclosed Liabilities
*Schedule 3.3(e)(iii) Ordinary Course - Material Adverse Effect
*Schedule 4.1 Covenants of the Company
*Schedule 6.6(b) Indemnification Agreements
</TABLE>
* The above schedules have been omitted. The Company will provide them to
the Securities and Exchange Commission supplementally upon request.
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
August 3, 1998, is made by and among D and W Holdings, Inc., a Delaware
corporation ("Parent"), D and W Acquisition Corp., a Delaware corporation and a
wholly-owned Subsidiary of Parent ("Sub"), Atrium Corporation, a Delaware
corporation (the "Company"), and each of the persons identified on SCHEDULE I,
who are all of the holders of the issued and outstanding Common Stock (as
hereinafter defined) and Options (as hereinafter defined) issued by the Company
(the "Securityholders").
PRELIMINARY STATEMENTS
A. Each Securityholder identified on SCHEDULE II (collectively, the
"Stockholders") owns the number of shares of the Company's common stock, par
value $0.01 per share ("Common Stock"), set forth opposite such Securityholder's
name on SCHEDULE II.
B. Each Securityholder identified on SCHEDULE III (collectively,
the "Optionholders") holds Options (as hereinafter defined) to purchase the
number of shares of Common Stock set forth opposite such Securityholder's name
on SCHEDULE III.
C. The respective Boards of Directors of the Company, Parent and
Sub deem it advisable that Sub merge with and into the Company, and,
accordingly, have each approved this Agreement and the transactions contemplated
hereby, upon the terms and subject to the conditions set forth herein.
D. Parent, by its execution of this Agreement, has (in its capacity
as the sole stockholder of Sub) consented to, and has authorized, approved and
adopted, this Agreement and the transactions contemplated herein.
E. Each of the Stockholders, by their execution of this Agreement,
has (in his, her or its capacity as a stockholder of the Company) consented to,
and has authorized, approved and adopted this Agreement and the transactions
contemplated herein.
F. The Company, Parent, Sub and the Securityholders desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger (as hereinafter defined).
AGREEMENTS
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency
<PAGE>
of which are hereby acknowledged, and upon the terms and subject to the
conditions hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
DEFINED TERMS
1.1 DEFINED TERMS. The following terms shall have the following
meanings in this Agreement:
"1996 PLAN" means the Atrium Corporation 1996 Stock Option Plan,
approved by the Board of Directors of the Company and the stockholders of the
Company on November 7, 1996, and which became effective on November 27, 1996.
"AFFILIATE" means, with respect to any person, any other person
controlling, controlled by or under common control with such person. For
purposes of this definition and this Agreement, the term "control" (and
correlative terms) means the power, whether by contract, equity ownership or
otherwise, to direct the policies or management of a person.
"AGGREGATED GROUP" has the meaning set forth in Section 3.1(q).
"APPLICABLE LAWS" means all laws, statutes, rules, regulations,
ordinances, judgments, orders, decrees, injunctions and writs of any
Governmental Entity having jurisdiction over the business or operations of the
Company and its Subsidiaries, as may be in effect on or prior to the Closing
Date.
"APPRAISER" has the meaning set forth in Section 6.4(a)
"ATRIUM COMPANIES, INC." means Atrium Companies, Inc., a
Delaware corporation and a direct wholly-owned subsidiary of the Company.
"BALANCE SHEET" has the meaning set forth in Section 3.1(f).
"BALANCE SHEET DATE" has the meaning set forth in Section
3.1(f).
"BUSINESS DAY" means any day other than (i) a Saturday, Sunday
or federal holiday or (ii) a day on which commercial banks in New York, New York
or Dallas, Texas are authorized or required to be closed.
"BUYER CONTROLLED CLAIM" means a third-party action with respect
to which a Buyer Indemnified Party has assumed control as contemplated in
Section 11.3(d)(iii).
"BUYER INDEMNIFIED COMPANY COSTS" means (a) any and all damages,
losses, claims, liabilities, Taxes, demands, charges, suits, penalties, costs
and expenses (including court costs and
<PAGE>
reasonable attorneys' fees and expenses incurred in investigating and
preparing for any litigation or proceeding) that any of the Buyer Indemnified
Parties incurs and that arise out of any failure of any of the
representations or warranties made by the Company under this Agreement or any
of the other Transaction Documents to be true and correct at the time as of
which they are made; (b) any and all damages, losses, claims, liabilities,
Taxes, demands, charges, suits, penalties, costs, and expenses (including
court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) that any of the
Buyer Indemnified Parties incurs and that arise out of any breach or default
by the Company of any covenant or agreement made by the Company under this
Agreement or any of the other Transaction Documents and which are required to
be performed by the Company prior to the Closing; and (c) any and all
actions, suits, proceedings, claims, demands, assessments, judgments, costs,
and expenses, including reasonable legal fees and expenses, incident to any
of the foregoing.
"BUYER INDEMNIFIED COSTS" means the Buyer Indemnified Company
Costs and the Buyer Indemnified Securityholder Costs.
"BUYER INDEMNIFIED PARTIES" means Parent, each of Parent's
stockholders, partners and Affiliates, and each officer, director, employee and
consultant of Parent and its Affiliates.
"BUYER INDEMNIFIED REDUCTIONS COSTS" means Buyer Indemnified
Company Costs that a Buyer Indemnified Party incurs and that arise out of a
misstatement of the amount of Debt, Company Transaction Costs and/or Restricted
Payments Basket Shortfall Amount, if any, set forth in the Reductions Notice.
"BUYER INDEMNIFIED SECURITYHOLDER COSTS" means, with respect to
any Securityholder, (a) any and all damages, losses, claims, liabilities, Taxes,
demands, charges, suits, penalties, costs and expenses (including court costs
and reasonable attorneys' fees and expenses incurred in investigating and
preparing for any litigation or proceeding) that any of the Buyer Indemnified
Parties incurs and that arise out of any failure of any of the representations
or warranties made by such Securityholder under this Agreement or any of the
other Transaction Documents to be true and correct at the time as of which they
are made; (b) any and all damages, losses, claims, liabilities, Taxes, demands,
charges, suits, penalties, costs, and expenses (including court costs and
reasonable attorneys' fees and expenses incurred in investigating and preparing
for any litigation or proceeding) that any of the Buyer Indemnified Parties
incurs and that arise out of any breach or default by such Securityholder of any
covenant or agreement made by such Securityholder under this Agreement or any of
the other Transaction Documents; and (c) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs, and expenses,
including reasonable legal fees and expenses, incident to any of the foregoing.
"CERCLA" has the meaning set forth in the definition of
Environmental Laws contained in this Section 1.1.
"CERTIFICATE" has the meaning set forth in Section 2.9.
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"CERTIFICATE OF MERGER" has the meaning set forth in
Section 2.2.
"CLAIMS AMOUNT" has the meaning set forth in Section 11.5(e).
"CLOSING" means the closing of the Merger in accordance with the
provisions of Article 9.
"CLOSING DATE" has the meaning set forth in Section 9.1.
"CODE" means the United States Internal Revenue Code of 1986, as
amended. All references to the Code, U.S. Treasury regulations or other
governmental pronouncements shall be deemed to include references to any
applicable successor regulations or amending pronouncement.
"COMMON STOCK" has the meaning set forth in Section 2.6.
"COMPANY" has the meaning set forth in the first paragraph of
this Agreement.
"COMPANY 401(k) PLAN" means the retirement plan maintained by
the Company and designed to comply with Section 401 of the Code.
"COMPANY PERMITS" has the meaning set forth in Section 3.1(g).
"COMPANY SEC DOCUMENTS" has the meaning set forth in Section
3.1(e).
"COMPANY TRANSACTION COSTS" means the aggregate amount of all
fees, costs and expenses of the Company (whether incurred on behalf of the
Company or on behalf of any Stockholder) incurred in connection with this
Agreement and the other Transaction Documents or the transactions contemplated
hereby or thereby, including, without limitation, any investment banking,
accounting, advisory, brokers, finders, escrow agent or legal fees or fees paid
to any Governmental Entity or third party; provided, however, that "Company
Transaction Costs" shall not include (i) any fees, costs, or other expenses of
any kind incurred by or on behalf of the Company or any of its Subsidiaries in
connection with, or relating to, the efforts of Parent or any Affiliate of
Parent to obtain the funds necessary to consummate the Merger and for Parent to
otherwise perform its obligations under this Agreement and the other Transaction
Documents (including without limitation all accounting and legal fees and
expenses incurred in connection therewith); or (ii) any amounts paid or payable
by the Company under the Monitoring and Oversight Agreement.
"COMPANY TRANSACTION COSTS HOLDBACK AMOUNT" means an amount
equal to $250,000.
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"COMPANY TRANSACTION COSTS NOTICE AMOUNT" means the amount of
Company Transaction Costs set forth in the Reductions Notice.
"COMPANY VOTING DEBT" has the meaning set forth in Section
3.1(b).
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement
entered into between Wing Industries Holdings, Inc. and Salomon Brothers Inc. on
behalf of Atrium Companies, Inc. dated March 10, 1998.
"CONSENTS" means all governmental consents and approvals, and
all consents and approvals of third parties, in each case that are necessary in
order to consummate the transactions contemplated herein.
"CURE PERIOD" has the meaning set forth in Section 10.1(b).
"DGCL" means the General Corporation Law of the State of
Delaware.
"DEBT" without duplication, means, as of 11:59 p.m. on the day
immediately preceding the Closing Date and except for accounts and obligations
owed by the Company to its Subsidiaries or owed by a Subsidiary of the Company
to the Company and/or one or more of its Subsidiaries, the aggregate amount of
(a) all indebtedness of the Company or any of its Subsidiaries for the repayment
of money borrowed, whether or not represented by bonds, debentures, notes or
other securities, and all accrued and unpaid interest thereon, (b) all deferred
indebtedness of the Company or any of its Subsidiaries for the payment of the
purchase price of property or assets purchased, (c) all obligations of the
Company or any of its Subsidiaries to pay rent or any payment amounts under a
lease of real or personal property which is required to be classified as a
capital lease or a liability on the face of a balance sheet prepared in
accordance with GAAP, (d) any outstanding reimbursement obligations of the
Company or any of its Subsidiaries with respect to amounts drawn under letters
of credit, bankers' acceptances or similar facilities issued for the account of
the Company or any of its Subsidiaries, (e) any payment obligation of the
Company or any of its Subsidiaries under any interest rate swap agreement,
forward rate agreement, interest rate collar agreement or other financial
agreement or arrangement entered into for the purpose of limiting or managing
interest rate risks, (f) all indebtedness for borrowed money of any Person that
is not a direct or indirect Subsidiary of the Company that is secured by any
Lien on property owned by the Company or any its Subsidiaries, whether or not
indebtedness secured thereby shall have been assumed, (g) all guarantees,
endorsements (other than endorsements of checks in the ordinary course of
business), assumptions and other contingent obligations of the Company or any of
its Subsidiaries in respect of, or to purchase or to otherwise acquire,
indebtedness for borrowed money of any Person that is not a direct or indirect
Subsidiary of the Company, and (h) all premiums, prepayment penalties, change of
control payments, fees, expenses and other amounts which are or will be paid
(including LIBOR breakage costs under the Senior Credit Agreement) in respect of
any of the foregoing as a result of the consummation of the transactions
contemplated by this Agreement and the other Transactions Documents, but
excluding all premiums, prepayment penalties, change of
5
<PAGE>
control payments, fees, expenses and other such amounts as are required to be
paid in respect of the Senior Subordinated Notes as a result of the
transactions contemplated by this Agreement and the other Transaction
Documents.
"DEBT NOTICE AMOUNT" means the amount of Debt set forth in the
Reductions Notice.
"DE MINIMIS LOSSES" has the meaning set forth in
Section 11.5(b).
"DOJ" means the United States Department of Justice.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" within
the meaning of Section 3(3) of ERISA and any bonus, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, severance, disability, death benefit, hospitalization or
insurance plan providing benefits to any present or former employee or
contractor of the Company or any member of the Aggregated Group maintained by
any such entity.
"ENVIRONMENTAL COSTS OR LIABILITIES" has the meaning set forth
in Section 3.1(n).
"ENVIRONMENTAL LAWS" means all Applicable Laws pertaining to the
environment, natural resources, and public or employee health and safety,
including without limitation: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Emergency Planning and
Community Right to Know Act and the Superfund Amendments and Reauthorization Act
of 1986, the Resource Conservation and Recovery Act of 1976, the Hazardous and
Solid Waste Amendments Act of 1984, the Clean Air Act, the Clean Water Act, the
Federal Water Pollution Control Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, the Occupational Safety and Health Act of 1970, the Oil
Pollution Act of 1990, the Hazardous Materials Transportation Act, and any
similar or analogous statutes, regulations and decisional law of any
Governmental Entity, as may be in effect on or prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" means Norwest Bank Texas, N.A. and includes its
successors and assigns.
"ESCROW AMOUNT" means an amount equal to $15,000,000, or such
lesser amount as may be defined as the Escrow Amount from time to time as set
forth in Section 11.5(e)(ii).
"EXCHANGE ACCOUNT" has the meaning set forth in Section 2.9.
6
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXCHANGE AGENT" has the meaning set forth in Section 2.9.
"EXPIRATION DATE" has the meaning set forth in Section 11.5(c).
"FINANCIAL ADVISORY AGREEMENT" means the Financial Advisory
Agreement made and entered into effective as of November 27, 1996, among the
Company, Atrium Companies, Inc., and Hicks, Muse & Co. Partners, L.P.
"FINANCIAL STATEMENTS" has the meaning set forth in
Section 3.1(f).
"FINANCING COMMITMENTS" means the collective reference to the
Subscription Agreement and the Merrrill Lynch Letter.
"FIRST ANNIVERSARY" has the meaning set forth in
Section 11.5(e).
"FULLY-DILUTED COMMON STOCK" means the number of outstanding
shares of Common Stock plus (without duplication) all shares of Common Stock
issuable, whether at or upon the passage of time or the occurrence of future
events, upon the exercise of all outstanding Options.
"FTC" means the United States Federal Trade Commission.
"GAAP" means generally accepted accounting principles in the
United States.
"GAINS AND TRANSFER TAXES" has the meaning set forth in
Section 3.1(d).
"GOVERNMENTAL ENTITY" means any governmental department,
commission, board, bureau, agency, court or other instrumentality, whether
foreign or domestic, of any country, nation, republic, federation or similar
entity or any state, county, parish or municipality, jurisdiction or other
political subdivision thereof.
"HAZARDOUS SUBSTANCES" has the meaning set forth in
Section 3.1(n).
"HSR ACT" has the meaning set forth in Section 3.1(d).
"INDEMNIFIED COSTS" means the Buyer Indemnified Company Costs,
the Buyer Indemnified Securityholder Costs or the Seller Indemnified Costs, as
the case may be.
"INDEMNIFIED PARTIES" means the Buyer Indemnified Parties or the
Seller Indemnified Parties, as the case may be.
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<PAGE>
"INDEMNIFICATION ESCROW AGREEMENT" has the meaning set forth in
Section 2.10.
"INDENTURE" means the Indenture dated as of November 27, 1996
among Atrium Companies, Inc., certain of its subsidiaries and the United States
Trust Company of New York, as Trustee, relating to the Senior Subordinated
Notes, as amended by the First Supplemental Indenture thereto.
"INTELLECTUAL PROPERTY" has the meaning set forth in
Section 3.1(r).
"KNOWLEDGE" means, with respect to a specified party hereto, the
actual knowledge of any officer of such party, except that in the case of the
Company, "Knowledge" shall also include the actual knowledge of any officer of
the Company's Subsidiaries and in the case of Parent, "Knowledge" shall also
include the actual knowledge of any officer of Parent's Subsidiaries.
"LEASED REAL PROPERTY" means all of the leasehold interests and
related rights of the Company and its Subsidiaries pursuant to the leases which
are identified and described in SCHEDULE 3.1(k).
"LETTER OF TRANSMITTAL" has the meaning set forth in
Section 2.9.
"LIENS" has the meaning set forth in Section 3.1(m).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, operations, financial condition, or results of operations of the
Company and its Subsidiaries, in each case taken as a whole.
"MATERIAL CONTRACT" has the meaning set forth in Section 3.1(p).
"MAXIMUM SECURITYHOLDER ESCROW AMOUNT" has the meaning set forth
in Section 11.5.
"MERGER" has the meaning set forth in Section 2.1.
"MERGER CONSIDERATION" means an amount equal to (i)
$225,000,000, minus (ii) the Company Transaction Costs Notice Amount, minus
(iii) the Debt Notice Amount, minus (iv) the Restricted Payments Basket
Shortfall Notice Amount, if any.
"MERRILL LYNCH LETTER" means the letter dated the date hereof
from Merrill Lynch Capital Corporation to Arddoor, LLC, GE Investment Private
Placement Partners II and Parent.
"MONITORING AND OVERSIGHT AGREEMENT" means the Monitoring and
Oversight Agreement made and entered into effective as of November 2, 1996,
among the Company, Atrium Companies, Inc., and Hicks, Muse & Co. Partners, L.P.
8
<PAGE>
"OPTION PROCEEDS" means the aggregate exercise price that would
be paid if all Options outstanding immediately prior to the Effective Time were
exercised in full (assuming for the purposes of this definition that all such
Options could be exercised in full as of such time).
"OPTION RELEASE" has the meaning set forth in Section 2.9.
"OPTIONHOLDERS" has the meaning set forth in the Preliminary
Statements of this Agreement.
"OPTIONS" means the collective reference to (i) all options to
purchase shares of Common Stock issued under the 1996 Plan, (ii) all options to
purchase shares of Common Stock issued under the Original Plan, and (iii) the
Warrant.
"ORIGINAL PLAN" means the Atrium Corporation 1996 Original Stock
Option Plan, as amended, which was initially approved by the Board of Directors
of the Company on September 23, 1996, and the amendment of which was
subsequently approved by the Board of Directors of the Company and the
stockholders of the Company on November 7, 1996.
"OUTSTANDING SHARE" and "OUTSTANDING SHARES" have the meanings
set forth in Section 2.6.
"OWNED REAL PROPERTY" means those parcels of real property owned
in fee and used or held for use by the Company and its Subsidiaries as described
in SCHEDULE 3.1(j), and all buildings, structures, improvements, and fixtures
thereon, together with all rights of way, easements, rights of access,
privileges, and appurtenances pertaining or belonging thereto, including any
right, title, and interest of the Company and its Subsidiaries in and to any
street or other property adjoining any portion of such property.
"PARENT" has the meaning set forth in the first paragraph of
this Agreement.
"PENSION PLANS" has the meaning set forth in Section 3.1(q).
"PER SHARE ESCROW AMOUNT" means an amount equal to the
quotient obtained when (i) $15,000,000 is divided by (ii) the number of
shares of Fully-Diluted Common Stock immediately prior to the Effective Time.
"PER SHARE MERGER CONSIDERATION" means the quotient obtained
when (i) the sum of the Merger Consideration plus the Option Proceeds is divided
by (ii) the number of shares of Fully-Diluted Common Stock outstanding on the
Closing Date.
"PERMITS" has the meaning set forth in Section 3.1(n).
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<PAGE>
"PERMITTED ENCUMBRANCES" means (a) statutory liens for current
Taxes not yet due and payable, or, to the extent set forth on SCHEDULE 3.1(o),
being contested in good faith by appropriate proceedings, (b) mechanics',
carriers', workers', repairers', and other similar liens imposed by law arising
or incurred in the ordinary course of business for obligations which are not
overdue for a period of more than 90 days or which are being contested in good
faith by appropriate proceedings, (c) Liens arising under leases of vehicles,
rolling stock and other equipment, which Liens do not materially impair the
operation of the business at the facility at which such leased vehicle, rolling
stock or other equipment is located, (d) Liens on leases of real property
arising from the provisions of such leases, including, in relation to leased
real property, any agreements and/or conditions imposed on the issuance of land
use permits, zoning, business licenses, use permits, or other entitlements of
various types issued by any Governmental Entity, necessary or beneficial to the
continued use and occupancy of such real property or the continuation of the
business conducted by the Company and its Subsidiaries, (e) pledges or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other social security legislation,
(f) deposits to secure the performance of bids, contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business, (g) unviolated zoning regulations and restrictive
covenants and easements of record which do not detract from the value of the
Real Property and do not materially and adversely affect, impair or interfere
with the use of any property affected thereby, (h) public utility easements of
record, in customary form, to serve the Real Property, and (i) Liens not
otherwise included as Permitted Encumbrances that are disclosed in the Title
Commitments.
"PERMITTED LIENS" has the meaning set forth in Section 3.1(m).
"PERSON" and "PERSON" means an individual, corporation,
partnership, limited liability company, association, trust, unincorporated
organization, or other entity.
"PREFERRED STOCK" has the meaning set forth in Section 3.1(b).
"REAL PROPERTY" means the Leased Real Property and the Owned
Real Property.
"REDUCTIONS NOTICE" has the meaning set forth in Section 2.11.
"REPRESENTATIVE" has the meaning set forth in Section 12.1.
"RESTRICTED PAYMENTS BASKET SHORTFALL NOTICE AMOUNT" shall mean
the Restricted Payments Shortfall Amount set forth in the Reductions Notice.
"RESTRICTED PAYMENTS BASKET SHORTFALL AMOUNT" means the excess,
if any, of $123,000,000 over the sum of (i) the aggregate amount of Restricted
Payments (as defined in, and determined in accordance with the terms of, the
Indenture) that Atrium Companies, Inc. (without giving effect to the Merger or
any of the other transactions contemplated in the Merger Agreement
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<PAGE>
or the other Transaction Documents) could make under Section 4.4(a) of the
Indenture without creating a Default (as defined in the Indenture) plus
(ii) the amount of Debt set forth in the Reductions Notice.
"SCHEDULES" means the Schedules attached hereto.
"SEC" means the United States Securities and Exchange
Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SECURITYHOLDERS" has the meaning set forth in the first
paragraph of this Agreement.
"SELLER INDEMNIFIED COSTS" means (a) any and all damages,
losses, claims, liabilities, Taxes, demands, charges, suits, penalties, costs
and expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding) that
any of the Seller Indemnified Parties incurs and that arise out of any failure
of any of the representations or warranties made by Parent or Sub under this
Agreement or any of the other Transaction Documents to be true and correct at
the time as of which they are made; (b) any and all damages, losses, claims,
liabilities, Taxes, demands, charges, suits, penalties, costs, and expenses
(including court costs and reasonable attorneys' fees and expenses incurred in
investigating and preparing for any litigation or proceeding) that any of the
Seller Indemnified Parties incurs and that arise out of any breach or default by
Parent or Sub of any of their respective covenants or agreements under this
Agreement or any of the other Transaction Documents or that arise out of any
breach or default by the Company or the Surviving Corporation of any of their
respective covenants or agreements under this Agreement or any of the other
Transaction Documents which are required to be performed at or after Closing;
and (c) any and all actions, suits, proceedings claims, demands, assessments,
judgments, costs, and expenses, including reasonable legal fees and expenses,
incident to any of the foregoing.
"SELLER INDEMNIFIED PARTIES" means each Securityholder, each
stockholder, partner and Affiliate of such Securityholder, and each officer,
director, employee and consultant of such Securityholder and its Affiliates.
"SENIOR CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement by and among the Company, Atrium Companies, Inc., the Banks parties
thereto, and Bankers Trust Company, as Agent, dated as of March 27, 1998,
together with the "Credit Documents" (as such term is defined in such Amended
and Restated Credit Agreement).
"SENIOR SUBORDINATED NOTES" means the 10?% Senior Subordinated
Notes Due 2006, Series A, and the 10?% Senior Subordinated Notes Due 2006,
Series B, issued in the original aggregate principal amount of $100,000,000
pursuant to the Indenture.
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"SOLVENCY LETTER" has the meaning set forth in Section 6.4(a).
"STOCKHOLDERS" has the meaning set forth in the Preliminary
Statements of this Agreement.
"SUB" has the meaning set forth in the first paragraph of
this Agreement.
"SUBSCRIPTION AGREEMENT" means the Subscription Agreement
dated as of the date hereof by and among Parent and each of GE Investment
Private Placement Partners II and Arddoor.
"SUBSIDIARY" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its board of directors
or other governing body or (if there are no such voting interests) 50% or
more of the equity interests of which is owned directly or indirectly by such
person.
"SURVIVING CORPORATION" has the meaning set forth in Section
2.1.
"TAX RETURNS" means any return, report, statement, election,
information return or other document (including any related or supporting
information) filed or required to be filed with any Governmental Entity in
connection with the determination, assessment, collection or administration
of any Taxes or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"TAXES" means taxes, charges, fees, imposts, levies,
interest, penalties, fines, additions to tax or other assessments or fees of
any kind, including, but not limited to, income, corporate, capital,
estimated, excise, property, sales, use, turnover, gross receipts, ad
valorem, transfer, gains, profits, inventory, capital stock, license,
payroll, employment, unemployment, social security, workers' compensation,
stamp, value added and franchise taxes, required deposits, deductions,
withholdings and customs duties, imposed by any Governmental Entity, together
with any obligations under Treas. Reg. Section 1.1502-6 or any agreements or
arrangements with any Person with respect to the liability for, or sharing
of, Taxes, and including any liability as a successor or transferee in
respect of Taxes.
"TERMINATION AGREEMENT" means the Termination Agreement in
the form of EXHIBIT D by and among the Company, Atrium Companies, Inc.,
Hicks, Muse & Co. Partners, L.P. and Hicks, Muse, Tate & Furst Incorporated.
"TERMINATION DATE" has the meaning set forth in Section
10.1(b).
"TITLE CLAIMS" means, with respect to any Securityholder, any
claim brought against such Securityholder based upon the breach by such
Securityholder of the representations and warranties made by such
Securityholder in Section 3.3(a).
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"TITLE COMMITMENTS" has the meaning set forth in Section 3.1(j).
"TRANSACTION DOCUMENTS" means the collective reference to
this Agreement, the Indemnification Escrow Agreement and each other
agreement, document and instrument required to be executed in accordance
herewith.
"WARRANT" means the Warrant dated November 27, 1996 issued by
the Company to Randall S. Fojtasek.
1.2 REFERENCES AND TITLES. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections, and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections,
subsections, and other subdivisions of this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any Articles,
Sections, subsections, or other subdivisions of this Agreement are for
convenience only, do not constitute any part of such Articles, Sections,
subsections or other subdivisions, and shall be disregarded in construing the
language contained therein. The words "THIS AGREEMENT," "HEREIN," "HEREBY,"
"HEREUNDER," and "HEREOF," and words of similar import, refer to this
Agreement as a whole and not to any particular subdivision unless expressly
so limited. The words "THIS SECTION," "THIS SUBSECTION," and words of
similar import, refer only to the Sections or subsections hereof in which
such words occur. The word "INCLUDING" (in its various forms) means
"INCLUDING WITHOUT LIMITATION." Pronouns in masculine, feminine, or neuter
genders shall be construed to state and include any other gender and words,
terms, and titles (including terms defined herein) in the singular form shall
be construed to include the plural and vice versa, unless the context
otherwise expressly requires. Unless the context otherwise requires, all
defined terms contained herein shall include the singular and plural and the
conjunctive and disjunctive forms of such defined terms.
ARTICLE 2
MERGER OF SUB INTO THE COMPANY
2.1 MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time, Sub shall be merged with and
into the Company (the "Merger") in accordance with the terms of, and subject
to the conditions set forth in, this Agreement and the DGCL. Following the
Merger, the Company shall continue as the surviving corporation (sometimes
hereinafter referred to as the "Surviving Corporation") and the separate
corporate existence of Sub shall cease.
2.2 EFFECTIVE TIME. Immediately following the Closing, the
parties hereto shall cause a Certificate of Merger meeting the requirements
of Section 251 of the DGCL (the "Certificate of Merger") to be properly
executed and filed with the Secretary of State of the State of Delaware in
accordance with the terms and conditions of the DGCL. The Merger shall
become effective at the time of filing of the Certificate of Merger with the
Secretary of State of the State of Delaware in
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accordance with the DGCL, or at such later time which the parties hereto
shall have agreed upon and designated in such filing as the effective time of
the Merger (the "Effective Time").
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all
the property, rights, privileges, immunities, powers and franchises of the
Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of the Company and Sub shall become the
debts, liabilities, obligations and duties of the Surviving Corporation.
2.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. The certificate of
incorporation and by-laws of the Company in effect immediately prior to the
Effective Time shall be the certificate of incorporation and by-laws of the
Surviving Corporation as of the Effective Time, until duly amended in
accordance with applicable law; provided that the provisions relating to the
indemnification of directors, officers, employees and agents of the Company,
its Subsidiaries and other entities as described in Section 6.6(a) shall be
included in such certificate of incorporation and by-laws.
2.5 DIRECTORS AND OFFICERS. The directors and officers of Sub
immediately prior to the Effective Time shall be the directors and officers
of the Surviving Corporation as of the Effective Time.
2.6 CONVERSION OF SHARES. At the Effective Time, by virtue of
the Merger and without any action on the part of any party:
(a) Each share of common stock, par value $.01 per share,
of Sub issued and outstanding immediately prior to the Effective Time shall
remain outstanding and shall represent one share of common stock, par value
$.01 per share, of the Surviving Corporation, so that, after the Effective
Time, Parent shall be the holder of all of the issued and outstanding shares
of the Surviving Corporation's common stock;
(b) Each share of the Company's common stock, par value
$0.01 per share ("Common Stock"), outstanding immediately prior to the
Effective Time (each, an "Outstanding Share" and collectively, the
"Outstanding Shares") shall be converted into the right to receive the Per
Share Merger Consideration in cash, payable to the holder thereof without
interest, and shall otherwise cease to be outstanding, shall be canceled and
retired and cease to exist.
(c) Each share of Common Stock held in the treasury of
the Company or any of the Company's Subsidiaries immediately prior to the
Effective Time shall be cancelled and retired without any conversion thereof,
and no payment or distribution shall be made with respect thereto.
2.7 TREATMENT OF OPTIONS. Immediately prior to the Effective
Time, each Option then outstanding, whether or not then exercisable, shall be
converted into the right to receive an amount in cash, payable to the holder
thereof without interest, equal to the product of (i) the number of
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shares of Common Stock issuable immediately prior to the Effective Time upon
the exercise of such Option, whether at or upon the passage of time or the
occurrence of future events, and (ii) the excess, if any, of the Per Share
Merger Consideration over the exercise price per share of Common Stock
issuable upon the exercise of such Option immediately prior to the Effective
Time, whether at or upon the passage of time or the occurrence of future
events; and such Option shall otherwise cease to be outstanding, shall be
cancelled and retired and cease to exist.
2.8 CLOSING OF TRANSFER BOOKS. From and after the Effective
Time, the stock transfer books of the Company shall be closed and no transfer
of Common Stock shall thereafter be made. From and after the Effective Time,
the holders of Certificates evidencing ownership of Outstanding Shares
immediately prior to the Effective Time shall cease to have any rights with
respect to such Outstanding Shares, except as otherwise provided for herein
or by applicable law.
2.9 PAYMENT IN CONNECTION WITH CLOSING.
(a) At the Closing, Parent and the Surviving Corporation
shall transfer to a bank or trust company designated by Parent (the "Exchange
Agent"), by wire transfer of immediately available funds, cash in an amount
equal to (i) the Merger Consideration, minus (ii) the aggregate amount paid
to Securityholders pursuant to Paragraph 2.9(b), minus (iii) the Escrow
Amount, minus (iv) the Company Transaction Costs Holdback Amount. Such funds
shall be deposited by the Exchange Agent in an account (the "Exchange
Account") established for the benefit of the Securityholders. Upon such
payment to the Exchange Agent and any payments required pursuant to Paragraph
2.9(b), Parent, Sub and the Surviving Corporation shall thereafter have no
further liability to the Securityholders in connection with the Merger
Consideration. Nothing in the immediately preceding sentence shall limit any
claims of the Securityholders under this Agreement other than with respect to
the payment of the Merger Consideration. The Exchange Agent shall pay to
each holder of a stock certificate which immediately prior to the Effective
Time represented Outstanding Shares (a "Certificate"), upon receipt by the
Exchange Agent of the Certificate(s) held by such holder and a completed and
duly executed letter of transmittal in the form of EXHIBIT A hereto (a
"Letter of Transmittal"), an amount equal to (i) the product obtained when
the number of Outstanding Shares of Common Stock previously represented by
all Certificate(s) held by such holder is multiplied by the Per Share Merger
Consideration, minus (ii) the amount set forth opposite such Stockholder's
name in column G of SCHEDULE I. The Exchange Agent shall pay to each
Optionholder, upon receipt by the Exchange Agent of a completed and duly
executed Option Surrender Agreement, Release and Waiver in the form of
EXHIBIT B hereto (an "Option Release"), an amount equal to (i) the product
obtained when (x) the number of shares of Common Stock issuable upon the
exercise of such Option immediately prior to the Effective Time, whether at
or upon the passage of time or the occurrence of future events, is multiplied
by (y) an amount equal to the excess of the Per Share Merger Consideration
over the per share exercise price of such Option, minus (ii) the amount set
forth opposite such Optionholder's name in column H of SCHEDULE I.
(b) Each Stockholder who surrenders a Certificate for
cancellation to Parent at the Closing, together with a duly executed Letter
of Transmittal, shall be entitled to receive in
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exchange therefor the amount such Stockholder has the right to receive if
such Stockholder delivers such Certificate and Letter of Transmittal to the
Exchange Agent pursuant to Section 2.9(a), payable by wire transfer of
immediately available funds on the Closing Date to an account designated in
writing by such Stockholder prior to the Closing Date, and the Certificate so
surrendered shall forthwith be cancelled. Each Optionholder who delivers to
Parent a duly executed Option Release at Closing shall be entitled to receive
in exchange therefor the amount such Optionholder has the right to receive if
such Optionholder delivers such Option Release to the Exchange Agent pursuant
to Section 2.9(a), payable by wire transfer of immediately available funds on
the Closing Date to an account designated in writing by such Optionholder
prior to the Closing Date, and the Option previously held by such
Optionholder shall forthwith be cancelled.
(c) All payments to Securityholders shall be subject to
any required withholding of taxes, if any. No interest shall accrue or be
paid on the cash payable upon the delivery of Certificates, Letters of
Transmittal or Option Releases. Neither the Exchange Agent nor any party
hereto shall be liable to a Securityholder for any cash or interest thereon
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar laws.
(d) The Exchange Agent will, promptly upon receipt
thereof, deliver to the Surviving Corporation surrendered Certificates,
Letters of Transmittal and Option Releases received by it, and on the date
that is nine months following the Closing Date, return to the Surviving
Corporation any portion of the Merger Consideration remaining to be paid to
Securityholders who have not yet surrendered their Certificates, Letters of
Transmittal or Option Releases, as the case may be, and any other funds in
the Exchange Account which are to be distributed to Securityholders. Any
Securityholders will thereafter be entitled to look only to the Surviving
Corporation for payment of their claim for the consideration set forth in
this Section 2.9, without interest thereon, but will have no greater rights
against the Surviving Corporation than may be accorded to general creditors
thereof under applicable law.
2.10 INDEMNIFICATION ESCROW. Pursuant to Article 11 hereof, the
Securityholders have (a) jointly and severally agreed to indemnify the Buyer
Indemnified Parties from and against certain Buyer Indemnified Company Costs,
and (b) severally agreed to indemnify the Buyer Indemnified Parties from and
against certain Buyer Indemnified Securityholder Costs. On or prior to
Closing, the Representative, Parent and the Escrow Agent shall enter into an
Indemnification Escrow Agreement in the form of EXHIBIT C, subject only to
the comments, if any, of the Escrow Agent as to its rights and obligations
thereunder (the "Indemnification Escrow Agreement"). Notwithstanding any
other provision in this Agreement to the contrary, in order to secure the
indemnity obligations of the Securityholders to the Buyer Indemnified Parties
under this Agreement, at the Closing a portion of the Merger Consideration
which would otherwise be required to be delivered to the Securityholders
equal to $15,000,000 shall be deposited in and held in escrow pursuant to the
terms of the Indemnification Escrow Agreement. Each Securityholder hereby
directs Parent to deposit the amount set forth opposite such Securityholder's
name in column C of Schedule I with the Escrow Agent at Closing and Parent
shall make such deposit as directed.
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2.11 REDUCTIONS NOTICE. No later than the Business Day
immediately preceding the scheduled Closing Date, the Company shall deliver
to Parent a written notice (the "Reductions Notice") setting forth (i) the
amount of Debt, (ii) the Restricted Payments Basket Shortfall Amount, if any,
(iii) the amount of any Company Transaction Costs previously paid or payable
by the Company, and (iv) the names and wiring instructions for the persons to
whom payment for unpaid Company Transaction Costs are to be made. At or
prior to the Closing, the Company shall pay any unpaid Company Transaction
Costs identified in the Reductions Notice. The Securityholders shall
indemnify Parent for any Debt or Company Transaction Costs not set forth in
the Reductions Notice. The Securityholders shall indemnify Parent for any
Restricted Payments Basket Shortfall Amount not set forth in the Reductions
Notice.
2.12 COMPANY TRANSACTION COSTS HOLDBACK. Notwithstanding any
other provision set forth in this Agreement to the contrary, at the Closing a
portion of the Merger Consideration that would otherwise be required to be
delivered to the Securityholders equal to the Company Transaction Costs
Holdback Amount shall be paid to the Representative to be held for a period
of not less than sixty (60) days from the Closing Date pursuant to the terms
and provisions of Article 12 to secure the payment of any Company Transaction
Costs not paid at or prior to Closing, if any. Each Securityholder hereby
directs Parent to deposit the amount set forth opposite such Securityholder's
name in Column F of SCHEDULE I with the Representative at Closing and Parent
shall make such deposit as directed.
2.13 STOCKHOLDER APPROVAL. By his, her or its execution and
delivery of this Agreement, each Stockholder hereby consents (in his, her or
its capacity as a stockholder of the Company) to the Merger, this Agreement,
the Indemnification Escrow Agreement and the consummation of the transactions
contemplated herein and therein, and agrees that such Stockholder will not
(in his, her or its capacity as a stockholder of the Company) withdraw,
revoke, rescind or alter such consent in any way without the prior written
consent of Parent. In addition, by his, her or its execution and delivery of
this Agreement, each Stockholder hereby unconditionally and irrevocably
waives any appraisal rights such Stockholder would otherwise have as a result
of the Merger and the other transactions contemplated in this Agreement and
in the other Transaction Documents, and agrees that such Stockholder will not
withdraw, revoke, rescind or alter such waiver in any way without the prior
written consent of Parent. By its execution and delivery of this Agreement,
Parent hereby consents (in its capacity as the sole stockholder of Sub), to
the Merger, this Agreement, the Indemnification Escrow Agreement and the
consummation of the transactions contemplated herein and therein, and agrees
that Parent will not (in its capacity as a stockholder of Sub) withdraw,
revoke, rescind or alter such consent in any way without the prior written
consent of the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
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3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Sub as follows (with the understanding
that Parent and Sub are relying upon such representations and warranties in
entering into and performing their respective obligations under this
Agreement):
(a) ORGANIZATION, GOOD STANDING AND OTHER MATTERS Each
of the Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction
of incorporation, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
and is duly qualified to do business as a foreign corporation and in good
standing to conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not have a material adverse effect on the
business, operations, financial condition or results of operations of the
Company or such Subsidiary, as the case may be. The Company has made
available to Parent or its representatives complete and correct copies of its
certificate of incorporation and bylaws and its Subsidiaries' respective
certificates of incorporation and bylaws (or comparable charter or
organizational documents), as in effect on the date of this Agreement.
SCHEDULE 3.1(a) sets forth a true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary, and the jurisdictions where such Subsidiaries are qualified to do
business. Except as disclosed on SCHEDULE 3.1(a), the Company does not own,
directly or indirectly, any Subsidiaries or own, or have the right, pursuant
to a contract or otherwise, to acquire any capital stock, equity interest or
other similar investment in any corporation, partnership (or an arrangement
treated as such for Tax purposes), joint venture, association, limited
liability company, trust or other entity. Except as set forth on SCHEDULE
3.1(a), all outstanding shares of capital stock of the Company's Subsidiaries
are owned by the Company or a direct or indirect Subsidiary of the Company,
free and clear of all Liens.
(b) CAPITAL STRUCTURE. The authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock, and 20,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock").
No shares of Preferred Stock are issued and outstanding. As of the date
hereof, (i) 38,796,428 shares of Common Stock are issued and outstanding and
(ii) 805,708 shares of Common Stock are held by the Company in treasury.
Except as described in clause (ii) of the immediately preceding sentence, no
shares of capital stock of the Company are held by the Company or its
Subsidiaries. As of the Closing Date, except for such changes as may result
from the issuance of Common Stock upon the exercise of Options outstanding as
of the date of this Agreement, (i) 38,796,428 shares of Common Stock will be
issued and outstanding, and (ii) 805,708 shares of Common Stock will be held
by the Company in treasury. No bonds, debentures, notes or other instruments
or evidence of indebtedness having the right to vote (or convertible into, or
exercisable or exchangeable for, securities having the right to vote) on any
matters on which the Company's stockholders may vote ("Company Voting Debt")
are issued or outstanding. All outstanding shares of Common Stock are
validly issued, fully paid and nonassessable and were not issued in violation
of any preemptive or other similar rights. Except as set forth in SCHEDULE
3.1(b), as of the date of this Agreement there are outstanding, and as of the
Closing Date there shall be
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outstanding (except for such changes as may result from the issuance of
Common Stock upon the exercise of Options outstanding as of the date of this
Agreement): (A) no shares of capital stock, Company Voting Debt or other
voting securities of the Company or any Subsidiary of the Company; (B) no
securities of the Company or any Subsidiary of the Company convertible into,
or exchangeable or exercisable for, shares of capital stock, Company Voting
Debt or other voting securities of the Company or any Subsidiary of the
Company; and (C) no options, warrants, calls, rights (including preemptive
rights), commitments or agreements to which the Company or any Subsidiary of
the Company is a party or by which it is bound, in any case obligating the
Company or any Subsidiary of the Company to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or any Company
Voting Debt or other voting securities of the Company or of any Subsidiary of
the Company, or obligating the Company or any Subsidiary of the Company to
grant, extend or enter into any such option, warrant, call, right, commitment
or agreement.
(c) AUTHORITY. The Company has all requisite power and
authority to enter into this Agreement and the other Transaction Documents to
which the Company is a party and to consummate the transactions contemplated
herein and therein. The execution and delivery of such Transaction Documents
by the Company and the consummation of the transactions contemplated herein
or therein have been duly authorized by all necessary corporate action on the
part of the Company, including approval by the Company's Board of Directors.
This Agreement has been, and the other Transaction Documents to which the
Company will be a party have been, or upon execution and delivery will be,
duly executed and delivered by the Company and, assuming that such
Transaction Documents constitute the valid and binding agreement of the other
parties hereto, constitute, or upon execution and delivery will constitute,
the valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms and conditions, except that
the enforcement hereof and thereof may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(d) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The
execution and delivery by the Company of the Transaction Documents to which
it is a party do not, and the performance by the Company of the transactions
contemplated herein and therein will not, subject to obtaining the consents,
approvals, authorizations, and permits and making the filings described in
this Section 3.1(d) or as otherwise described on SCHEDULE 3.1(d), (i)
violate, conflict with, or result in any violation or breach of any provision
of the Company's or any of its Subsidiaries' certificate of incorporation or
bylaws, (ii) violate, conflict with, or result in a violation or breach of,
constitute a default (with or without due notice or lapse of time or both) or
require the consent of any Person under, any of the terms, conditions, or
provisions of any agreement, contract or other instrument or obligation to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any of their respective assets is
bound or give rise to any right of termination or acceleration thereunder,
(iii) violate any order, writ, judgment, injunction, decree, statute, law,
rule or regulation of any Governmental Entity binding upon the Company or any
of its
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Subsidiaries or by which or to which any of their respective assets is bound
or subject, or (iv) result in or require the creation or imposition of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries, except, with respect to each of clauses (i), (ii), (iii) and
(iv), such violations, conflicts, breaches or defaults as would not have a
Material Adverse Effect. No Consent of, or registration, declaration, or
filing with, any Governmental Entity is required by the Company or any of its
Subsidiaries in connection with the execution and delivery by the Company of
this Agreement and the other Transaction Documents to which it is a party or
the consummation of the transactions contemplated hereby or thereby, except
for (A) the filing of a premerger notification and report form by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the expiration or termination of the applicable waiting
period thereunder; (B) the filing with the SEC of such reports under and such
other compliance with the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated hereby; (C) the filing of
the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other
states in which the Company and its Subsidiaries do business; (D) such filing
and approvals as may be required by any applicable state securities, "blue
sky" or takeover laws; (E) such filings in connection with any state or local
tax which is attributable to the beneficial ownership of the Real Property
("Gains and Transfer Taxes"), if any; and (F) such other consents, approvals,
orders, authorizations, registrations, declarations, filings, notices or
permits the failure of which to be obtained or make would not have a Material
Adverse Effect.
(e) SEC DOCUMENTS. (i) The Company has made available to
Parent a true, complete and accurate copy of each report, schedule,
registration statement, definitive proxy statement and other document filed
by Atrium Companies, Inc. with the SEC since January 1, 1997 and prior to the
date of this Agreement (the "Company SEC Documents"), which are all the
documents (other than preliminary materials) that Atrium Companies, Inc. was
required to file with the SEC since such date. As of their respective dates,
the Company SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and none of the Company SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements included in the Company SEC Documents complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a
consistent basis during the periods covered thereby (except as may be
indicated in the notes thereto or, in the case of any unaudited statements,
as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present
in all material respects and in accordance with applicable requirements of
GAAP (subject, in the case of the unaudited statements, to year-end audit
adjustments, as permitted by Rule 10-01, and any other adjustments described
therein) the consolidated financial position of Atrium Companies, Inc. and
its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations of Atrium Companies, Inc. and its
consolidated Subsidiaries for the periods presented therein.
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(ii) The pro forma financial statements and other
pro forma financial information (including the notes thereto) included in the
Company SEC Documents comply as to form in all material respects with the
published rules and regulations of the SEC with respect thereto. The
assumptions used in the preparation of such pro forma financial statements
and other pro forma information included in the Company SEC Documents are
reasonable and the adjustments used therein are reasonably appropriate to
give effect to the transactions or circumstances referred to therein.
(f) FINANCIAL STATEMENTS; ABSENCE OF CERTAIN CHANGES OR
EVENTS. (i) The Company has delivered to Parent true, complete and accurate
copies of the unaudited consolidated balance sheet of Atrium Companies, Inc.,
and its consolidated Subsidiaries as of June 30, 1998, a copy of which is
attached as SCHEDULE 3.1(f)(i) (the "Balance Sheet"), together with the
related unaudited consolidated statements of income for the six-month period
then ended (such unaudited financial statements are collectively referred to
as the "Financial Statements"). The Financial Statements were prepared in
accordance with GAAP (except that they do not contain footnotes and do not
reflect year end adjustments) applied on a consistent basis throughout the
periods covered thereby (except to the extent disclosed therein) and fairly
present in all material respects the consolidated financial position of
Atrium Companies, Inc., and its consolidated Subsidiaries at the dates
thereof and the consolidated results of the operations of Atrium Companies,
Inc., and its consolidated Subsidiaries for the respective periods indicated.
(ii) Except as disclosed in SCHEDULE 3.1(f)(ii),
there is no material liability of any kind, whether accrued, absolute, fixed,
contingent, or otherwise, of the Company or any of its Subsidiaries that is
not reflected, accrued or reserved against in the Balance Sheet, other than
(A) liabilities incurred in the ordinary course of business since June 30,
1998 (the "Balance Sheet Date"), (B) any such liability which would not be
required to be presented in audited financial statements of the Company and
the notes thereto prepared in conformity with GAAP applied, in a manner
consistent with the past practices of Atrium Companies, Inc. relating to
preparation of audited financial statements, in the preparation of the
Balance Sheet (without regard to the fact that the Balance Sheet is not
audited), (C) liabilities under this Agreement, and (D) liabilities for fees
and expenses incurred in connection with the transactions contemplated in the
Transaction Documents.
(iii) Except as disclosed in SCHEDULE 3.1(f)(iii),
since the Balance Sheet Date, the Company and each of its Subsidiaries has
conducted its respective business only in the ordinary course consistent with
past practice, and nothing has occurred that would have been prohibited by
Section 4.1 if the terms of such section had been in effect as of and after
the Balance Sheet Date. Since the Balance Sheet Date, there has not
occurred, and neither the Company nor any of its Subsidiaries has incurred or
suffered, any event, circumstance, or fact that has resulted in or would
reasonably be expected to result in a Material Adverse Effect.
(iv) Atrium Companies, Inc. has not repaid any
principal amount of Indebtedness under the New Credit Facility (including,
without limitation, any renewal, extension, refunding, restructuring,
replacement or refinancing thereof referred to in the definition thereof) or
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any other agreements or indentures governing Senior Indebtedness with net
proceeds of Asset Dispositions, except to the extent that, in the case of a
repayment of revolving credit Indebtedness, the commitment to advance the
loans repaid has not been terminated. For the purposes of this Section
3.1(f)(iv), all capitalized terms used in this Section 3.1(f)(iv) shall have
the meanings ascribed to them in the Indenture.
(g) COMPLIANCE WITH APPLICABLE LAWS. The business of the
Company and each of its Subsidiaries has been conducted in compliance with
all Applicable Laws except where the failure to comply would not have a
Material Adverse Effect. Except as set forth on SCHEDULE 3.1(g), the Company
and its Subsidiaries hold all permits, licenses, variances, exemptions,
orders, franchises and approvals of all Governmental Entities necessary for
the lawful conduct of their respective businesses (the "Company Permits"),
except where the failure to hold any such Company Permits would not have a
Material Adverse Effect. To the Company's Knowledge, each of the Company
Permits was validly issued and is in full force and effect, and its validity
will not be affected by the transactions contemplated in this Agreement.
Except as set forth on SCHEDULE 3.1(g), the Company and its Subsidiaries are
in compliance with the terms of the Company Permits, except where the failure
to be in compliance would not reasonably be expected to have a Material
Adverse Effect. Except as set forth on SCHEDULE 3.1(g), no investigation or
review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the Knowledge of the Company, threatened
which, if resolved adversely to the Company, would have a Material Adverse
Effect.
(h) ABSENCE OF LITIGATION. Except as set forth on
SCHEDULE 3.1(h), there is no claim, action, suit, inquiry, judicial or
administrative proceeding, grievance or arbitration pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries by or before any arbitrator or Governmental Entity, nor are
there any investigations of the Company or any of its Subsidiaries pending
or, to the Knowledge of the Company, threatened by or before any arbitrator
or any Governmental Entity, except, in either case, such claims, actions,
suits, inquiries, proceedings, grievances, arbitrations or investigations
which, if resolved adversely to the Company or any of its Subsidiaries, would
not reasonably be expected to have a Material Adverse Effect. Except as set
forth in SCHEDULE 3.1(h), there is no judgment, decree, injunction, order,
determination, award, finding or letter of deficiency of any Governmental
Entity or arbitrator outstanding against the Company which has resulted in or
would reasonably be expected to result in a Material Adverse Effect. There
is no action, suit, inquiry or judicial or administrative proceeding pending
or, to the Knowledge of the Company, threatened against the Company or any of
its Subsidiaries relating to the transactions contemplated in the Transaction
Documents.
(i) INSURANCE. SCHEDULE 3.1(i) sets forth an accurate
list of all title, fire, general liability, malpractice liability, theft, and
other forms of property and casualty insurance and all fidelity bonds held by
the Company and each of its Subsidiaries and which are material to the
Company, its Subsidiaries and their respective businesses. A true, complete
and accurate copy of each policy relating to such insurance coverage has been
made available to Parent. To the Knowledge of the Company, each of such
policies are valid, binding and enforceable against the provider of such
insurance. To the Knowledge of the Company, no event has occurred, including
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the failure by the Company or any of its Subsidiaries to give any notice or
information or the delivery of any inaccurate or erroneous notice or
information, which limits or impairs the rights of the Company or any of its
Subsidiaries under any such insurance policies in such a manner as has had or
would reasonably be expected to have a Material Adverse Effect.
(j) OWNED REAL PROPERTY. SCHEDULE 3.1(j) contains a
description of each parcel of real property included in Owned Real Property
and references a Commitment to Issue Title Insurance with respect to each
such parcel (the "Title Commitments"). True, complete and accurate copies of
the Title Commitments and the deeds by which title to each parcel of Owned
Real Property was transferred to the Company and its Subsidiaries have been
made available to Parent prior to the date hereof. Except as set forth in
SCHEDULE 3.1(j), to the Company's Knowledge the Company or a Subsidiary of
the Company has good and indefeasible, fee simple title in and to the Owned
Real Property, free and clear of all Liens other than Permitted Liens.
Except as set forth in SCHEDULE 3.1(j), at the Effective Time, the Company or
a Subsidiary of the Company will have good and indefeasible, fee simple title
in and to the Owned Real Property, free and clear of all Liens other than
Permitted Encumbrances. The Company has delivered to Parent copies of all as
built and boundary surveys of the Owned Real Property in the Company's
possession or within its control. The Company or a Subsidiary of the Company
has sufficient title to such easements, rights of way and other rights
appurtenant to each of the Owned Real Properties as are necessary to permit
ingress and egress to and from the Owned Real Property to a public way, and
the material improvements on the Owned Real Property have access to such
sewer, water, gas, electric, telephone, and other utilities as are necessary
to allow the business of the Company and each of its Subsidiaries operated
thereon to be operated in the ordinary course as currently operated. Except
as set forth on SCHEDULE 3.1(j), neither the Company nor any of its
Subsidiaries has received written notice of any pending condemnation or
similar proceeding with respect to the Owned Real Property or any portion
thereof, and, to the Knowledge of the Company, no such action is threatened.
Except as set forth on SCHEDULE 3.1(j), the improvements located on the Owned
Real Property are in sufficiently good condition (except for ordinary wear
and tear) to allow the business of the Company and its Subsidiaries to be
operated in the ordinary course as currently operated. The current use of
the Owned Real Property by the Company and its Subsidiaries does not violate
in any material respect any restrictive covenants of record or zoning
requirements affecting any of the Owned Real Property.
(k) LEASED REAL PROPERTY. SCHEDULE 3.1(k) contains a
list of all real property leases to which the Company and any of its
Subsidiaries is a party, true, complete and accurate copies of which have
been made available to Parent prior to the date hereof. Each lease described
in SCHEDULE 3.1(k) is a valid and binding obligation of the Company or a
Subsidiary of the Company and is in full force and effect without amendment
other than as described in SCHEDULE 3.1(k). Except as otherwise disclosed on
SCHEDULE 3.1(k), neither the Company nor any of its Subsidiaries is in
default in any material respect under, and to the Knowledge of the Company,
no other party is in default under, any lease listed in SCHEDULE 3.1(k).
(l) TANGIBLE PROPERTY. With respect to the tangible
properties and assets owned or leased by the Company and its
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Subsidiaries (excluding Real Property), the Company and its Subsidiaries have
good and marketable title to, or hold pursuant to valid and enforceable
leases, all such properties and assets, with only such exceptions as
constitute Permitted Liens or as would not have a Material Adverse Effect.
Such tangible properties and assets of the Company and its Subsidiaries are
in good operating condition and repair, reasonable wear and tear excepted,
except where the failure to be in such repair or condition or so usable would
not have a Material Adverse Effect.
(m) LIENS AND ENCUMBRANCES. Substantially all of the
assets of the Company and each of its Subsidiaries are free and clear of all
liens, pledges, voting agreements, voting trusts, proxy agreements, adverse
claims, security interests, restrictions, mortgages, tenancies, and other
possessory or beneficial interests, conditional sale or other title retention
agreements, assessments, easements, rights-of-way, covenants, restrictions,
rights of first refusal, defects in title, encroachments, and other burdens,
options or encumbrances of any kind (collectively, the "Liens") except (i)
Permitted Encumbrances and (ii) Liens set forth on SCHEDULE 3.1(m) (the
"Liens" referred to in clauses (i) and (ii) being collectively referred to in
this Agreement as "Permitted Liens").
(n) ENVIRONMENTAL MATTERS. Except as disclosed on
SCHEDULE 3.1(n):
(i) The real property and facilities currently
owned, operated and leased by the Company or any of its Subsidiaries and the
operations of the Company and its Subsidiaries thereon comply (and with
respect to the real property and facilities formerly owned, operated and
leased by the Company or any of its Subsidiaries and the former operations of
the Company and its Subsidiaries thereon, such real property, facilities and
operations during the period of the Company's or its Subsidiaries' ownership,
operation or lease did comply) with all Environmental Laws, except for such
failures to comply as have not had or would not reasonably be expected to
have a Material Adverse Effect;
(ii) (A) No judicial, administrative or other
regulatory proceedings are pending or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries and (B) no written
notice from any Governmental Entity or any private or public Person has been
received by the Company or any of its Subsidiaries, in each case (1) claiming
any violation of any Environmental Laws by the Company or any of its
Subsidiaries, or by or on any real property or facility owned, operated or
leased by the Company or any of its Subsidiaries, or (2) requiring any
remediation, clean-up, modification, repair, work, construction, alteration,
or installation on any real property or facility owned, operated or leased by
the Company or any of its Subsidiaries that is necessary to comply with any
Environmental Laws and that have not been complied with or otherwise resolved
to the satisfaction of the party giving such notice;
(iii) All material permits, registrations, licenses
and authorizations ("Permits") required to be obtained or filed by the
Company or any of its Subsidiaries under any Environmental Laws in connection
with the Company's or any of its Subsidiaries' operations, including those
activities relating to the generation, use, storage, treatment, disposal,
release or remediation of Hazardous Substances, have been duly obtained or
filed, and the Company and each
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of its Subsidiaries is in compliance with the terms and conditions of all
such Permits, except where the failure to comply would not have a Material
Adverse Effect, and, to the Company's Knowledge, each of such Permits was
validly issued and is in full force and effect, and its validity will not be
affected by the transactions contemplated in this Agreement;
(iv) All Hazardous Substances used, generated,
treated, stored, transported or disposed of by the Company or any of its
Subsidiaries on, in or under any of the Company's or any of its Subsidiaries'
currently owned, operated or leased real property or facilities or which are
transported from any such property or facility to another location for
storage, treatment or disposal, are (and with respect to the real property
and facilities formerly owned, operated or leased by the Company or any of
its Subsidiaries, any Hazardous Substances used, generated, treated, stored,
transported or disposed of by the Company or any of its Subsidiaries on, in
or under any such properties or facilities during the period of ownership,
operation, or lease by the Company or its Subsidiaries were) generated,
stored, used, treated, disposed of, and released by such persons or on their
behalf in compliance in all material respects with Environmental Laws and in
such manner as not to result in any Environmental Costs or Liabilities.
"Hazardous Substances" means (A) any hazardous materials, hazardous wastes,
hazardous substances, toxic wastes, and toxic substances as those or similar
terms are defined under any Environmental Laws; (B) any asbestos or any
material which contains any hydrated mineral silicate, including chrysolite,
amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether
friable or non-friable; (C) PCBs, or PCB-containing materials, or fluids; (D)
radon; (E) any other hazardous, radioactive, toxic or noxious substance,
material, pollutant, contaminant, constituent, or solid, liquid or gaseous
waste regulated under, or for which remedial or environmental clean-up
liability may be imposed under, any Environmental Law; (F) any petroleum,
petroleum hydrocarbons, petroleum products, crude oil and any fractions or
derivatives thereof, any oil or gas exploration or production waste, and any
natural gas, synthetic gas and any mixtures thereof; and (G) any substance
that, whether by its nature or its use, is subject to regulation under any
Environmental Laws or with respect to which any Environmental Laws or
Governmental Entity requires environmental investigation, monitoring or
remediation. "Environmental Costs or Liabilities" means any material losses
or liabilities in connection with (1) any violation of any Environmental
Laws, or (2) a claim by any private or public person arising out of the
release or threatened release of Hazardous Substances to the environment or
any exposure of any person or property to Hazardous Substances; and
(v) Neither the Company nor any of its
Subsidiaries has received any written notification from any source advising
the Company or any of its Subsidiaries that: (A) it is or is proposed to be
a potentially responsible party under CERCLA or any other Environmental Laws;
(B) any real property or facility currently owned, operated or leased by it
is identified or proposed for listing as a federal National Priorities List
("NPL") (or state-equivalent) site or a Comprehensive Environmental Response,
Compensation and Liability Information System ("CERCLIS") list (or
state-equivalent) site; and (c) any facility to which it currently transports
or otherwise arranges for the disposal of Hazardous Substances is identified
or proposed for listing as an NPL (or state-equivalent) site or CERCLIS (or
state-equivalent) site.
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(o) TAXES. (i) Except as set forth on SCHEDULE 3.1(o)
hereto, each of the Company and its Subsidiaries has timely filed, or caused to
be filed, all Tax Returns required to be filed by the Company or any of its
Subsidiaries with all Governmental Entities through the date hereof, except for
any such Tax Return the failure to file which has not had, and would not
reasonably be expected to have, a Material Adverse Effect, and all such Tax
Returns which have been filed are accurate and complete in all material
respects. Except as set forth in SCHEDULE 3.1(o), no extension of time within
which to file any Tax Return which has not been filed has been requested or
granted.
(ii) Each of the Company and its Subsidiaries has
paid (or there has been paid on its behalf), or has set up an adequate
reserve for the payment of, or accrued in its financial statements or books
and records, all material Taxes required to be paid, withheld, or deducted,
or for which the Company or any of its Subsidiaries is liable, in respect of
the periods covered by such Tax Returns. With respect to each Tax payable,
from the end of the period covered by the most recently filed Tax Return to
the Balance Sheet Date, the Balance Sheet reflects an adequate accrual or
reserve in all material respects for all Taxes payable, or required to be
withheld and remitted, by the Company or any of its Subsidiaries, or for
which the Company or any of its Subsidiaries are liable, accrued through the
Balance Sheet Date.
(iii) The Company has delivered to the Buyer true,
correct and complete copies of all federal income Tax returns, audit and
examination reports, if any, and statements of deficiencies, if any, filed
by, assessed against or agreed to by any of the Company or any of its
Subsidiaries for any period ending in 1994, 1995, 1996 or 1997. Except as
disclosed on SCHEDULE 3.1(o), (A) the Company has not received written notice
of any deficiencies for any Taxes asserted or assessed against the Company or
any of its Subsidiaries which remain unpaid; (B) the Company has not received
any written notice that the Tax Returns of the Company or any of its
Subsidiaries are currently being audited or examined by the Internal Revenue
Service or any other Governmental Authority, (C) to the Company's Knowledge,
no such examinations are pending or threatened against the Company or any of
its Subsidiaries, and (D) none of the Company or any of its Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(iv) Except as disclosed on SCHEDULE 3.1(o), (A)
neither the Company nor any of its Subsidiaries is required to make any
material adjustments with respect to a change in Tax accounting methods and
neither the Company nor any of its Subsidiaries has proposed such adjustment
or received written notice that the Internal Revenue Service has proposed
such adjustment; (B) neither the Company nor any of its Subsidiaries has
received written notice of a claim made by any Taxing authority in a
jurisdiction where the Company or such Subsidiary, as the case may be, does
not file Tax Returns that the Company or such Subsidiary is subject to Tax in
such jurisdiction; (C) the Company is not, nor has it ever been, a member of
an "affiliated group" within the meaning of Code Section 1504(a)(1) other
than the affiliated group which currently consists of Atrium Corporation and
its direct and indirect wholly-owned Subsidiaries, nor has the Company
elected or been required to join in any consolidated, combined or unitary
Federal, state or local Tax filings; (D) neither the Company nor any of its
Subsidiaries has made any payments, is obligated to
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make any payments, or is a party to any agreement that would reasonably be
expected to obligate it to make any payments that will not be deductible
solely by reason of Section 280G of the Code; (E) there are no Tax rulings,
requests for rulings or closing agreements with any Tax authority which would
reasonably be expected to cause a Material Adverse Effect; (F) neither the
Company nor any Subsidiary has any deferred income reportable for a period
beginning after the Closing Date but that is attributable to a transaction
(e.g., an installment sale) occurring in a period ending on or prior to the
Closing Date; (G) none of the presently outstanding debt of the Company or
any Subsidiary is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code; (H) each of the Company and its Subsidiaries has
disclosed on its federal income Tax Returns all positions taken therein which
would reasonably be expected to result in any material "substantial
understatement of federal income tax" within the meaning of Section 6222 of
the Code and (I) except with respect to intercompany transactions involving
items of inventory sold by a selling member to a buying member at a price
which is in excess of cost and which are held by such buying member for sale
in the ordinary course of business, there are no deferred intercompany gains
or losses (within the meaning of Treas. Reg. Section 1.1502-13) presently
existing between the Company and its Subsidiaries.
(p) MATERIAL CONTRACTS. The Company has made available
to Parent true and complete copies of all written contracts, agreements,
commitments, arrangements, leases (including with respect to personal
property), policies and other instruments to which the Company or any of its
Subsidiaries is a party or by which the Company or any such Subsidiary is
bound which (i) contain non-compete, non-solicitation or change-of-control
provisions binding on the Company or any of its Subsidiaries, (ii) contain
provisions relating to the voting of the Company's capital stock or the
capital stock of any of the Company's Subsidiaries, (iii) contain provisions
relating to the sharing of, or allocation of liabilities for, Taxes, or (iv)
require payments to be made in excess of $250,000 per year (either
individually or pursuant to a series of related contracts, agreements,
commitments, arrangements, leases, policies or other instruments) for goods
and/or services and do not by their terms expire and are not subject to
termination without penalty within 60 days from the date of the execution and
delivery of notice thereof (collectively, "Material Contracts"); provided,
however, that blanket purchase orders or similar arrangements shall not be
considered Material Contracts for purposes of this agreement. SCHEDULE
3.1(p) contains a true, accurate and complete list of the Material Contracts.
Neither the Company nor any of its Subsidiaries is, or has received any
written notice that it is, in default in any respect under any such Material
Contract, except as listed on SCHEDULE 3.1(p); and, to the Company's
Knowledge, there has not occurred any event or events that with the lapse of
time or the giving of notice or both would constitute such a default, except
as listed on SCHEDULE 3.1(p).
(q) ERISA COMPLIANCE; LABOR. (i) Except as set forth on
SCHEDULE 3.1(q), the present value of all accrued benefits (vested and
unvested) determined on a termination basis under all the "employee pension
benefit plans," as such term is defined in Section 3(2) of ERISA, which the
Company or any other entity required to be aggregated with the Company under
Section 414(b), 414(c) or 414(m) of the Code (the "Aggregated Group")
sponsors (the "Pension Plans"), did not, as of the respective last annual
valuation dates for such Pension Plans, exceed the value of the assets
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of such Pension Plan allocable to such benefits. There are no members of the
Aggregated Group other than the Company and its Subsidiaries. Except as set
forth on SCHEDULE 3.1(q), neither the Company nor any member of the
Aggregated Group sponsors, and neither the Company nor any member of the
Aggregated Group has sponsored within the last three years, a "defined
benefit plan" as such term is defined in Section 3(35) of ERISA. No
"prohibited transaction," as such term is described in Section 4975 of the
Code, has occurred with respect to any of the Employee Benefit Plans which
would subject the Company or any member of the Aggregated Group, any officer
of the Company or any of such plans or any trust to any Tax or penalty on
prohibited transactions imposed by such Section 4975 of the Code. Except as
set forth on SCHEDULE 3.1(q), neither the Company nor any member of the
Aggregated Group has contributed or been obligated to contribute to any
"multi-employer plan" as such term is defined in Section 3(37) or Section
4001(a)(3) of ERISA. Other than the collective bargaining agreements
identified in SCHEDULE 3.1(q), the Company has not executed any agreement, or
taken any other action, that would reasonably be expected to require the
Company or any members of the Aggregated Group to make any contributions to
any multiemployer plan. Except as set forth on SCHEDULE 3.1(q) and in the
collective bargaining agreements identified on SCHEDULE 3.1(q), the Company
has no Knowledge of any condition that would reasonably be expected to give
rise to any obligation on the part of the Company or any member of the
Aggregated Group to make any contribution to any multiemployer plan. Except
as set forth on SCHEDULE 3.1(q), there are no Employee Benefit Plans. With
respect to the Employee Benefit Plans, no event has occurred and, to the
Knowledge of the Company, there exists no condition which would reasonably be
expected to subject the Company or any member of the Aggregated Group to any
liability under the terms of such Employee Benefit Plans or Applicable Laws
other than (G) any payment of benefits or premiums in the normal course of
plan operations, and (H) such conditions as would not have a Material Adverse
Effect. Except as described in Section 2.7 or as disclosed on SCHEDULE
3.1(q), no employee of the Company or any Subsidiary of the Company will be
entitled to any additional benefits or any acceleration of the time or
payment or vesting of any benefits under any Employee Benefit Plan as a
result of the transactions contemplated by this Agreement.
(ii) True, correct, and complete copies of each of
the Employee Benefit Plans, and related trust documents and favorable
determination letters, if applicable, have been made available to Parent or
its representatives, along with the most recent report filed on Form 5500 and
summary plan description with respect to each Employee Benefit Plan required
to file a Form 5500. All material reports and disclosures relating to the
Employee Benefit Plans required to be filed with or furnished to governmental
agencies or plan participants or beneficiaries have been furnished in
accordance with Applicable Laws in a timely manner. Each Employee Benefit
Plan has been maintained in all material respects in compliance with its
terms and Applicable Laws, and each Employee Benefit Plan intended to be
qualified under Section 401 of the Code satisfies the requirements of such
Section in all material respects and has not been operated in a manner which
would materially and adversely affect such qualified status. Except as
described on SCHEDULE 3.1(q), there are no actions, suits, or claims pending
(other than routine claims for benefits) or, to the Knowledge of the Company,
threatened against, or with respect to any of the Employee Benefit Plans.
All material contributions required to be made to the Employee Benefit Plans
pursuant to
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their terms have been timely made. As of the date hereof, to the Knowledge
of the Company, there is no matter pending with respect to any of the
Employee Benefit Plans before the Internal Revenue Service, Department of
Labor or the Pension Benefit Guaranty Corporation other than as described on
SCHEDULE 3.1(q). Except as required by Section 4980B of the Code and Title
I, Subtitle B, Part 6 of ERISA, and except as set forth on SCHEDULE 3.1(q),
none of the Employee Benefit Plans provides medical insurance coverage
following retirement.
(iii) Except as described in SCHEDULE 3.1(q),
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement. Except as set forth on SCHEDULE 3.1(q), each of the
Company and its Subsidiaries (A) is not engaged in any unfair labor
practices, and has no unfair labor practice charges or complaints before the
National Labor Relations Board pending or, to the Knowledge of the Company,
threatened against it, (B) has no notice of any charges, complaints or
proceedings before the Equal Employment Opportunity Commission, Department of
Labor or any other Governmental Entity responsible for regulating employment
practices, pending, or, to the Knowledge of the Company, threatened against
it and (C) has no Knowledge of any labor union or bargaining agent which has
bargaining rights with respect to any employee of the Company or any of its
Subsidiaries or which has applied or has indicated an intention to apply to
be certified as the bargaining agent of any such employee.
(r) PATENTS, TRADEMARKS, ETC.
(i) SCHEDULE 3.1(r)(i) contains a true and
complete list of all patents, patent applications, trademark and service mark
registrations and applications, copyright registrations and applications, and
material copyrights and grants of licenses or rights to the Company or its
Subsidiaries with respect to any of the foregoing, owned, used or claimed by
the Company or its Subsidiaries, whether registered or not (collectively, the
"Intellectual Property"). True and complete copies of all agreements
relating to the Intellectual Property have been made available to Parent
prior to the date of this Agreement.
(ii) Except as described in SCHEDULE 3.1(r)(ii),
the Company and its Subsidiaries own and/or have the exclusive right to use
the Intellectual Property, including all renewals therefor, and own all
claims for infringement thereof. The Company and its Subsidiaries own and/or
have the right to use every trade secret, know-how, process, discovery,
development, design, technique, customer and supplier list, promotional idea,
marketing and purchasing strategy, computer program (including source code)
technical data, invention, process, confidential data and other information
developed, created, or invented by the Company or its Subsidiaries which is
material to the conduct of the Company's business, or any of its
Subsidiaries' businesses, as presently conducted (collectively, "Proprietary
Information"), and have received no written claims of infringement from any
third party with respect to any of the Proprietary Information. The Company
and its Subsidiaries have taken reasonable measures to protect the secrecy
and confidentiality of all Proprietary Information.
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(iii) SCHEDULE 3.1(r)(iii) contains a true and
complete list of all licenses of, or rights to, Proprietary Information
granted to the Company or its Subsidiaries by others or to others by the
Company or its Subsidiaries which are currently in effect. Except as
described in Schedule 3.1(r)(iii), neither the Company nor any of its
Subsidiaries (a) has sold, transferred, assigned, licensed, restricted,
encumbered or subjected to any Lien other than Permitted Liens any
Intellectual Property or Proprietary Information or any interest therein, or
(b) is obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner or licensor of, or other
claimant to, any Intellectual Property or Proprietary Information.
(iv) The Company has received no written notice
of, and to the Company's Knowledge there is not threatened, any claim,
action, suit, inquiry, judicial or administrative proceeding or arbitration
which challenges the rights of the Company in respect of any Intellectual
Property or any Proprietary Information.
(v) As of the date hereof, the Company has filed
with the U.S. Patent and Trademark Office (the "PTO"), together with all
necessary specimens and filing fees, trademark registration applications for
"THE ATRIUM DOOR," "ATRIUM," "THE FRENCH CLASSIC" and "MASTERVIEW"
trademarks. The Company has filed with the PTO, together with all necessary
documents and filing fees, all patent and trademark recordation cover sheets
necessary to evidence proper title in the Company of all patents, patent
applications, trademark registration applications and trademark registrations
listed on SCHEDULE 3.1(r).
(s) AFFILIATE RELATIONSHIPS. Except with respect to
health and other insurance arrangements referred to in SCHEDULE 3.1(i) and
except as described in SCHEDULE 3,1(s) hereof, and except for advances to
officers or directors of the Company of business expenses incurred in the
ordinary course of business, neither the Company nor any of its Subsidiaries
is a party to, or bound by, any contract, agreement, arrangement (written or
oral) or other instrument to which any officer, director, stockholder or
other Affiliate of the Company is also a party, and no officer, director,
stockholder or other Affiliate of the Company is indebted for borrowed money
to the Company or any of its Subsidiaries.
(t) ACCOUNTS RECEIVABLE. Each of the accounts receivable
of the Company and its Subsidiaries arose from bona fide sales of goods or
services in the ordinary course.
(u) INVENTORY. The inventories of the Company and its
Subsidiaries are located at the specific locations described on SCHEDULE
3.1(u).
(v) RELATIONSHIP WITH GENERAL ELECTRIC COMPANY. Except
as disclosed on SCHEDULE 3.1(v), the Company does not have any equity,
creditor or similar relationship (including without limitation any investment
in, or any debtor, revolving credit, leasing or creditor relationship, but
excluding any vendor or vendee relationship) with General Electric Company or
any entity known by the Company to be a Subsidiary of General Electric
Company.
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(w) INFORMATION SYSTEMS PLAN. The Company has formulated
a plan in order to address the ability of the Company's information systems
to process date and time data from, into and beyond the year 2000 ("Year 2000
Data"), and the ability of such systems to interact with third parties'
systems and with and through electrical power, telecommunications and other
utilities and services. SCHEDULE 3.1(w) hereto identifies the Company's
information systems material to the operations of the Company and its
Subsidiaries (the "Information Systems") and identifies for each such
Information System (i) whether such Information System has been identified by
the Company as being able to accurately process such Year 2000 Data, and (ii)
if such Information System has not been identified by the Company as being
able to accurately process Year 2000 Data, the plan and target date for
replacing, updating or upgrading such Information System in order to be able
to accurately process such data. To the Company's Knowledge, such plans are
proceeding as scheduled and are being implemented at costs which do not
exceed the costs expected by the Company and its Subsidiaries to be incurred
with respect to their management information systems function in the ordinary
course of business. The Company is not aware of any facts or circumstances
that create a reasonable basis for the Company to believe that, if the
scheduled replacements, updates or upgrades continue to be made in accordance
with the plans identified on SCHEDULE 3.1(w), the Company's Information
Systems will be unable to accurately process such Year 2000 Data as of and
after December 31, 1999. No client, customer, supplier or vendor, and no
electric, telecommunications or other utility with whom the Company's
Information Systems interact has notified the Company that the Information
Systems, when used in combination with any information systems of such
person, will be unable to accurately process such Year 2000 Data if such
inability to accurately process such Year 2000 Data would reasonably be
expected to have a Material Adverse Effect.
3.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and
Sub jointly and severally represent and warrant to the Company and the
Securityholders as follows (with the understanding that the Company and the
Securityholders are relying upon such representations and warranties in
entering into and performing their respective obligations under this
Agreement):
(a) ORGANIZATION, GOOD STANDING AND OTHER MATTERS. Each
of Parent and Sub is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and in good standing to
conduct business in each jurisdiction in which the business it is conducting,
or the operation, ownership, or leasing of its properties, makes such
qualification necessary, other than in such jurisdictions where the failure
so to qualify would materially impair the ability Parent and Sub to
consummate the transactions contemplated in this Agreement. All of the
issued and outstanding capital stock of Sub is owned directly by Parent free
and clear of any Lien of any kind. Parent and Sub have heretofore made
available to the Company complete and correct copies of their respective
Certificates of Incorporation and Bylaws, as in effect on the date of this
Agreement.
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(b) AUTHORITY. Each of Parent and Sub has all requisite
power and authority to enter into this Agreement and the other Transaction
Documents to which they are a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of such
Transaction Documents by each of Parent and Sub, as applicable, and the
consummation of the transactions contemplated herein and therein have been
respectively duly authorized by all necessary corporate action on the part of
Parent and Sub, including approval by their respective Boards of Directors.
This Agreement has been, and the other Transaction Documents to which either
of Parent or Sub will be a party have been, or upon execution and delivery
will be, duly executed and delivered by each of Parent and Sub, as
applicable, and, assuming that such Transaction Documents constitute the
valid and binding agreement of the other parties thereto, constitute, or upon
execution and delivery will constitute, the valid and binding obligations of
Parent and Sub, as applicable, enforceable against Parent and Sub in
accordance with their respective terms and conditions, except that the
enforcement hereof and thereof may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The
execution and delivery by Parent and Sub of the Transaction Documents to
which each of them is a party do not, and the performance by Parent and Sub
of the transactions contemplated herein and therein will not, subject to
obtaining the consents, approvals, authorizations, and permits and making the
filings described in this Section 3.2(c), (i) violate, conflict with, or
result in any breach of any provisions of the Certificate of Incorporation or
Bylaws of Parent or Sub, (ii) violate, conflict with, or result in a
violation or breach of, or constitute a default (with or without due notice
or lapse of time or both) or require the consent of any Person under, any of
the terms, conditions, or provisions of any loan or credit agreement, note,
bond, mortgage, indenture, or deed of trust, or any license, lease,
agreement, or other instrument or obligation to which Parent or Sub is a
party or by which Parent or Sub or any material portion of their respective
assets is bound, or (iii) violate any order, writ, judgment, injunction,
decree, statute, law, rule or regulation of registration, declaration, or
filing with any Governmental Entity applicable to Parent or Sub or by which
they or any portion of their respective assets is bound, except, with respect
to clauses (i), (ii) and (iii), such violations, conflicts, breaches or
defaults as would not materially interfere with the ability of Parent or Sub
to perform their obligations under this Agreement and the other Transaction
Documents to which either of them is a party or by which either of them is to
be bound. No Consent of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Sub in
connection with the execution and delivery by Parent and Sub of this
Agreement and the other Transaction Documents to which either of them is a
party or the consummation of the transactions contemplated hereby or thereby,
except for (A) the filing of a premerger notification and report form by
Parent under the HSR Act; (B) the filing with the SEC of such reports under
and such other compliance with the Exchange Act and the rules and regulations
thereunder as may be required in connection with this Agreement and the
transactions contemplated hereby; (C) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware; (D) such filings and
approvals as may be required by any applicable state securities, "blue sky"
or takeover laws; (E) such filings in
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connection with any Gains and Transfer Taxes; and (F) such other consents,
approvals, orders, authorizations, registrations, declarations, filings,
notices or permits the failure of which to obtain would not impair the
ability of Parent and Sub to perform the respective obligations under this
Agreement and the other Transaction Documents to which either of them is a
party.
(d) LITIGATION. There is no action, suit, judicial or
administrative proceeding pending or, to the Knowledge of Parent or Sub,
threatened against Parent or Sub relating to the transactions contemplated by
this Agreement or which, if adversely determined, would adversely affect the
ability of Parent or Sub to consummate the transactions contemplated by this
Agreement or to perform their respective covenants and agreements under this
Agreement.
(e) FINANCING. Parent has delivered to the Company a
true and complete executed copy of each of the Financing Commitments.
Assuming that the financing contemplated by the Financing Commitments is
consummated in accordance with the terms thereof, the funds to be borrowed
and/or provided thereunder will provide sufficient funds to (i) pay the
Merger Consideration and all related fees and expenses other than Company
Transaction Costs; (ii) repay the Debt of the Company and its Subsidiaries
under the Senior Credit Agreement; and (iii) to pay any amounts payable by
the Surviving Corporation or any of its Subsidiaries in connection with, or
as a result of, any tender offer or other offer to repay the Senior
Subordinated Notes that the Company, the Surviving Corporation or any of
their respective Subsidiaries is required to make as a result of the Merger
and the consummation of the transactions contemplated in the Transaction
Documents, and all related fees and expenses. Parent and Sub hereby
acknowledge that their obligations under this Agreement are not subject to
any conditions regarding their ability to obtain financing for the
transactions contemplated in this Agreement and in the other Transaction
Documents other than the condition set forth in Section 8.2(c).
(f) SURVIVING CORPORATION AFTER THE MERGER. Assuming the
representations and warranties of the Company contained in this Agreement are
true and accurate in all material respects immediately prior to the Effective
Time as if made as of such time, and assuming that immediately prior to the
Effective Time the Company has not failed to comply in any material respect
with any of its covenants under this Agreement, and assuming the Merger
Consideration constitutes fair value for the Common Stock and the Options, at
and immediately after the Effective Time, and after giving effect to the
Merger and the other transactions contemplated in connection therewith (and
any changes in the Surviving Corporation's assets and liabilities as a result
thereof) the Surviving Corporation: (i) will be solvent (in that both the
fair value of its assets will not be less than the sum of its debts and that
the present fair saleable value of its assets will not be less than the
amount required to pay its probable liability on its debts as they become
absolute and matured); (ii) will have adequate capital with which to engage
in its business; and (iii) will not have incurred and will not plan to incur
debts beyond its ability to pay as they become absolute and matured. The
Securityholders and the Representative are intended third party beneficiaries
of the representations and warranties made by Parent and Sub in this Section
3.2(f).
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(g) BUSINESS OF PARENT AND SUB. Neither Parent nor Sub
has conducted any business activities other than in connection with this
Agreement and the transactions to be consummated in connection with the
Merger and the other transactions contemplated in the Transaction Documents.
Except for the contract rights of Parent and Sub under this Agreement and the
other Transaction Documents, Parent's contract rights under the Financing
Commitments and the capital stock of Sub which is owned by Parent, neither
Parent nor Sub has any assets. Except for Taxes not yet due and payable, the
liabilities and obligations of Parent and Sub under this Agreement and the
liabilities and obligations of Parent under the Financing Commitments,
neither Parent nor Sub has any liability of any kind, whether accrued,
absolute, fixed, contingent or otherwise.
3.3 REPRESENTATIONS AND WARRANTIES OF SECURITYHOLDERS. Each
Securityholder, severally as to such Securityholder and not jointly,
represents and warrants to Parent and Sub as follows (with the understanding
that Parent and Sub are relying on such representations and warranties in
entering into and performing their respective obligations under this
Agreement):
(a) OWNERS OF SHARES AND WARRANTS. As of the date of
this Agreement, such Securityholder is the holder of record of and
beneficially owns that number of shares of Common Stock set forth opposite
such Securityholder's name on SCHEDULE II hereto, if applicable, and such
Securityholder is the holder of record of and beneficially owns Options to
purchase that number of shares of Common Stock set forth opposite such
Securityholder's name on SCHEDULE III hereto, if applicable. As of the
Closing Date, such Securityholder will be the holder of record of and will
beneficially own that number of shares of Common Stock set forth opposite
such Securityholder's name on SCHEDULE II hereto, if applicable, and as of
the Closing Date such Securityholder will be the holder of record of and
beneficially own Options to purchase the number of shares of Common Stock set
forth opposite such Securityholder's name on SCHEDULE III hereto, if
applicable, in each case free of any Liens other than those set forth on
SCHEDULE 3.3(a).
(b) AUTHORITY. (i) If such Securityholder is an entity
(i.e., not a natural person), such Securityholder has all requisite power and
authority to execute this Agreement and the other Transaction Documents to
which it is a party and to perform its obligations hereunder and thereunder,
and the execution, delivery and performance by such Securityholder of its
obligations under this Agreement and the other Transaction Documents to which
it is a party have been duly authorized by all necessary action on behalf of
such Securityholder. If such Securityholder is a natural person, such
Securityholder has full legal capacity to execute and deliver this Agreement
and the other Transaction Documents to which such Securityholder is a party
and to perform the obligations of such Securityholder hereunder and
thereunder.
(ii) This Agreement has been, and the other
Transaction Documents to which such Securityholder will be a party have been,
or upon execution and delivery will be, duly executed and delivered by such
Securityholder, as applicable, and, assuming that such Transaction Documents
constitute the valid and binding agreement of the other parties thereto,
constitute, or upon execution and delivery will constitute, the valid and
binding obligations of such Securityholder,
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enforceable against such Securityholder in accordance with their respective
terms and conditions, except that the enforcement hereof and thereof may be
limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or
in equity).
(c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The
execution and delivery of this Agreement and the other Transaction Documents
to which it is a party by such Securityholder do not, and the performance by
such Securityholder of his, her or its obligations hereunder or thereunder
will not, subject to obtaining the consents, approvals, authorizations, and
permits and making the filings described in this Section or otherwise
described on SCHEDULE 3.3(c), (i) if such Securityholder is an entity (i.e.,
not a natural person), violate, conflict with or result in any violation or
breach of any provision of such Securityholder's certificate of
incorporation, bylaws or other similar documents, (ii) violate, conflict
with, or result in any violation or breach of, constitute a default (with or
without due notice or lapse of time or both) or require the consent of any
Person under, or give any party the right to terminate or accelerate any
obligation, or give rise to the creation of any Lien upon the shares of
Common Stock or Options owned by such Securityholder under, any of the terms,
conditions, or provisions of any agreement, instrument, contract or
obligation to which such Securityholder is a party or by which it may be
bound, or (iii) violate any order, writ, judgment, injunction, decree,
statute, law, rule, or regulation of any Governmental Entity binding upon
such Securityholder, except, with respect to clauses (i), (ii) and (iii),
such violations, conflicts, breaches or defaults as would not materially
interfere with such Securityholder's ability to perform his, her or its
obligations under this Agreement and the other Transaction Documents to which
such Securityholder is to be a party or by which such Securityholder is to be
bound. No Consent of or registration, declaration, or filing with any
Governmental Entity or any other Person is required by such Securityholder in
connection with the execution and delivery of any Transaction Documents by
such Securityholder or the consummation of the transactions contemplated
hereby or thereby, except for (A) the filing of a premerger notification
report and all other filings required under the HSR Act and the expiration or
termination of any waiting period in connection therewith, (B) applicable
requirements, if any, of the Securities Act and the Exchange Act and state
securities or blue sky laws and (C) such other consents, approvals, orders,
authorizations, registrations, declarations, filings, notices or permits the
failure of which to obtain would not impair the ability of such
Securityholder to perform his, her or its obligations under this Agreement
and the other Transaction Documents to which such Securityholder is a party.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF THE COMPANY. Except as contemplated by or
otherwise permitted under this Agreement or described in SCHEDULE 4.1 or to
the extent that Parent shall otherwise consent in writing, from the date of
this Agreement until the Closing, the Company covenants and agrees with
Parent that the Company shall not, and shall not permit any of its
Subsidiaries to:
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(a) conduct its business other than in compliance in all
material respects with all Applicable Laws and in the ordinary course
consistent with past practices of the Company; or
(b) fail to use commercially reasonable efforts to (i)
preserve substantially intact the Company's and each of its Subsidiaries'
present business organization, (ii) keep available the services of any
executive officer of the Company or any of its Subsidiaries, and (iii)
preserve its present relationships with customers, suppliers and others
having business dealings with it; or
(c) fail to use commercially reasonable efforts to (i)
maintain the material tangible assets of the Company and each of its
Subsidiaries in their current physical condition, except for ordinary wear
and tear (any compliance with this Section 4.1(c) shall not be deemed to be a
breach of Section 4.1(h)) and (ii) maintain its rights to the Intellectual
Property such that the Intellectual Property may continue to be used as
currently used by the Company and its Subsidiaries in the conduct of their
respective businesses; or
(d) except for amendments, terminations or non-renewals
in the ordinary course of business and consistent with past practices of the
Company, amend, terminate or fail to use its commercially reasonable efforts
to renew any Material Contract, Company Permit or Permit; or
(e) merge or consolidate with or into any other legal
entity, dissolve or liquidate; or
(f) (i) adopt or amend any Employee Benefit Plan or
employment agreements to which the Company or any of its Subsidiaries is a
party, (ii) increase in any manner the aggregate compensation or fringe
benefits of any director or executive employee of the Company or any of its
Subsidiaries, excluding any increases required to be made pursuant to
contractual obligations of the Company existing as of the date of this
Agreement identified on SCHEDULE 3.1(s), or (iii) except in the ordinary
course consistent with past practices of the Company, increase in any manner
the aggregate compensation or fringe benefits of any non-executive employee
of the Company or any of its Subsidiaries, or
(g) purchase, acquire by lease or otherwise acquire any
assets except for (i) capital expenditures in the ordinary course of business
and consistent with past practices of the Company and, in any event, in an
aggregate amount not to exceed $650,000 and (ii) the acquisition of raw
materials and supplies in the ordinary course of business and consistent with
past practices of the Company;
(h) sell or otherwise dispose (including by lease) of any
assets except in the ordinary course of business and consistent with past
practice; provided, however, that even if in the ordinary course of business
and consistent with past practices, the Company shall not (i) sell or
otherwise dispose (including by lease) of any assets (other than sales of
inventory or surplus or obsolete equipment in the ordinary course of business
and consistent with past practices), whether
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in one or more transactions, which have an aggregate fair market value in
excess of $250,000 or (ii) write down or write off any assets other than in
the ordinary course and consistent with past practices; or
(i) mortgage, pledge, or subject to any Lien, other than
Permitted Liens, any of its assets; or
(j) except as required by GAAP, by Applicable Law or by
accounting rules or Regulation S-X as promulgated under the Securities Act,
change any of the accounting principles or practices or credit criteria used
by the Company or its Subsidiaries; or
(k) pay, discharge, or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business consistent with
past practices of the Company, or fail to pay or otherwise satisfy (except if
being contested in good faith) any accounts payable, liabilities or current
obligations when due and payable other than on a basis, and within the time,
consistent with past practices; or
(l) except for the issuance of shares of capital stock of
the Company issuable upon the exercise of any Options outstanding on the date
of this Agreement, issue, sell, pledge, dispose of, encumber or deliver
(whether through the issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of any
class or any securities convertible into or exercisable or exchangeable for
shares of stock of any class (except for pledges of capital stock or
securities under the Senior Credit Agreement and other than the issuance of
certificates in replacement of lost certificates); or
(m) change or amend its charter documents or bylaws; or
(n) except under the Senior Credit Agreement for working
capital purposes in the ordinary course consistent with past practices of the
Company, and except for current liabilities within the meaning of GAAP
incurred in the ordinary course of business, incur or assume any Debt,
assume, guarantee, endorse, or otherwise become liable or responsible for the
obligations of any other person (other than endorsements of checks in the
ordinary course) or make any loans, advances or capital contributions to, or
investments in, any person (other than among the Company and its Subsidiaries
and among such Subsidiaries, and other than advances to officers, directors
and employees for travel and related business expenses in the ordinary course
of business consistent with past practices of the Company); or
(o) make any settlement of or compromise any Tax
liability, change in any material respect any Tax election, Tax practice or
Tax method of accounting or make any new Tax election or adopt any new Tax
practice or Tax method of accounting; or
(p) engage in any transactions with any of its Affiliates
(other than among the Company and its Subsidiaries and among such
Subsidiaries) other than (i) transactions approved by
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Parent in writing or (ii) transactions with Affiliates pursuant to and in
accordance with the contracts, agreements or arrangements disclosed on
SCHEDULE 3.1(s), as in effect on the date of this Agreement, including
without limitation the Monitoring and Oversight Agreement and the Financial
Advisory Agreement; or
(q) split, combine, divide, distribute or reclassify any
shares of its capital stock, declare, pay or set aside for payment any
dividend or other distribution in respect of its capital stock, or directly
or indirectly, redeem, purchase or otherwise acquire any shares of its
capital stock or other securities; or
(r) change its existing practices and procedures with
respect to the collection of accounts receivable and, except with respect to
good faith attempts consistent with past practices to obtain payment of a
past due receivable or, except in accordance with existing practices, a
contested receivable, offer to discount, write off, write down or issue a
credit against the amount of any outstanding receivable or extend any other
incentive (whether to the account debtor or any employee or third party
responsible for collection of receivables) to accelerate the collection
thereof; or
(s) change its existing practices and procedures with
respect to, or change the terms of, any warranty program except in the
ordinary course of business and consistent with past practice of the Company;
or
(t) agree to or make any commitment, orally or in
writing, to take any actions prohibited by this Section 4.1.
ARTICLE 5
ADDITIONAL COVENANTS OF THE COMPANY
AND THE SECURITYHOLDERS
5.1 ACCESS AND INFORMATION. (a) Until the Closing, provided that
Parent shall agree to be bound by any confidentiality provisions of the
Material Contracts, the Company shall, at the sole cost and expense of
Parent, afford to Parent, any lenders of Parent and their respective
representatives (including financial advisors, accountants and counsel)
reasonable access, in each case, during normal business hours, upon
reasonable prior notice and in such manner as will not unreasonably interfere
with the conduct of the business of the Company or any of its Subsidiaries,
to all properties, books, records (written and computer), Tax Returns,
lenders, counsel and accountants of the Company and each of its Subsidiaries
and all other information with respect to their respective businesses,
together with the opportunity, at the sole cost and expense of Parent, to
make copies of such books, records and other documents and to discuss the
business of the Company and each of its Subsidiaries with such officers,
directors and counsel for the Company as Parent deems reasonably necessary
for the purposes of familiarizing itself with the Company and each of the
Company's Subsidiaries, provided, that Parent shall not contact customers,
vendors or any
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personnel of the Company or its Subsidiaries regarding the transactions
contemplated by this Agreement without the express prior consent of the
Company, which consent shall not be unreasonably withheld. All information
provided pursuant to this Agreement shall remain subject in all respects to
the Confidentiality Agreement until such time as the transactions
contemplated by this Agreement have been consummated at the Closing.
(b) Within 30 days after the end of each calendar month
until the Closing, the Company shall deliver to Parent monthly operating
statements for the Company and its Subsidiaries, taken as a whole (in a form
consistent with the monthly operating statements previously supplied to
Parent), prepared in the ordinary course of business for internal purposes.
Further, within 45 days after the end of each calendar quarter, the Company
shall deliver to Parent quarterly statements prepared in the ordinary course
for internal purposes.
5.2 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt written notice to Parent of (a) the occurrence, or failure to occur,
of any event of which it has Knowledge that has caused or would be reasonably
likely to cause any representation or warranty of the Company contained in
this Agreement to be untrue or inaccurate in any material respect as of the
date of this Agreement, (b) the failure of the Company to comply with or
satisfy in any material respect any covenant to be complied with by it
hereunder, and (c) the receipt by the Company or any of its Subsidiaries of
any written notice that any claim, action, judicial or administrative
proceeding, grievance or arbitration has been instituted against the Company
or any of its Subsidiaries. No such notification shall affect or amend the
representations or warranties of the parties or the conditions to their
respective obligations hereunder.
5.3 NOTIFICATION OF BREACH. If the Company obtains Knowledge of
a breach by Parent or Sub of a representation, warranty, covenant or
agreement made by Parent or Sub contained in this Agreement, the Company
shall promptly notify Parent of such breach; provided that such notification
or failure to give such notification shall not result in the waiver by the
Company of any of the Company's rights or remedies under this Agreement.
5.4 NO SOLICITATION OF TRANSACTIONS. The Company and each
Stockholder, severally and not jointly, hereby agree that they shall not,
directly or indirectly, through any Affiliate, officer, director,
stockholder, employee, agent, financial advisor, banker or other
representative or otherwise, solicit, initiate, or encourage the submission
of any proposal or offer from any person relating to any acquisition or
purchase of any equity interest in the Company or any of its Subsidiaries or
all or any material portion of the assets of the Company and its
Subsidiaries, taken as a whole, or any merger, consolidation, share exchange,
business combination or other similar transaction with the Company or any of
its Subsidiaries or participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate, or encourage, any
effort or attempt by any other person to do or seek any of the foregoing.
The Company and each Stockholder, severally and not jointly, hereby agree
that they immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing.
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5.5 BOARD OF DIRECTORS. At the Closing, the Company and each of
its Subsidiaries shall deliver to Parent letters from each director of the
Company and each such Subsidiary, pursuant to which such directors shall
resign from their positions on the Company's and each of is Subsidiaries'
board of directors.
5.6 TERMINATION OF CERTAIN AGREEMENTS. (a) The Company and each
Securityholder party to that certain Stockholders Agreement identified in
Item 5 on SCHEDULE 3.1(b) (the "Stockholders Agreement") hereby covenant and
agree with Parent and Sub that, at the Effective Time, the Stockholders
Agreement and all obligations of the parties thereunder shall automatically,
and without any further action by any party thereto, be terminated, and that
from and after such termination the Company and each such Securityholder
hereby release each other from any liability they would otherwise have to the
other thereunder.
(b) The Company and the Securityholders party to those
certain Buy-Sell Agreements identified in Item 6 on SCHEDULE 3.1(b) (the
"Buy-Sell Agreements") hereby covenant and agree with Parent and Sub that, at
the Effective Time, the respective Buy-Sell Agreements and all obligations of
the parties thereunder shall automatically, and without any further action by
any party thereto, be terminated, and that from and after such termination
the Company and each such Securityholder hereby release each other from any
liability they would otherwise have to the other thereunder.
ARTICLE 6
COVENANTS OF PARENT AND SUB
6.1 NOTIFICATION OF CERTAIN MATTERS. If Parent, Sub or any other
Affiliate of Parent receives an administrative or other order or notification
relating to any violation or claimed violation of the rules and regulations
of any Governmental Entity, that could affect the ability of Parent or Sub to
consummate the transactions contemplated hereby, Parent and Sub shall
promptly notify the Company thereof and shall use their respective
commercially reasonable efforts to take such steps as are necessary to remove
any such impediment to the transactions contemplated by this Agreement. In
addition, Parent and Sub shall give to the Company prompt written notice of
(a) the occurrence, or failure to occur, of any event of which either of them
has Knowledge that has caused or that would be likely to cause any
representation or warranty of Parent or Sub contained in this Agreement to be
untrue or inaccurate in any material respect as of the date of this
Agreement, (b) the failure of Parent or Sub to comply with or satisfy in any
material respect any covenant to be complied with by it hereunder, and (c)
the receipt by Parent or Sub of any written notice that any claim, action,
judicial or administrative proceeding, grievance or arbitration has been
instituted against Parent or Sub which would reasonably be expected to
interfere with the ability of Parent or Sub to perform their obligations
under this Agreement and the other Transaction Documents. No such
notification
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shall affect or amend the representations or warranties of the parties or the
conditions to their respective obligations hereunder.
6.2 EMPLOYEE MATTERS. (a) Parent shall take such action as may
be necessary so that on and after the Effective Time and for one year
thereafter, directors, officers and employees of the Company and its
Subsidiaries immediately prior to the Effective Time shall be provided
employee benefits, plans and programs (including but not limited to incentive
compensation, deferred compensation, pension, life insurance, welfare, profit
sharing, 401(k), severance, salary continuation and fringe benefits and
excluding non-retirement equity-based compensation arrangements) which, in
the aggregate, are no less favorable than those made available by the Company
and its Subsidiaries to such directors, officers and employees immediately
prior to the Effective Time. For purposes of eligibility to participate and
vesting in all benefits provided by Parent to such directors, officers and
employees, the directors, officers and employees of the Company and its
Subsidiaries will be credited with their years of service with the Company
and its Subsidiaries and prior employers to the extent service with Parent
and its Subsidiaries and prior employers is taken into account under the
plans of Parent and its Subsidiaries. The eligibility of any director,
officer or employee of the Company and its Subsidiaries to participate in any
welfare benefit plan or program of Parent shall not be subject to any
exclusions for any pre-existing conditions if such individual has met the
participation requirements of similar benefit plans and programs of the
Company and its Subsidiaries. All individuals eligible to participate in any
plan or arrangement contemplated above shall be immediately eligible to
participate in the similar plan or arrangement maintained by the Parent or
its Subsidiaries (or the same plan or arrangement if still maintained).
Amounts paid before the Effective Time by directors, officers and employees
of the Company and its Subsidiaries under any health plans of the Company or
its Subsidiaries shall, after the Effective Time, be taken into account in
applying deductible and out-of-pocket limits applicable under the health
plans of Parent provided as of the Effective Time to the same extent as if
such amounts had been paid under such health plans of Parent.
Notwithstanding the foregoing, nothing in this Section 6.2(a) shall require
Parent to provide to employees whose employment relationship with the Company
or one of its Subsidiaries is governed by a collective bargaining agreement a
level of benefits under one of the plans or programs contemplated above which
is greater than the level of benefits required under the collective
bargaining agreement covering the applicable employee's employment
relationship.
(b) For a period of at least one year after the Effective
Time, Parent shall either (i) cause the Surviving Corporation to continue to
provide benefits to the employees of the Company pursuant to the Company
401(k) Plan, or (ii) in accordance with Applicable Laws, maintain, adopt or
cause the Surviving Corporation to adopt, or participate in, a cash or
deferred arrangement which meets the requirements of Section 401(k) of the
Code. Any provisions of benefits pursuant to this Section 6.2(b) shall also
satisfy the requirements of 6.2(a).
(c) Subject to the other provisions set forth in this
Section 6.2, after the Closing Date and subject to Applicable Law and the
terms of any Employee Benefit Plan, Parent may amend, modify, or terminate
any Employee Benefit Plan in existence prior to the Closing. Except as
specifically provided herein (including in Section 6.6 hereof), Parent, the
Surviving Corporation and
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each of their respective Subsidiaries are and shall remain liable for, and
Parent, the Surviving Corporation and each of their respective Subsidiaries
shall be responsible for and shall promptly discharge, all liabilities,
duties and claims (by or to any of the Company's or its Subsidiaries'
employees, former employees, any beneficiary under any Employee Benefit Plan,
any Governmental Entity or otherwise) arising out of or relating to the
employment relationship between the Company or any of its Subsidiaries and an
employee or former employee, whether made to or imposed upon Parent, Sub, the
Company, the Surviving Corporation, any of their respective Subsidiaries or
any Securityholder (or any Affiliate thereof), including, without limitation,
liabilities, duties and claims: (i) for deferred compensation, incentive
compensation, retirement benefits, health and life benefits, severance
arrangements and benefits, disability benefits and other fringe benefits
under any Employee Benefit Plan; (ii) relating to continuation health
coverage pursuant to Section 4980B of the Code and Title I, Subtitle B, Part
6 of ERISA; (iii) for unemployment and workers' compensation or similar
benefits; and (iv) to file any and all annual reports, filings or notices
that may be required to be filed with Governmental Entities or provided to
participants and beneficiaries after the Closing.
(d) Notwithstanding the immediately preceding sentence,
Parent, Sub, the Company, the Surviving Corporation and each of their
respective Subsidiaries hereby agree to indemnify each of the Securityholders
and their respective, officers, directors, employees, consultants,
stockholders and Affiliates for, and to hold each of them harmless, from and
against, all damages, losses, claims, liabilities, penalties, costs and
expenses (including court costs and reasonable attorneys' fees and expenses
incurred in investigating and preparing for any litigation or proceeding)
which any of them may suffer by reason of or in connection with any claim,
proceeding or suit brought against any of them under the Worker Adjustment
Retraining and Notification Act, or any local, state, federal or foreign law,
which relates to actions taken by Parent, Sub, the Company, the Surviving
Corporation or any of their respective Subsidiaries or Affiliates at, or at
any time after, the Closing with regard to any site of employment or one or
more facilities or operating units within any site of employment of the
Company or any of its Subsidiaries.
6.3 ACCESS TO INFORMATION. From and after the Closing Date,
Parent shall (and shall cause the Surviving Corporation and each of its
Subsidiaries and other Affiliates to), during normal business hours and upon
reasonable prior notice and in such a manner as will not unreasonably
interfere with the conduct of the business of Parent or any of its
Subsidiaries, make available and provide the Representative and each former
Securityholder and their respective representatives (including, without
limitation, counsel and independent auditors) with access to the facilities
and properties of the Surviving Corporation and each of its Subsidiaries and
to all information, files, documents and records (written and computer)
relating to the Surviving Corporation or its Subsidiaries or any of their
businesses or operations for any and all periods prior to or including the
Closing Date which they may require with respect to any claim, dispute,
action, cause of action, investigation or proceeding of any kind by or
against any Person, including such claim, dispute, action, cause of action,
investigation or proceeding which could reasonably be expected to result in a
claim by a Buyer Indemnified Party for Buyer Indemnified Costs, and shall
(and shall cause the Surviving Corporation and each of its Subsidiaries to)
cooperate fully with the Representative, such Securityholders and their
respective representatives (including, without limitation, counsel and
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independent auditors) in connection with the foregoing, at the
Representative's, such Securityholders' or their respective representatives',
sole cost and expense, including, without limitation, by making tax,
accounting and financial personnel and other appropriate employees and
officers of the Surviving Corporation and each of its Subsidiaries available
to the Representative, such Securityholders and their respective
representatives (including, without limitation, counsel and independent
auditors). In addition, following the Closing, the Representative, the
Securityholders and their respective representatives shall be given the
opportunity to review, comment upon and suggest changes or corrections to any
Tax Returns, reports and declarations which include the Company or any of its
Subsidiaries prepared by Parent, Sub, the Surviving Corporation or any
Affiliate thereof, including without limitation the Company and its
Subsidiaries (and the work papers used in the preparation thereof) which
relate to or include any period or portion thereof ending on or before the
Closing Date (or periods beginning prior to the Closing Date and ending
subsequent thereto, if any), in each case prior to the filing thereof (but in
no event less than 15 days prior to such filing). Parent and each Person who
receives information pursuant to this Section 6.3 shall work together in good
faith to establish a reasonable agreement relating to the confidentiality of
all information provided pursuant to this Section 6.3.
6.4 SOLVENCY LETTER.
(a) Parent shall deliver to the Board of Directors of the
Company at the Closing a letter addressed to the Company and the Company's
Board of Directors (the "Solvency Letter") from an independent third party
selected by Parent and reasonably satisfactory to the Company (the
"Appraiser") attesting that, immediately after the Effective Time and after
giving effect to the Merger and the other transactions contemplated in
connection therewith (and any changes in the Surviving Corporation's assets
and liabilities as a result thereof), the Surviving Corporation: (i) will be
solvent (in that both the fair value of its assets will not be less than the
sum of its debts and that the present fair saleable value of its assets will
not be less than the amount required to pay its probable liability on its
debts as they become absolute and matured); (ii) will have adequate capital
with which to engage in its business; and (iii) will not have incurred and
does not plan to incur debts beyond its ability to pay as they become
absolute and matured, based upon (A) the proposed financing structure for the
Merger (B) certain other financial information to be provided to the
Appraiser by Parent and the Company, and (C) the assumption that the Merger
Consideration constitutes fair value for the Outstanding Shares and the
Options. Subject to the foregoing, the Solvency Letter shall be in form and
substance reasonably satisfactory to the Company. Except with the prior
written consent of the Company, Parent will not consummate the Merger unless
and until the Company and its Board of Directors shall have received the
Solvency Letter.
(b) Parent will request the Appraiser to deliver a form
of the Solvency Letter as promptly as practicable but in no event later than
five (5) Business Days prior to the scheduled Closing Date. The parties
agree to cooperate with the Appraiser in connection with the preparation of
the Solvency Letter, including, without limitation, providing the Appraiser
with any information reasonably available to them necessary for the
Appraiser's preparation of such letter.
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6.5 REPAYMENT OF DEBT. At or prior to the Closing, Parent shall
cause all Debt outstanding under the Senior Credit Agreement to be repaid,
and all fees, expenses and other amounts that may be payable in connection
with such repayment. Notwithstanding the immediately preceding sentence,
Parent may cause all Debt under the Senior Credit Agreement to be refinanced
in full or may obtain waivers to any breaches of the Senior Credit Agreement
that the transactions contemplated in the Transaction Documents would cause.
Parent, Sub and the Surviving Corporation hereby covenant and agree that they
shall cause the Surviving Corporation to repay, or to effect any tender
offers or other offers to repay, the Senior Subordinated Notes if such
repayment, tender offer or other offer is required under the terms of the
Indenture as a result of the consummation and financing of the Merger and the
other transactions contemplated in this Agreement and the other Transaction
Documents.
6.6 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
(a) The certificate of incorporation and by-laws of the
Surviving Corporation shall contain provisions no less favorable with respect
to indemnification than are set forth in the certificate of incorporation and
by-laws of the Company, as in effect on the date hereof, which provisions
shall not be amended, repealed or otherwise modified for a period of six
years from the Effective Time in any manner that would affect adversely the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers, employees or agents of the Company or any of its
Subsidiaries.
(b) From and after the Effective Time and without in any
way releasing the Company from any of its obligations thereunder, the
Surviving Corporation will perform, and Parent will cause the Surviving
Corporation to perform, the Company's obligations under the indemnification
agreements identified in SCHEDULE 6.6(b) to the same extent as if they were
the Company and had executed such agreements. The Company may enter into
substantially similar indemnification agreements with other directors of the
Company.
(c) The provisions of this Section 6.6 are intended to be
for the benefit of, and shall be enforceable by, each of the Seller
Indemnified Parties, their heirs and their personal representatives and shall
be binding on all successors and assigns of Parent, Sub, the Company and the
Surviving Corporation.
6.7 NOTIFICATION OF BREACH. If Parent or Sub obtains Knowledge
of a breach by the Company of a representation, warranty, covenant or
agreement made by the Company contained in this Agreement, Parent shall
promptly notify the Company of such breach; provided that such notification
or failure to give such notification shall not result in the waiver by Parent
or Sub of any of their respective rights or remedies under this Agreement.
6.8 CONDUCT OF BUSINESS. Each of Parent and Sub hereby covenant
and agree with the Company and the Securityholders that from the date of this
Agreement through the Closing Date, it will not conduct any business
activities other than those undertaken in connection with the Merger
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and the other transactions contemplated in this Agreement, the other
Transaction Documents and the Financing Commitments.
ARTICLE 7
MUTUAL COVENANTS
7.1 GOVERNMENTAL CONSENTS. Promptly following the execution of
this Agreement, but in no event later than five Business Days following the
Date of this Agreement, the parties shall file, or cause to be filed by their
respective "ultimate parent entities," with the FTC and the DOJ the
notifications and other information (if any) required to be filed under the
HSR Act with respect to the transactions contemplated in the Transaction
Documents. Promptly following the execution of this Agreement, the Company
and Parent shall promptly proceed to prepare and file with the appropriate
Governmental Entities such additional requests, reports, or notifications as
may be required in connection with this Agreement and shall diligently and
expeditiously prosecute, and shall cooperate fully with each other in the
prosecution of, such matters. Without limiting the foregoing, promptly
following the execution of this Agreement, the Company and Parent shall use
their commercially reasonable efforts to (a) cause, and shall request the FTC
and the DOJ to cause, all applicable waiting periods under the HSR Act to
expire or be terminated as of the earliest possible date, (b) make all
necessary filings, and (c) thereafter, make any other required submissions
with respect to the transactions contemplated hereby under the Securities
Act, the Exchange Act and the rules and regulations thereunder and any other
applicable federal or state securities laws. The failure by the Company or
Parent to use commercially reasonable efforts to timely file or diligently
prosecute its portion of any such application shall be a material breach of
this Agreement.
7.2 BROKERS OR FINDERS. Except for the previously disclosed fees
payable by the Company to Salomon Smith Barney and CIBC Oppenheimer, which
fees shall be paid in accordance with Section 2.11, the Company and each
Securityholder represents and warrants to Parent and Sub that no agent,
broker, investment banker, or other person engaged by or on behalf of the
Company, any such Securityholder or any of their respective Affiliates is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee payable by Parent, Sub or the Company in connection with any of
the transactions contemplated by this Agreement. Each of Parent and Sub
represents and warrants to the Company that neither Parent, Sub nor any
Affiliate of Parent has engaged any broker, investment banker or other person
that will be entitled to any broker's or finder's fee or any other commission
or similar fee from the Company or any Securityholder in connection with any
of the transactions contemplated by this Agreement.
7.3 INVESTIGATION AND AGREEMENT BY PARENT AND SUB; NO OTHER
REPRESENTATIONS OR WARRANTIES.
(a) Each of Parent and Sub acknowledges and agrees that
it has made its own inquiry and investigation into, and, based thereon, has
formed an independent judgment concerning,
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the Company and its Subsidiaries and their businesses and operations, and
Parent and Sub have requested such documents and information from the Company
as Parent and Sub consider material in determining whether to enter into this
Agreement and to consummate the transactions contemplated in this Agreement
and in the other Transaction Documents. Parent and Sub acknowledge and agree
that they have had an opportunity to ask all questions of and receive answers
from the Company with respect to any matter Parent and Sub consider material
in determining whether to enter into this Agreement and to consummate the
transactions contemplated in this Agreement and in the other Transaction
Documents. In connection with Parent's and Sub's investigation of the
Company and its Subsidiaries and their businesses and operations, Parent, Sub
and their respective representatives have received from the Company or its
representatives certain projections and other forecasts for the Company and
its Subsidiaries and certain estimates, plans and budget information. Parent
and Sub acknowledge and agree that there are uncertainties inherent in
attempting to make such projections, forecasts, estimates, plans and budgets;
that Parent and Sub are familiar with such uncertainties; that Parent and Sub
are taking full responsibility for making their own evaluations of the
adequacy and accuracy of all estimates, projections, forecasts, plans and
budgets so furnished to it or its representatives; and that Parent and Sub
will not (and will cause all of their respective Subsidiaries or other
Affiliates or any other Person acting on their behalf to not), in the absence
of fraud, assert any claim or cause of action against any of the Company's
direct or indirect partners, directors, officers, employees, agents,
stockholders, Affiliates, consultants, counsel, accountants, investment
bankers or representatives with respect thereto, or hold any such other
person liable with respect thereto.
(b) Each of Parent and Sub agrees that, except for the
representations and warranties made by the Company that are expressly set
forth in Section 3.1 of this Agreement and the representations and warranties
made by the Securityholders that are expressly set forth in Section 3.3 of
this Agreement, neither the Company, nor any of the Securityholders nor any
of their respective Affiliates has made and shall not be deemed to have made
to Parent, Sub or to any of their respective representatives or Affiliates
any representation or warranty of any kind. Without limiting the generality
of the foregoing, each of Parent and Sub agree that neither the Company, nor
any of the Securityholders nor any of their respective Affiliates makes or
has made any representation or warranty to Parent, Sub or to any of their
respective representatives or Affiliates with respect to:
(i) any projections, forecasts, estimates, plans
or budgets of future revenues, expenses or expenditures, future results of
operations (or any component thereof), future cash flows (or any component
thereof) or future financial condition (or any component thereof) of the
Company or any of its Subsidiaries or the future business, operations or
affairs of the Company or any of its Subsidiaries heretofore or hereafter
delivered to or made available to Parent, Sub or their respective counsel,
accountants, advisors, lenders, representatives or Affiliates; and
(ii) any other information, statement or documents
heretofore or hereafter delivered to or made available to Parent, Sub or
their respective counsel, accountants, advisors, lenders, representatives or
Affiliates with respect to the Company or any of its Subsidiaries or the
business, operations or affairs of the Company or any of its Subsidiaries,
except to the extent and
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as expressly covered by a representation and warranty made by the Company and
contained in Section 3.1 of this Agreement or a representation and warranty
made by any Securityholder and contained in Section 3.3 of this Agreement.
(c) The Company acknowledges and agrees that except for
the representations and warranties made by Parent or Sub as expressly set
forth in this Agreement, neither Parent, Sub nor any of their respective
Affiliates has made and shall not be construed as having made to the Company
or any Securityholder or to any Affiliate thereof any representation or
warranty of any kind.
7.4 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
of this Agreement, each of the Company, Parent and Sub will use its
commercially reasonable efforts to take, or to cause to be taken, all actions
and to do, or cause to be done, all things necessary or desirable under
Applicable Laws to consummate and to make effective the transactions
contemplated by this Agreement and the other Transaction Documents. If at
any time after the Closing Date, any further action is necessary to comply
with this Agreement and the other Transaction Documents, the parties to this
Agreement or their duly authorized representatives shall take all such action.
7.5 OPTION EXERCISE PRICES. Each of the Company, Parent, Sub and
the Securityholders hereby covenant and agree that, notwithstanding any other
provision set forth in this Agreement, (a) the Company and certain
Optionholders may agree to amend the terms of certain Options to lower the
exercise price per share of Common Stock for such Options, (b) any such
amendment shall not be a breach of any other term or provision of this
Agreement and shall not require the consent or waiver of any person other
than the Company and such Optionholder(s), and (c) each of the Company,
Parent, Sub and the Securityholders hereby release each other from any
liability they would otherwise have under this Agreement or otherwise solely
as a result of the execution and delivery of any such amendment.
7.6 OTHER MATTERS RELATING TO OPTIONS. Each of the Company,
Parent, Sub and the Securityholders hereby acknowledge and agree that Parent
and certain members of management of the Company and its Subsidiaries
("Management") may wish to reach an agreement pursuant to which all or any
portion of Management's Outstanding Shares or Options shall not convert into
the right to receive a portion of the Merger Consideration but may be
converted into the right to receive other consideration to be agreed upon
between Parent and such members of Management. Each of the Company, Parent,
Sub and the Securityholders hereby covenant and agree that if any such
amendments are entered into, provided that such amendments meet the
requirements set forth in the second proviso of Section 13.2, each of the
Company, Parent, Sub and the Securityholders will not assert any claim
against the other as a result of the execution and delivery of such amendment.
ARTICLE 8
CONDITIONS PRECEDENT
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8.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective
obligations of the Company, Parent and Sub to effect the transactions
contemplated hereby are subject to the satisfaction on or prior to the
Closing Date of the following conditions:
(a) CONSENTS AND APPROVALS. All authorizations,
consents, orders, permits, licenses or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any Governmental
Entity necessary for the consummation of the transactions contemplated by the
Transaction Documents shall have been filed, occurred or been obtained and
the applicable waiting period under the HSR Act shall have expired or
terminated.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions contemplated by
the Transaction Documents shall be in effect.
(c) NO ACTION. No action shall have been taken nor any
statute, rule or regulation shall have been enacted by any Governmental
Entity that makes the consummation of the transactions contemplated hereby
illegal.
8.2 CONDITIONS TO OBLIGATION OF PARENT AND SUB. The obligation
of Parent and Sub to effect the transactions contemplated hereby is subject
to the satisfaction of the following conditions unless waived, in whole or in
part, by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except for any
representation or warranty that expressly relates to an earlier date, in
which case such representation or warranty shall have been true and correct
as of such earlier date) and the Company shall have performed in all material
respects the obligations required to be performed by it under this Agreement
on or prior to the Closing Date. Parent shall have received a certificate to
the foregoing effect signed on behalf of the Company by the chief executive
officer or by the chief financial officer of the Company.
(b) CLOSING DELIVERIES. All documents, instruments,
certificates or other items required to be delivered by the Company pursuant
to Section 9.2 shall have been delivered.
(c) SENIOR CREDIT MATTERS. Neither Parent nor Sub shall
have received written notice from Merrill Lynch Capital Corporation ("MLCC")
that MLCC will not provide the financing contemplated in the Merrill Lynch
Letter because (i) MLCC has determined that a material adverse change has
occurred and is continuing in the loan syndication or financial, banking or
capital market conditions generally from those in effect on the date of the
Merrill Lynch Letter that, individually or in the aggregate, in the
reasonable judgment of MLCC could materially adversely
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affect the ability of MLCC to syndicate the Credit Facilities (as defined in
the Merrill Lynch Letter) or (ii) a banking moratorium has been declared by
federal or New York State banking authorities and shall be continuing.
8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the transactions contemplated hereby is subject to the
satisfaction of the following conditions unless waived, in whole or in part,
by the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Parent and Sub set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except for any
representation or warranty that expressly relates to an earlier date, in
which case such representation or warranty shall have been true and correct
as of such earlier date) and Parent and Sub shall have performed in all
material respects the obligations required to be performed by them under this
Agreement at or prior to the Closing Date. The Representative shall have
received a certificate to the foregoing effect signed on behalf of Parent and
Sub by the chief executive officer or by the chief financial officer of
Parent and Sub, respectively.
(b) CLOSING DELIVERIES. All documents, instruments,
certificates or other items required to be delivered by Parent or Sub
pursuant to Section 9.2 shall have been delivered.
ARTICLE 9
CLOSING
9.1 CLOSING. Subject to the satisfaction or waiver of the
conditions set forth in Article 8, the Closing will take place at the offices
of Paul, Hastings, Janofsky & Walker LLP, New York, New York, at 10:00 a.m.,
local time (or at such other place and time as Parent and the Company may
agree), on a date which shall be (i) the later to occur of the date that is
sixty (60) days after the date of this Agreement, or the fifth Business Day
after the day on which the last condition to Closing has been met or waived
as contemplated in Article 8, or (ii) such other date as may be selected by
Parent and the Company (the "Closing Date"). Notwithstanding the foregoing,
but subject to the satisfaction or waiver of the conditions set forth in
Article 8, if a Cure Period has not ended on or before the scheduled Closing
Date, the Closing Date shall be extended to the end of the Cure Period.
9.2 ACTIONS TO OCCUR AT CLOSING. (a) At the Closing, Parent and
the Surviving Corporation shall deliver the following:
(i) MERGER CONSIDERATION. To the Stockholders,
the Optionholders and the Exchange Agent, by wire transfer of immediately
available funds, the payments required by Parent to be made under Section
2.9, which payments shall, in the aggregate, equal the Merger
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Consideration minus (x) the Escrow Amount, and (y) the Company Transaction
Costs Holdback Amount;
(ii) SOLVENCY LETTER. The Solvency Letter
executed by the Appraiser and addressed to the Company and the Board of
Directors of the Company;
(iii) ESCROW AMOUNT. The Escrow Amount to the
Escrow Agent by wire transfer of immediately available funds.
(iv) INDEMNIFICATION ESCROW AGREEMENT. To the
Representative, a counterpart of the Indemnification Escrow Agreement
executed by Parent.
(v) COMPANY TRANSACTION COSTS HOLDBACK AMOUNT.
To the Representative, the Company Transaction Costs Holdback Amount by wire
transfer of immediately available funds.
(vi) CERTIFICATES. The certificates described in
Section 8.3(a) and such other documentation as the Company and the
Representative may reasonably require in order to confirm that Parent has
performed its obligations under Section 6.5 hereof.
(b) At the Closing, the Company shall deliver to Parent
the following:
(i) CERTIFICATE. The certificate described in
Section 8.2(a) or another certificate or certificates with exceptions to the
matters contemplated in Section 8.2(a);
(ii) RESIGNATIONS. The resignations described in
Section 5.5;
(iii) RELEASE OF LIENS; RECEIPTS; PAYOUT LETTERS.
Evidence of the release of all Liens except Permitted Encumbrances and
executed receipts, payoff letters or similar documents executed by the
Company's lenders under the Senior Credit Agreement, each in form and
substance reasonably satisfactory to Parent;
(iv) TERMINATION AGREEMENT. To Parent, a fully
executed copy of the Termination Agreement; and
(v) INDEMNIFICATION ESCROW AGREEMENT. To Parent,
a counterpart of the Indemnification Escrow Agreement executed by the
Representative.
9.3 CERTIFICATE OF MERGER. Immediately following the Closing,
the Company shall execute the Certificate of Merger and file the Certificate
of Merger with the Secretary of State of the State of Delaware.
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ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. This Agreement may be terminated prior to the
Closing, and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by mutual consent of Parent and the Company; or
(b) by either Parent or the Company:
(i) if the terminating party is not then in
material breach of this Agreement and if there shall have been any breach by
a party (which has not been waived) of one or more of its representations or
warranties (as of the date when any such representation or warranty was
made), covenants or agreements set forth in this Agreement, which breach or
breaches (A) would give rise to the failure of a condition set forth in
Section 8.2(a) or 8.3(a), as applicable, and (B) shall not have been cured
within 30 days following receipt by the breaching party of written notice of
such breach, or such longer period in the event that such breach cannot
reasonably be expected to be cured within such 30-day period and such
nonterminating party is diligently pursuing such cure, but in no event later
than the Termination Date (the "Cure Period"); provided, however, that there
shall be no Cure Period for Parent's failure to obtain on or prior to the
Closing Date all funds necessary to consummate the Merger and the other
transactions contemplated in the Transaction Documents in accordance with the
terms and conditions hereof (which failure shall constitute a material breach
hereunder);
(ii) if a court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree, or ruling or taken
any other action (which order, decree, or ruling Parent and the Company
shall use their best efforts to lift), in each case permanently restraining,
enjoining, or otherwise prohibiting the transactions contemplated by the
Transaction Documents, and such order, decree, ruling, or other action shall
have become final and nonappealable; or
(iii) if the Closing shall not have occurred on or
before the date that is 65 days after the date of this Agreement (the
"Termination Date"); provided, however, that the right to terminate this
Agreement under this clause (iii) shall not be available to any party whose
breach of this Agreement has been the cause of, or resulted in, the failure
of the Closing to occur on or before such date.
The right of any party hereto to terminate this Agreement pursuant to
this Section 10.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers,
directors, employees, accountants, consultants, legal counsel, agents or
other representatives whether prior to or after the execution of this
Agreement. Notwithstanding anything in the foregoing to the contrary, a party
that is in material breach of this Agreement shall not be entitled to
terminate this
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Agreement except, in the case of a default by the Company, with the consent
of Parent, or in the case of a default by Parent or Sub, with the consent of
the Company.
10.2 EFFECT OF TERMINATION. Termination of this Agreement
pursuant to Section 10.1 shall terminate all obligations of the parties to
each other hereunder, except for the obligations and agreements under Article
1 and Sections 10.2, 10.3 and 10.4 and Article 13. If this Agreement is
terminated by Parent as provided in Section 10.1, there shall be no liability
on the part of the Company or any Securityholder, except for liability
arising out of a willful breach by such party of this Agreement. If this
Agreement is terminated by the Company as provided in Section 10.1, there
shall be no liability on the part of Parent or Sub, except for (i) liability
arising out of a willful breach by Parent or Sub of this Agreement, and (ii)
liability arising out of the failure by Parent to obtain on or prior to the
Closing Date all funds necessary to consummate the Merger and the other
transactions contemplated in the Transaction Documents in accordance with
terms and conditions hereof and thereof; provided, however, that if such
failure is due to the failure to occur of the condition set forth in Section
8.2(c), there shall be no liability on the part of Parent or Sub.
10.3 RETURN OF DOCUMENTATION. Following a termination in
accordance with Section 10.1, Parent shall return all agreements, documents,
contracts, instruments, books, records, materials and all other information
of the Company or any of its Subsidiaries or Affiliates or any Securityholder
provided by any of them, or by any representative of any of them to Parent,
Sub or any of their Subsidiaries or other Affiliates or any representatives
of Parent, Sub or any of their Subsidiaries or other Affiliates in connection
with the transactions contemplated by this Agreement and the other
Transaction Documents, and the Company shall return all agreements,
documents, contracts, instruments, books, records, materials and all other
information of Parent or Sub provided by Parent, Sub or any representative
thereof to the Company or any of the Securityholders in connection with the
transactions contemplated by this Agreement.
10.4 SOLE AND EXCLUSIVE REMEDY. Following termination of this
Agreement, or if the Closing does not otherwise occur, each party hereto
acknowledges and agrees that such party's sole and exclusive remedy with
respect to any and all claims for any breach or liability under this
Agreement or otherwise relating to the subject matter of this Agreement and
the transactions contemplated hereby shall be limited to the right to
terminate this Agreement pursuant to Section 10.1 and the effect of any such
termination pursuant to Section 10.2 hereof; provided that nothing in this
Section 10.4 shall prevent Parent from electing to not terminate this
Agreement and to seek specific performance under Section 13.4.
ARTICLE 11
INDEMNIFICATION
11.1 INDEMNIFICATION OF BUYER INDEMNIFIED PARTIES.
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(a) From and after the Closing Date and subject to the
provisions of this Article 11 (including without limitation Section 11.5),
each of the Securityholders hereby agrees, jointly and severally, to
indemnify and hold harmless the Buyer Indemnified Parties from and against
any and all Buyer Indemnified Company Costs.
(b) From and after the Closing Date and subject to the
provisions of this Article 11 (including without limitation Section 11.5),
each Securityholder severally and not jointly agrees to indemnify and hold
harmless the Buyer Indemnified Parties from and against any and all Buyer
Indemnified Securityholder Costs with respect to such Securityholder.
11.2 INDEMNIFICATION OF SELLER INDEMNIFIED PARTIES. From and
after the Closing Date and subject to the provisions of this Article 11
(including without limitation Section 11.5), each of Parent, Sub, the Company
and the Surviving Corporation hereby agree, jointly and severally, to
indemnify and hold harmless the Seller Indemnified Parties from and against
any and all Seller Indemnified Costs.
11.3 DEFENSE OF THIRD-PARTY CLAIMS. An Indemnified Party shall
give prompt written notice to any entity or person who is obligated to
provide indemnification under Section 11.1 or 11.2 (an "Indemnifying Party")
of the commencement or assertion of any action, proceeding, demand or claim
by a third party (collectively, a "third-party action") in respect of which
such Indemnified Party shall seek indemnification hereunder; provided,
however, that a Buyer Indemnified Party shall be deemed to have given such
notice to each Securityholder if such Buyer Indemnified Party gives such
written notice to the Representative as set forth in Section 13.8. Any
failure so to notify an Indemnifying Party shall not relieve such
Indemnifying Party from any liability that it, he, or she may have to such
Indemnified Party under this Article 11 unless, and only to the extent that,
the failure to give such notice materially and adversely prejudices such
Indemnifying Party. The Indemnifying Party shall have the right to assume
control of the defense of, settle, or otherwise dispose of such third-party
action on such terms as it deems appropriate; provided, however, that:
(a) The Indemnified Party shall be entitled, at its own
expense, to participate in the defense of such third-party action (provided,
however, that the Indemnifying Parties shall pay the attorneys' fees of the
Indemnified Party if (i) the employment of separate counsel shall have been
authorized in writing by any such Indemnifying Party in connection with the
defense of such third-party action, or (ii) the Indemnified Party's counsel
shall have advised the Indemnified Party in writing, with a copy delivered to
the Indemnifying Party, that there is a material conflict of interest that
would make it inappropriate to have common counsel);
(b) The Indemnifying Party shall obtain the prior written
approval of the Indemnified Party before entering into or making any
settlement, compromise, admission, or acknowledgment of the validity of such
third-party action or any liability in respect thereof if such settlement,
compromise, admission, or acknowledgment (i) would impose injunctive or other
equitable relief against the Indemnified Party, (ii) would give rise to
liability on the part of the
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Indemnified Party, or (iii) could, in the reasonable opinion of the
Indemnified Party, have a material adverse effect on its business;
(c) No Indemnifying Party shall consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party of a release from all liability in respect of such
third-party action; and
(d) At the Indemnified Party's option, the Indemnifying
Party shall not be entitled to control (but shall be entitled to participate
at its own expense in the defense of), and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement, compromise,
admission, or acknowledgment of any third-party action (i) as to which the
Indemnifying Party fails to assume the defense within a reasonable length of
time, (ii) to the extent the third-party action seeks an order, injunction,
or other equitable relief against the Indemnified Party which, if successful,
would materially adversely affect the business, operations, assets, or
financial condition of the Indemnified Party or (iii) if the amount in
controversy with respect to such action exceeds (x) the Escrow Amount if such
action is for Buyer Indemnified Company Costs, or (y) a Securityholder's
Maximum Securityholder Escrow Amount if such action is for Buyer Indemnified
Securityholder Costs; PROVIDED, HOWEVER, that the Indemnified Party shall
not, without the prior written consent of the Indemnifying Party, enter into
or make any settlement, compromise, admission, or acknowledgment of the
validity of such third-party action or any liability in respect thereof if
such settlement, compromise, admission or acknowledgment (A) would impose
injunctive or other equitable relief against the Indemnifying Party, (B)
would give rise to liability on the part of any Indemnifying Party, or (C)
could, in the reasonable opinion of the Indemnifying Party, have a material
adverse effect on its business.
The parties hereto shall extend reasonable cooperation in connection
with the defense of any third-party action pursuant to this Article 11 and,
in connection therewith, shall furnish such records, information, and
testimony and attend such conferences, discovery proceedings, hearings,
trials, and appeals as may be reasonably requested.
Parent and the Representative agree that, upon written request by an
Indemnified Party or Indemnifying Party who controls the defense of a
third-party action (other than a Buyer Indemnified Party with respect to a
Buyer Controlled Claim), Parent and the Representative shall give joint
written instructions to the Escrow Agent to release to such Indemnified Party
or Indemnifying Party a portion of the Escrow Amount equal to all court costs
and reasonable attorneys' fees and expenses incurred by such party, or for
which such party has received an invoice or similar request for payment, in
investigating and preparing for any litigation proceedings relating to such
third-party action.
11.4 DIRECT CLAIMS. In any case in which an Indemnified Party
seeks indemnification hereunder which is not subject to Section 11.3 because
no third-party action is involved (a "direct action"), the Indemnified Party
shall notify the Indemnifying Party in writing of any Indemnified
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Costs which such Indemnified Party claims are subject to indemnification
under the terms hereof. Subject to the limitations set forth in Section
11.5(b), the failure of the Indemnified Party to exercise promptness in such
notification shall not amount to a waiver of such claim unless and only to
the extent that the resulting delay materially and adversely prejudices the
position of the Indemnifying Party with respect to such claim.
11.5 LIMITATIONS. The following provisions of this Section 11.5
shall limit the parties' indemnification obligations hereunder:
(a) MINIMUM LOSS. The Securityholders shall not be
required to indemnify a Buyer Indemnified Party for Buyer Indemnified Costs
unless and until the aggregate amount of all Buyer Indemnified Costs for
which all Buyer Indemnified Parties (taken together) are otherwise entitled
to indemnification pursuant to this Article 11 exceeds $500,000 (the "Minimum
Loss"). After the Minimum Loss is exceeded, Buyer Indemnified Parties shall
be entitled to be paid the entire amount of any Buyer Indemnified Costs in
excess of (but not including) the Minimum Loss, subject to the limitations on
recovery and recourse set forth in this Section 11.5. The parties agree that
if the aggregate amount of De Minimis Losses exceeds $1,000,000, and are
therefore deemed Buyer Indemnified Costs as set forth in Section 11.5(b), the
Buyer Indemnified Parties shall be entitled to be paid the entire amount of
any Buyer Indemnified Costs (including Buyer Indemnified Costs comprised of
De Minimis Losses) in excess of (but not including) the Minimum Loss, subject
to the limitations on recovery and recourse set forth in this Section 11.5.
Notwithstanding the foregoing, the parties agree that, if and when Buyer
Indemnified Costs exceed the Minimum Loss, the Minimum Loss shall be deemed
to be exceeded for all purposes of this Section 11.5(a).
(b) MINIMUM CLAIM. If any third-party action or direct
action results in any damages, losses, liabilities, charges, penalties, costs
and expenses (including court costs and reasonable attorneys' fees and
expenses incurred in investigating and preparing for any litigation or
proceeding) which in the aggregate do not exceed $10,000 ("De Minimis
Losses") such damages, losses, liabilities, charges, penalties, costs and
expenses shall not be deemed to be Buyer Indemnified Costs; provided, that if
the aggregate amount of all De Minimis Losses equals or exceeds $1,000,000,
all such De Minimis Losses shall be deemed Buyer Indemnified Costs.
(c) LIMITATION AS TO TIME. No Indemnifying Party shall
be liable for any Indemnified Costs pursuant to this Article 11 unless a
written claim for indemnification in accordance with Section 11.3 or 11.4 is
given by the Indemnified Party to the Indemnifying Party with respect thereto
on or before 5:00 p.m., Dallas, Texas time on the date that is 547 days after
the Closing Date (the "Expiration Date"), except that this time limitation
shall not apply to Title Claims, claims for a breach of the representations
and warranties set forth in Section 3.2(f) or claims contemplated in Section
13.16.
(d) LIABILITY CAP. Without limiting any of the foregoing
provisions of this Section 11.5, the parties hereby agree that the maximum
aggregate liability of the Securityholders under this Article 11 shall in no
event exceed the Escrow Amount, except that this limitation shall not apply
to Title Claims or claims contemplated in Section 13.16.
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(e) RECOURSE AGAINST ESCROWED FUNDS. (i) For purposes of
this Agreement, a Securityholder's "Maximum Securityholder Escrow Amount"
shall mean, at any time, such Securityholder's PRO RATA share of the Escrow
Amount, as set forth in column C of SCHEDULE I, less any amounts previously
deducted from such Securityholder's Maximum Securityholder Escrow Amount in
accordance with this Section 11.5(e). In determining whether a Buyer
Indemnified Party is entitled to any amounts from a Securityholder with
respect to Buyer Indemnified Company Costs or Buyer Indemnified
Securityholder Costs, Section 11.5(a) and Section 11.5(b) shall apply.
Parent hereby covenants and agrees that, with respect to any claim by a Buyer
Indemnified Party against any Securityholder for Buyer Indemnified
Securityholder Costs payable under this Article 11 other than Title Claims
and claims contemplated in Section 13.16, the Buyer Indemnified Party shall
seek payment only out of the Escrow Amount for all amounts due to the Buyer
Indemnified Party from such Securityholder with respect to such claim in an
amount not to exceed such Securityholder's Maximum Securityholder Escrow
Amount. In the event of any claim by a Buyer Indemnified Party against a
Securityholder for Buyer Indemnified Securityholder Costs related to a Title
Claim or a claim contemplated in Section 13.16, the Buyer Indemnified Party
shall seek payment first out of the amount held by the Escrow Agent pursuant
to the Indemnification Escrow Agreement from time to time in an amount not to
exceed such Securityholder's Maximum Securityholder Escrow Amount and, if
such Securityholder's Maximum Securityholder Escrow Amount has been reduced
to zero pursuant to this Section 11.5(e), the Buyer Indemnified Party shall
be entitled, subject to the terms and conditions of this Agreement, to seek
payment directly from such Securityholder for all amounts remaining due to
the Buyer Indemnified Party from such Securityholder with respect to such
Title Claim or claim contemplated in Section 13.16. In no event shall the
Buyer Indemnified Party be entitled to be paid out of the Escrow Amount in
respect of claims against a Securityholder for Buyer Indemnified
Securityholder Costs an amount in excess of such Securityholder's Maximum
Securityholder Escrow Amount. In the event of any claim by a Buyer
Indemnified Party against one or more Securityholders for Buyer Indemnified
Company Costs, each Securityholder's Maximum Securityholder Escrow Amount
shall be reduced (but not below zero) by such Securityholder's PRO RATA
portion (based upon the initial Maximum Securityholder Escrow Amounts of such
Securityholders) of the amount paid out of the Escrow Amount in respect of
such claim (or, if applicable, such Securityholder's Maximum Securityholder
Escrow Amount shall be reduced (but not below zero) by that portion of such
Securityholder's Maximum Securityholder Escrow Amount as may be set forth in
written release instructions executed and delivered to the Escrow Agent by
the Representative on behalf of such Securityholder), and, to the extent that
the portion of such claim for which such Securityholder is liable exceeds
such Securityholder's Maximum Securityholder Escrow Amount as of the time of
payment of such claim out of the Escrow Amount, then the Buyer Indemnified
Party shall not be entitled to seek payment from such Securityholder directly
for such excess; provided that the Buyer Indemnified Party shall then be
entitled to seek the remaining amount of any Buyer Indemnified Company Costs
from such other Securityholders whose respective Maximum Securityholder
Escrow Amounts exceed zero, PRO RATA based upon the Maximum Securityholder
Escrow Amounts of such Securityholders at the time of payment of such Buyer
Indemnified Company Costs, until such amounts have been paid in full or each
Securityholder's Maximum Securityholder Escrow Amount has been reduced to
zero, after which the Buyer
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Indemnified Party shall not be entitled to seek payment from any
Securityholders directly for such excess.
(ii) On the first anniversary of the Closing Date
(the "First Anniversary"), Parent and the Representative shall give joint
written instructions to the Escrow Agent (A) to release to the Representative
the excess, if any, of $10,000,000 over the sum (the "Claims Amount") of (x)
all amounts previously paid from the Escrow Amount to resolve claims for
Buyer Indemnified Costs, and (y) the amount of all unresolved claims then
properly made by Parent for Buyer Indemnified Costs as of the First
Anniversary, (B) if any unresolved claims with respect to which a portion of
the Claims Amount was retained shall be resolved prior to the Expiration
Date, to release to the Representative the excess, if any, of such portion of
the Claims Amount over the amount necessary to satisfy such claim; and (C) to
hold the balance of the Escrow Amount pursuant to the terms of the
Indemnification Escrow Agreement. From and after the First Anniversary, the
aggregate amount of the funds held by the Escrow Agent pursuant to the
Indemnification Escrow Agreement shall, for all purposes of this Agreement,
be the "Escrow Amount."
(f) BUYER CONTROLLED CLAIMS. The Securityholders shall
not be required to indemnify a Buyer Indemnified Party for Buyer Indemnified
Costs with respect to a Buyer Controlled Claim unless and until the aggregate
amount of all damages, losses, liabilities, charges, penalties, costs and
expenses (including court costs and reasonably attorneys' fees and expenses
incurred in investigating and preparing for any litigation proceedings) paid
by the Buyer Indemnified Party with respect to such Buyer Controlled Claim
(the "Buyer Control Amount") exceeds (i) the then effective Escrow Amount if
such claim is for Buyer Indemnified Company Costs, or (ii) a Securityholder's
then effective Maximum Securityholder Escrow Amount, if such claim is for
Buyer Indemnified Securityholder Costs from such Securityholder. The Buyer
Indemnified Party shall then be entitled to be paid the entire amount of its
Buyer Indemnified Company Costs or Buyer Indemnified Securityholder Costs, as
applicable, with respect to such Buyer Controlled Claim in excess of (but not
including) the Buyer Control Amount, subject to the limitations on recovery
and recourse set forth in this Section 11.5.
(g) MATERIALITY. For purposes of determining (i) whether
an Indemnifying Party shall be required to indemnify an Indemnified Party
under this Article 11, (ii) the aggregate amount of Minimum Loss suffered by
a Buyer Indemnified Party, (iii) the aggregate amount of De Minimis Losses
suffered by a Buyer Indemnified Party, or (iv) the aggregate amount of Buyer
Indemnified Costs suffered by a Buyer Indemnified Party, each representation
and warranty (whether made as of the date of this Agreement or made on and as
of the Closing Date) contained in this Agreement for which indemnification is
sought hereunder shall be read (including for purposes of determining whether
a breach of such representation or warranty has occurred) without regard to,
and as if such representation or warranty did not contain, materiality
qualifications that may be contained therein (including Material Adverse
Effect).
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(h) SOLE AND EXCLUSIVE REMEDY. Parent, Sub, the Company,
the Surviving Corporation and the Securityholders each acknowledge and agree
that, after the Closing, notwithstanding any other provision of this
Agreement to the contrary, such party's sole and exclusive remedy with
respect to Indemnified Costs and any and all other claims relating to the
subject matter of this Agreement and the transactions contemplated hereby and
by any of the other Transaction Documents shall be in accordance with, and
limited by, the provisions set forth in this Article 11 and in the
Indemnification Escrow Agreement.
11.6 BUYER INDEMNIFIED REDUCTIONS COSTS. Notwithstanding any of
the provisions set forth in Section 11.5, the parties hereby agree that the
obligations of the Securityholders to indemnify Parent for Buyer Indemnified
Reductions Costs shall not be subject to the provisions set forth in Section
11.5(a) or 11.5(b), but shall be subject to the other provisions set forth in
this Article 11, including the provisions of Section 11.5 other than those
set forth in Section 11.5(a) and 11.5(b). Notwithstanding the matters set
forth in the immediately preceding sentence, the parties also agree that the
Buyer Indemnified Parties shall be entitled to seek payment for Buyer
Indemnified Reductions Costs relating to Company Transactions Costs directly
from the Representative to the extent of the Company Transactions Costs
Holdback Amount that is then held by the Representative.
ARTICLE 12
THE REPRESENTATIVE
By their execution and delivery of this Agreement, each
Securityholder hereby agrees as follows:
12.1 AUTHORIZATION OF THE REPRESENTATIVE. Hicks, Muse Fund III
Incorporated, a Texas Corporation (the "Representative") (and each successor
appointed in accordance with Section 12.6), hereby is appointed, authorized
and empowered to act, on behalf of the Securityholders, in connection with,
and to facilitate the consummation of the transactions contemplated by, this
Agreement and the other Transaction Documents, and in connection with the
activities to be performed on behalf of the Securityholders under this
Agreement and the Indemnification Escrow Agreement, for the purposes and with
the powers and authority hereinafter set forth in this Article 12 and in the
Indemnification Escrow Agreement, which shall include the power and authority:
(a) To execute and deliver the Indemnification Escrow
Agreement (with such modifications or changes therein as to which the
Representative, in its reasonable discretion, shall have consented to) and to
agree to such amendments or modifications thereto as the Representative, in
its reasonable discretion, may deem necessary or desirable to give effect to
the matters set forth in this Article 12;
(b) To execute and deliver such waivers and consents in
connection with this Agreement and the consummation of the transactions
contemplated hereby as the Representative,
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in its reasonable discretion, may deem necessary or desirable to give effect
to the intentions of this Agreement and the other Transaction Documents;
(c) As the Representative of the Securityholders, to
enforce and protect the rights and interests of the Securityholders and to
enforce and protect the rights and interests of the Representative arising
out of or under or in any manner relating to this Agreement, the
Indemnification Escrow Agreement and each other Transaction Document
(including, but not limited to, in connection with any and all claims for
indemnification brought by any Indemnified Party under Article 11 of this
Agreement) and, in connection therewith, to (i) assert by claim or institute
any action, proceeding or investigation; (ii) investigate, defend, contest or
litigate any claim, action, proceeding or investigation initiated by any
Indemnified Party, or any other Person, against the Representative and/or the
Escrow Amount, and receive process on behalf of any or all Securityholders in
any such claim, action, proceeding or investigation and compromise or settle
on such terms as the Representative shall determine to be appropriate, give
receipts, releases and discharges on behalf of all of the Securityholders
with respect to any such claim, action, proceeding or investigation; (iii)
file any proofs, debts, claims and petitions as the Representative may deem
advisable or necessary; (iv) settle or compromise any claims asserted under
Article 11 of this Agreement; (v) assume, on behalf of all of the
Securityholders, the defense of any claim that is the basis of any claim
asserted under Article 11 of this Agreement; and (vi) file and prosecute
appeals from any decision, judgment or award rendered in any of the foregoing
actions, proceedings or investigations, it being understood that the
Representative shall not have any obligation to take any such actions, and
shall not have liability for any failure to take such any action;
(d) to enforce payment from the Escrow Amount and any
other amounts payable to the Securityholders, in each case on behalf of the
Securityholders, in the name of the Representative or, if the Representative
so elects, upon at least fifteen (15) days' prior written notice to the
Securityholders and in the absence of written instructions to the contrary,
in the names of one or more of the Securityholders;
(e) to cause to be paid out of the Escrow Account the
full amount of any judgment or judgments and legal interest and costs awarded
in favor of any Buyer Indemnified Party arising out of the indemnification
provisions set forth in Article 11 of this Agreement;
(f) to refrain from enforcing any right of the
Securityholders or any of them and/or of the Representative arising out of or
under or in any manner relating to this Agreement, the Indemnification Escrow
Agreement or any other Transaction Documents;
(g) to cause to be paid out of the Company Transaction
Costs Holdback Amount the amount of any Company Transaction Costs not paid at
or prior to Closing; and
(h) to make, execute, acknowledge and deliver all such
other agreements, guarantees, orders, receipts, endorsements, notices,
requests, instructions, certificates, stock powers, letters and other
writings, and, in general, to do any and all things and to take any and all
action that
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the Representative, in its sole and absolute direction, may consider
necessary or proper or convenient in connection with or to carry out the
activities described in paragraphs (a) through (g) above and the transactions
contemplated by this Agreement, the Indemnification Escrow Agreement and the
other Transaction Documents.
Notwithstanding anything to the contrary herein, the parties
acknowledge and agree that (i) the Representative may not enter into or grant
any amendments or modifications described in Section 12.1(a) or waivers or
consents described in Section 12.1(b) unless such amendments, modifications,
waivers or consents shall affect each Securityholder similarly and to the
same relative extent, and (ii) any such amendment, modification, waiver or
consent which does not affect any Securityholder similarly and to the same
relative extent as it affects other Securityholders must be executed by such
Securityholder to be binding on such Securityholder.
Notwithstanding anything to the contrary herein, the Representative
in its role as Representative shall have no liability whatsoever to the
Company, Parent, Sub or the Surviving Corporation, except to the extent
arising as a result of fraud or the breach of this Agreement on the part of
such Representative.
The grant of authority provided for in this Section 12.1 (i) is
coupled with an interest and is being granted, in part, as an inducement to
the Company, Parent and Sub to enter into this Agreement and shall be
irrevocable and survive the death, incompetency, bankruptcy or liquidation of
any Securityholder and shall be binding on any successor thereto; (ii)
subject to the provisions of Section 12.6 below, may be exercised by the
Representative acting by signing as a Representative of each of the
Securityholders; and (iii) shall survive any distribution from the Escrow
Agent.
12.2 PAYMENTS OF EXPENSES, HOLDBACKS.
(a) The Representative shall withhold and retain from any
distributions to, or on behalf of, the Securityholders or withdrawals by the
Representative on behalf of the Securityholders out of the Escrow Amount,
such amount or amounts as shall be sufficient to pay all known, or reasonably
anticipated, expenses which are required to be paid or borne by the
Securityholders pursuant to this Agreement, the Indemnification Escrow
Agreement and the other Transaction Documents or are otherwise incurred by
the Representative in performance of its duties hereunder, including, but not
limited to, the Representative's own out-of-pocket expenses and the payment
of any fees and expenses under the Indemnification Escrow Agreement to the
Escrow Agent, and shall pay all such expenses out of the amount or amounts so
withheld. In the event that the amounts so withheld (if any) are insufficient
to pay all such expenses, each Securityholder, upon written notification from
the Representative of any such deficiency, shall promptly deliver to the
Representative full payment of his, her or its ratable share of the amount of
such deficiency in accordance with the shares of Fully-Diluted Common Stock
held by such Securityholder.
(b) If a Securityholder fails to make a payment referred
to above or referred to in Section 12.5, or any portion thereof (a
"Defaulting Securityholder"), all other Securityholders
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shall make such payment, or portion thereof, on behalf of each Defaulting
Securityholder in proportion to their respective Shares of Fully-Diluted
Common Stock (computed without reference to the Shares of Fully-Diluted
Common Stock of any Defaulting Securityholder). In no event shall a
Defaulting Securityholder be released from liability for failing to make such
payment hereunder. A Defaulting Securityholder shall be liable to each other
Securityholder, and to the Representative, for all payments, costs and
expenses incurred as a result of the failure of the Defaulting Securityholder
to comply with the terms hereof, including, but not limited to, any costs and
expenses incurred in enforcing the provisions of this Agreement.
(c) In connection with the performance of its obligations
hereunder, the Representative shall have the right at any time and from time
to time to select and engage, at the cost and expense of the Securityholders,
attorneys, accountants, investment bankers, advisors, consultants and
clerical personnel and obtain such other professional and expert assistance,
and maintain such records, as the Representative may deem necessary or
desirable and incur other out-of-pocket expenses.
12.3 DISBURSEMENTS.
(a) All payments to the Securityholders by the
Representative hereunder, and all sums, proceeds and other property held by
the Representatives, shall be allocated among the Securityholders in
proportion to the amounts of each such Securityholder's Maximum
Securityholder Escrow Amount.
(b) All money or other proceeds received by the
Representative for the benefit of the Securityholders, including those
distributed by the Escrow Agent, shall be distributed by the Representative
as promptly as practicable to each Securityholder as set forth in subsection
(a) hereof.
12.4 BANK ACCOUNTS; INVESTMENTS.
(a) The Representative shall have the right to open such
account or accounts in its own name as Representative of the Securityholders
in any bank or trust company as it may select in order to deposit all sums
which it may receive and hold hereunder and to issue checks or draw money
upon the signature of the Representative (or the signature of one or more
persons the Representative may designate) on each such account.
(b) The Representative shall have the right, in its sole
and absolute discretion, to invest and reinvest any of the proceeds held by
it under the terms of this Agreement in investments only of a type which the
Escrow Agent is permitted to make pursuant to the Indemnification Escrow
Agreement. Any securities or other property at any time held by the
Representative may be held by it in bearer or registered form or in the name
of any other person or persons it may designate, and the Representative may
deal with such securities or other property to the same extent and with the
same powers as an individual owner thereof might do. The Representative
shall have no responsibility or obligation whatsoever to any Securityholder,
or to any other person for the
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performance of any investments made in accordance with the provisions of this
Agreement or for any losses realized.
12.5 COMPENSATION; EXCULPATION; INDEMNITY.
(a) The Representative shall not be entitled to any fee,
commission or other compensation for the performance of its service
hereunder, but shall be entitled to the payment of all of its out-of-pocket
expenses incurred as Representative, and in furtherance of the foregoing, may
pay or cause to be paid or reimburse itself for the payment of any and all
such expenses.
(b) In dealing with this Agreement, the Indemnification
Escrow Agreement and any instruments, agreements or documents relating
thereto, and in exercising or failing to exercise all or any of the powers
conferred upon the Representative hereunder or thereunder, (i) the
Representative shall not assume any, and shall incur no, responsibility
whatsoever to any Securityholder by reason of any error in judgment or other
act or omission performed or omitted hereunder or in connection with this
Agreement, the Indemnification Escrow Agreement or any Transaction Document
and (ii) the Representative shall be entitled to rely on the advice of
counsel, public accountants or other independent experts experienced in the
matter at issue, and any error in judgment or other act or omission of the
Representative pursuant to such advice shall in no event subject the
Representative to liability to any Securityholder, the Company, Parent, Sub,
the Surviving Corporation or any other person.
(c) Each Securityholder, severally, shall indemnify the
Representative up to, but not exceeding, an amount equal to the aggregate
portion of the Merger Consideration received by such Person hereunder, which
indemnification shall be paid by such Securityholder pro rata in accordance
with the portion of the Merger Consideration received by such person
hereunder, against all damages, liabilities, claims, obligations, costs and
expenses, including reasonable attorneys', accountants' and other experts'
fees and the amount of any judgment against it, of any nature whatsoever,
arising out of or in connection with any claim, investigation, challenge,
action or proceeding or in connection with any appeal thereof, relating to
the acts or omissions of the Representative hereunder, under the
Indemnification Escrow Agreement or otherwise, except for such damages,
liabilities, claims, obligations, costs and expenses, including reasonable
attorneys', accountants' and other experts' fees and the amount of any
judgment against the Representative that arise from the Representative's
gross negligence or willful misconduct, including the willful breach of this
Agreement or the Indemnification Escrow Agreement. The foregoing
indemnification shall not be deemed exclusive of any other right to which the
Representative may be entitled apart from the provisions hereof. In the
event of any indemnification under this Section 12.5(c), the Representative
shall first proceed against any distributions to the Representative on behalf
of the Securityholders. Thereafter, upon written notice from the
Representative to the Securityholders as to the existence of a deficiency
toward the payment of any such indemnification amount, each Securityholder
shall promptly deliver to the Representative full payment of his, her or its
ratable share of such deficiency.
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(d) All of the indemnities, immunities and powers granted
to the Representative under this Agreement shall survive the Closing and/or
any termination of this Agreement and the Indemnification Escrow Agreement.
12.6 REMOVAL AND REPLACEMENT OF REPRESENTATIVE; SUCCESSOR
REPRESENTATIVE; ACTION BY REPRESENTATIVE.
(a) If Representative is unable or unavailable to perform
his duties hereunder, a Representative, who shall be a Securityholder or a
representative of a non-individual Securityholder, shall be appointed by
Securityholders who, immediately prior to the Effective Time, hold a majority
of the Outstanding Shares, unless such person is unable or unwilling to
accept such appointment.
(b) Any Representative or all of them may be removed at
any time by a written notice delivered by Securityholders who, immediately
prior to the Effective Time, hold a majority of the Outstanding Shares to the
Representative, the other Securityholders, Parent and the Surviving
Corporation. A Representative so removed shall be replaced promptly by
Securityholders who, immediately prior to the Effective Time, hold a majority
of the Outstanding Shares by written notice delivered to all of the
Securityholders and Parent.
(c) If any successor Representative is appointed as
contemplated in Sections 12.6(a) or 12.6(b), written notice of such
appointment executed by Securityholders who, immediately prior to the
Effective Time, hold a majority of the Outstanding Shares shall be delivered
to the Representative, the other Securityholders and Parent. Any successor
Representative shall have all of the authority and responsibilities conferred
upon or delegated to a Representative pursuant to this Article 12.
12.7 RELIANCE; LIMITATION AS TO PARENT, SUB AND THE SURVIVING
CORPORATION.
(a) Parent, Sub, the Company and the Surviving Company
may conclusively and absolutely rely, without inquiry, and until the receipt
of written notice of a change of the Representative under Section 12.6 may
continue to rely, without inquiry, upon the action of the Representative as
the action of each Securityholder in all matters referred to in this Article
12.
(b) Each of the parties hereto hereby acknowledges and
agrees that, except as set forth in this Section 12.7, the provisions of this
Article 12 create no binding obligations between Parent, Sub and the
Surviving Corporation, on the one hand, and the Securityholders, on the other
hand; provided, however, that if Parent is given written notice of the
appointment of a successor Representative as contemplated in Section 12.6,
Parent, Sub and the Surviving Corporation shall be obligated to recognize,
and shall only be able to so rely upon the action of, such successor
Representative as the Representative for all purposes under this Agreement.
ARTICLE 13
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GENERAL PROVISIONS
13.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. None of the representations and warranties made by Parent or Sub
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Effective Time, except for the representations and
warranties set forth in Section 3.2(f), which representations and warranties
shall survive until the expiration of the applicable statute of limitations.
Regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party may have in respect thereof, each of
the representations and warranties made by the Company or any Securityholder
hereunder or pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing, but shall terminate at 5:00
p.m., Dallas, Texas time on the Expiration Date, other than the
representations and warranties made by the Securityholders in Section 3.3(a),
which representations and warranties shall survive until the expiration of
the applicable statute of limitations. Following the date of termination of a
representation or warranty, no claim can be brought with respect to a breach
of such representation or warranty, but no such termination shall affect any
claim for a breach of a representation or warranty that was asserted before
the date of termination. To the extent that such are performable after the
Closing, each of the covenants and agreements contained in each of the
Transaction Documents shall survive the Closing for the period stated or, if
no such period is stated, such covenant or agreement shall survive
indefinitely.
13.2 AMENDMENT AND MODIFICATION. This Agreement may not be
amended except by an instrument in writing signed by Parent and the Company
(or after the Effective Time, the Surviving Corporation); PROVIDED, HOWEVER,
that if any such amendment would affect in any way a Securityholder's rights
under this Agreement, including without limitation a change in the portion of
the Merger Consideration due to any such Securityholder at and after the
Effective Time or the relative portion of the Escrow Amount or the Company
Transaction Costs Holdback Amount withheld from the portion of the Merger
Consideration due to such Securityholder, such amendment must also be signed
by such Securityholder for such amendment to be binding on such
Securityholder; PROVIDED, FURTHER, that any amendment pursuant to which
Parent and certain members of Management agree that all or any portion of
Management's Outstanding Shares or Options shall not convert into the right
to receive a portion of the Merger Consideration may be entered into without
the consent of the Company or any Securityholder (other than such members of
Management) so long as such amendment does not reduce the portion of the
Merger Consideration due to such other Securityholders at and after the
Effective Time or the relative portion of the Escrow Amount or the Company
Transaction Costs Holdback Amount withheld from the portion of the Merger
Consideration due to all Securityholders.
13.3 WAIVER OF COMPLIANCE. Any failure of Parent or Sub on the
one hand, or the Company, on the other hand, to comply with any obligation,
covenant, agreement or condition contained herein may be waived only if set
forth in an instrument in writing signed by the party or parties to be bound
by such waiver, but such waiver or failure to insist upon strict compliance
with such obligation, covenant, agreement, or condition shall not operate as
a waiver of, or estoppel with respect to, any other failure.
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13.4 SPECIFIC PERFORMANCE. The parties recognize that in the
event the Company should refuse to perform under the provisions of this
Agreement, monetary damages alone will not be adequate. Parent and Sub shall
therefore be entitled, in addition to any other remedies which may be
available, including money damages, to obtain specific performance of the
terms of this Agreement. In the event of any action to enforce this Agreement
specifically, the Company hereby waives the defense that there is an adequate
remedy at law.
13.5 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of
applicable law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect. The parties
further agree that any court of competent jurisdiction is expressly
authorized to modify any such unenforceable provision of this Agreement in
lieu of severing such unenforceable provision from this Agreement in its
entirety, whether by rewriting the offending provision, deleting any or all
of the offending provision, adding additional language to this Agreement, or
by making such other modifications as it deems warranted to carry out the
intent and agreement of the parties as embodied herein to the maximum extent
permitted by law. The parties expressly agree that this Agreement as so
modified by a court of competent jurisdiction shall be binding upon and
enforceable against each of them.
13.6 EXPENSES AND OBLIGATIONS. Except as otherwise expressly
provided in this Agreement (including without limitation Sections 5.1, 6.2,
6.3, 6.6 and 7.1), all costs and expenses incurred by the parties hereto in
connection with the consummation of the transactions contemplated hereby and
in the other Transaction Documents shall be borne solely and entirely by the
party which has incurred such expenses. Notwithstanding the foregoing, (a)
the fees payable to the Escrow Agent shall be borne as provided in the
Indemnification Escrow Agreement, (b) the broker, finder or financial
advisory fees payable to any person retained by Parent or any of its
Subsidiaries or other Affiliates, shall be borne by Parent, (c) all sales,
documentary or stamp taxes arising out of the transactions contemplated by
this Agreement shall be paid one-half by Parent and one-half by the Company,
and (d) all fees, costs and other expenses of any kind incurred by or on
behalf of the Company or any of its Subsidiaries in connection with, or
relating to, any financing activity of Parent or any Affiliate thereof
(including without limitation all accounting and legal fees and expenses)
shall be the responsibility of and paid by Parent.
13.7 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their successors and
assigns. Nothing in this Agreement is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Agreement except as expressly set forth herein. Without limiting the
generality of the foregoing, each of Sections 3.2(f), 6.4 and 6.6 are made
for the benefit of the Company's officers and directors and former officers
and directors, and the last sentence of Section 7.3(a) is made for the
benefit of the persons referenced therein, all of whom shall be entitled to
enforce such provisions and to avail themselves of the benefit of any remedy
for any breach of such provisions, all to the same extent as if such persons
were parties to this Agreement.
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13.8 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, faxed
to the parties at the following facsimile numbers or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Parent or Sub, to:
D and W Holdings, Inc.
c/o Ardshiel, Inc.
230 Park Avenue
New York, New York 10169
Attention: Daniel T. Morley
Facsimile: (212) 972-1809
with copies to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022-4697
Attention: Joel M. Simon
Marie Censoplano
Facsimile: (212) 319-4090
and
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: William J. Phillips
Facsimile: (212) 259-6333
(b) If to the Company, to:
Atrium Corporation
1341 West Mockingbird Lane, Suite 1200W
Dallas, Texas 75247
Attention: Randall S. Fojtasek
Facsimile: (214) 630-5013
with copies to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
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Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 720-7313
and
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Facsimile: (214) 220-7716
(c) If to the Representative, to:
Hicks, Muse Fund III Incorporated
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 720-7313
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Facsimile: (214) 220-7716
Any of the above addresses may be changed at any time by notice given
as provided above; provided, however, that any such notice of change of
address shall be effective only upon receipt. All notices, requests or
instructions given in accordance herewith shall be deemed received on the
date of delivery, if hand delivered, on the date of receipt, if faxed, three
Business Days after the date of mailing, if mailed by registered or certified
mail, return receipt requested, and one Business Day after the date of
sending, if sent by Federal Express or other recognized overnight courier.
13.9 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, all of
which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each
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of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
13.10 ENTIRE AGREEMENT. This Agreement (which term shall be deemed
to include the exhibits and schedules hereto and the other certificates,
documents and instruments delivered hereunder) and the Confidentiality
Agreement constitute the entire agreement of the parties hereto and supersede
all prior agreements, letters of intent and understandings, both written and
oral, among the parties with respect to the subject matter hereof. There are
no representations or warranties, agreements, or covenants other than those
expressly set forth in this Agreement.
13.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
13.12 PUBLIC ANNOUNCEMENTS. No party hereto shall issue any press
release or make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior consent of Parent and the
Company, except that any party may make any disclosure required by
applicable law (including federal securities laws) if it determines in good
faith that it is required to do so and provides Parent and the Company with
prior notice and a reasonable opportunity to review the disclosure.
13.13 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by any of the parties
hereto, whether by operation of law or otherwise; provided, however, that
upon notice to the Company and the Representative and without releasing
Parent or Sub from any of their respective obligations or liabilities
hereunder, (a) Parent or Sub may assign or delegate any or all of its rights
or obligations under this Agreement to any Affiliate of Parent ; and (b)
nothing in this Agreement shall limit Parent's or Sub's ability to make a
collateral assignment of its rights under this Agreement to any institutional
lender that provides funds to Parent or Sub without the consent of the
Company or the Representative; provided, however, that unless written notice
is given to the Company and to the Representative that any such collateral
assignment has been foreclosed upon, the Company and the Representative shall
be entitled to deal exclusively with Parent and Sub as to any matters arising
under this Agreement or any of the other Transaction Documents. In the event
of such an assignment, the provisions of this Agreement shall inure to the
benefit of and be binding on the assigns of Parent and Sub. Any attempted
assignment in violation of this Section 13.13 shall be null and void.
13.14 DIRECTOR AND OFFICER LIABILITY. The directors, officers, and
stockholders of Parent and its Affiliates in their capacity as such shall not
have any personal liability or obligation arising under this Agreement
(including any claims that the Company may assert). The directors and
officers of the Company and its Affiliates in their capacity as such shall
not have any personal liability or obligation arising under this Agreement
(including any claims that Parent may assert). Except as otherwise provided
in this Agreement, no Securityholder shall have any personal liability or
obligation arising under this Agreement (including any claims that Parent may
assert).
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13.15 HEADINGS. The headings of this Agreement are for convenience
of reference only and are not part of the substance of this Agreement.
13.16 NO WAIVER RELATING TO CLAIMS FOR FRAUD. The liability of any
party under Article 11 shall be in addition to, and not exclusive of, any
other liability that such party may have at law or equity based on such
party's fraudulent acts or omissions. None of the provisions set forth in
this Agreement, including but not limited to the provisions set forth in
Section 11.5(a) (relating to Minimum Loss), 11.5(b) (relating to De Minimis
Losses), 11.5(c) (relating to the limitations on the period of time during
which a claim for indemnification may be brought), 11.5(d) (relating to a cap
on liability) or 11.5(e) (relating to recourse against escrow funds), shall
be deemed a waiver by any party to this Agreement of any right or remedy
which such party may have at law or equity based on any other party's
fraudulent acts or omissions, nor shall any such provisions limit, or be
deemed to limit, (i) the amounts of recoveries sought or awarded in any such
claim for fraud, (ii) the time period during which a claim for fraud may be
brought, or (iii) the recourse which any party may seek against another party
with respect to a claim for fraud; provided, that with respect to such rights
and remedies at law or equity, the parties further acknowledge and agree that
none of the provisions of this Section 13.16 nor any reference to this
Section 13.16 throughout this Agreement, shall be deemed a waiver of any
defenses which may be available in respect of actions or claims for fraud,
including but not limited to, defenses of statutes of limitations or
limitations of damages.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Company, Parent and Sub have caused this
Agreement to be signed, all as of the date first written above.
THE COMPANY:
ATRIUM CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PARENT:
D AND W HOLDINGS, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
SUB:
D AND W ACQUISITION CORP.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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SECURITYHOLDERS:
HERITAGE FUND I, L.P.
By: HF Partners I, L.P., its general partner
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
HICKS, MUSE, TATE & FURST
EQUITY FUND III, L.P.
By: HM3/GP Partners, L.P.,
its General Partner
By: Hicks, Muse GP Partners III, L.P.,
its General Partner
By: Hicks Muse Fund III Incorporated,
its General Partner
By:
----------------------------------------
Jeffry S. Fronterhouse
Vice President
HM3 COINVESTORS, L.P.,
By: Hicks, Muse GP Partners III, L.P.,
its General Partner
By: Hicks, Muse Fund III Incorporated,
its General Partner
By:
----------------------------------------
Jeffry S. Fronterhouse
Vice President
S-2
<PAGE>
S-3
<PAGE>
----------------------------------------
JOE FOJTASEK
----------------------------------------
RANDALL S. FOJTASEK
----------------------------------------
RUSSELL S. FOJTASEK
----------------------------------------
FRED BENGTSON
----------------------------------------
JACK MARTIN FOJTASEK TRUST
By:
-------------------------------------
O. Haynes Morris, Jr., Trustee
----------------------------------------
STEPHEN M. HUMPHREY
JOE FOJTASEK II TRUST
By:
-------------------------------------
O. Haynes Morris, Jr., Trustee
----------------------------------------
JOE FOJTASEK, AS CUSTODIAN FOR PHILLIP MICHAEL
FOJTASEK
----------------------------------------
JEFF L. HULL
S-4
<PAGE>
----------------------------------------
MICHAEL HILLMEYER
----------------------------------------
DOW POINTER
----------------------------------------
KEVIN SCHUMACHER
----------------------------------------
JOHN CRAINE
----------------------------------------
JAMES WRIGHT
----------------------------------------
EDWIN BEACHLY
J. DAREN METROPOULOS
IRREVOCABLE TRUST
By:
-------------------------------------
Michael J. Cramer, Trustee
EVAN D. METROPOULOS
IRREVOCABLE TRUST
By:
-------------------------------------
Michael J. Cramer, Trustee
----------------------------------------
S-5
<PAGE>
ROBERT DEAKIN
S-6
<PAGE>
----------------------------------------
MICHAEL EASTERLY
----------------------------------------
JAMES GRESHAM
----------------------------------------
JAMES MCGLINN
----------------------------------------
RICHARD KETTLE
----------------------------------------
THOMAS BOWEN
P. MICHAEL FOJTASEK TRUST
By:
-------------------------------------
O. Haynes Morris, Jr., Trustee
----------------------------------------
LOUIS W. SIMI, JR.
----------------------------------------
WILLIAM ROBINSON
----------------------------------------
GEORGE FROST
----------------------------------------
HORACE HICKS
S-7
<PAGE>
----------------------------------------
C. DEAN METROPOULOS
----------------------------------------
SHIRLEY CRUTCHER
----------------------------------------
ERIC W. LONG
----------------------------------------
JILL ANDERSON
----------------------------------------
JAMEY RENTFROW
----------------------------------------
SYLVAN POMERANTZ
----------------------------------------
MARTIN COOK
----------------------------------------
AL ASHE
----------------------------------------
SCOTT MCGILL
----------------------------------------
THOMAS LAMANNA
----------------------------------------
PETE ZIEGLER
S-8
<PAGE>
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "AGREEMENT"), dated as of October 2,
1998, by and among D and W Holdings, Inc., a Delaware corporation (the
"COMPANY"), and each of the individuals and entities signatory hereto (each a
"STOCKHOLDER" and together the "STOCKHOLDERS").
RECITALS:
WHEREAS, the Company is authorized to issue a total of 125,000,000
shares of Common Stock, par value $0.01 per share ("COMMON STOCK"); and
WHEREAS, upon the consummation of the Transactions (as defined
herein), there will be shares of Common Stock issued and outstanding as set
forth on SCHEDULE I hereto and the Stockholders will own the number of shares of
Common Stock as set forth opposite their respective names on SCHEDULE II hereto;
and
WHEREAS, upon the consummation of the Transactions, there will be
options to purchase shares of Common Stock as set forth on SCHEDULE I hereto and
the Stockholders will own options to purchase shares of Common Stock as set
forth opposite their respective names on SCHEDULE II hereto;
WHEREAS, (i) Atrium (as defined herein) has requested, and GEIPPPII
and Ardatrium (each as defined herein) have agreed, to provide loans to Atrium
pursuant to that certain Indenture, dated as of the date hereof, and (ii) in
connection therewith, Atrium has agreed to issue the Discount Debentures (as
defined herein) to GEIPPPII and Ardatrium (together, the "Lenders");
WHEREAS, the parties desire to enter into an agreement with respect to
the management of the Company, the transfer or other disposition of the Common
Stock presently owned or hereafter acquired by any of the Stockholders and
certain other matters.
NOW THEREFORE, in consideration of the mutual premises, agreements and
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
<PAGE>
1.01 DEFINED TERMS. The following terms when used in this Agreement,
including its preamble and recitals, shall have the following meanings, such
meanings to be equally applicable to the singular and plural forms thereof:
"ACQUISITION TRANSACTIONS" shall mean (i) the purchase of Common Stock
pursuant to that certain Subscription Agreement, entered into as of August 3,
1998, by and among the Company, GEIPPPII and Ardatrium (as assignee of Arddoor)
and (ii) the transactions contemplated by the Merger Agreement.
"AFFILIATE" shall mean, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "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
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
"ARDATRIUM" shall mean Ardatrium L.L.C., a Delaware limited liability
company.
"ARDDOOR" shall mean Arddoor L.L.C., a Delaware limited liability
company.
"ARDSHIEL" shall mean Ardshiel, Inc., a Delaware corporation.
"ARDSHIEL AFFILIATES" shall mean Ardatrium, Arddoor, Ardshiel and
Ardwing.
"ARDSHIEL STOCKHOLDERS" shall mean Ardatrium, Arddoor, Ardshiel,
Ardwing, Hambro and Wing L.P.
"ARDWING" shall mean Ardwing LLC, a Delaware limited liability
company.
"ATRIUM" shall mean Atrium Corporation, a Delaware corporation and a
wholly owned subsidiary of the Company.
"COMMON STOCK" shall have the meaning set forth in the recitals of
this Agreement and shall include fractional shares of Common Stock and shares of
Common Stock received by way of dividend or upon an increase, a reduction,
substitution or
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reclassification of securities of the Company or upon any merger,
consolidation or other reorganization of the Company.
"COMMON STOCK EQUIVALENTS" shall mean the number of shares of Common
Stock issuable upon the exercise, exchange or conversion of any security.
"CONTRIBUTION TRANSACTIONS" shall mean the contribution by all of the
stockholders of Atrium (other than those whose equity interests in Atrium
converted into the right to receive cash in the merger pursuant to the Merger
Agreement), WIH and Door of their entire equity interests in Atrium, WIH and
Door, respectively, in exchange for shares of Common Stock.
"DEMAND REGISTRATION RIGHT" shall have the meaning set forth in
Section 4.02.
"DISCOUNT DEBENTURES" shall mean the 12% Senior Discount Debentures
due 2010 issued pursuant to that certain Indenture, dated as of the date hereof,
by and among GEIPPPII, Ardatrium and Atrium.
"DOOR" shall mean Door Holdings, Inc., a Delaware corporation.
"EQUITY SECURITIES" shall mean any Common Stock, any securities
exercisable or exchangeable for, or convertible into, Common Stock and any
rights, options or warrants to acquire any of the foregoing and shall include
fractional shares of Equity Securities and Equity Securities received by way of
dividend or upon an increase, a reduction, substitution or reclassification of
securities in the Company or upon any merger, consolidation or other
reorganization of the Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXPIRATION DATE" shall mean the first to occur of (i) the
effective date of a public offering, which when aggregated with all prior
public offerings, constitutes an offering registered under the Securities Act
of more than 30% of the outstanding shares of Common Stock or (ii) the
effective date of any other transaction, which when aggregated with all other
transactions, results in a sale, exchange or other transfer of more than 30%
of the outstanding shares of Common Stock for shares or other interests in a
publicly-traded entity.
"FINANCING DOCUMENTS" shall mean (i) the Indenture, dated as of the
date hereof, by and among GEIPPPII, Ardatrium and Atrium, relating to Atrium's
Discount Debentures and (ii) the Credit Agreement, dated as of the date hereof,
by and among
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Atrium Companies, Inc., a wholly owned, indirect subsidiary of the Company,
the lenders named therein and BankBoston, N.A., as Agent, and any
refinancing, refunding, extension, amendment, replacement or renewal of
either of them and all documents executed and/or delivered in connection
therewith.
"FINANCING TRANSACTIONS" shall mean the transactions contemplated by
the Financing Documents.
"FOJTASEK" shall mean Randall S. Fojtasek.
"GEIPPPII" shall mean GE Investment Private Placement Partners II, a
Limited Partnership, a Delaware limited partnership.
"HAMBRO" shall mean North Atlantic Smaller Companies Investment Trust,
a United Kingdom corporation, together with J O Hambro Capital Management
Limited - Isle of Man Account 2, an Isle of Man corporation.
"INDEBTEDNESS EVENT" shall mean (a) the failure of the Company or any
of its subsidiaries to pay (i) within 90 days after the same becomes due, any
amount of principal with respect to any indebtedness having an outstanding
aggregate principal amount of $15,000,000 or greater or (ii) within 45 days
after the same becomes due, any interest with respect to any indebtedness having
an outstanding aggregate principal amount of $15,000,000 or greater; provided
that the failure by the Company or any subsidiary to make any such payments on
such indebtedness due solely to a payment blockage instituted by holders of
other indebtedness pursuant to the terms of a subordination, intercreditor or
other arrangement (a "Blockage Notice") shall not be deemed an Indebtedness
Event, unless after the expiration or withdrawal of such Blockage Notice such
failure to pay continues for more than two business days or (b) the acceleration
of the final maturity of any indebtedness referred to in clause (a) above by the
holders thereof.
"INVESTMENT AGREEMENT" shall mean the Investment Agreement, dated as
of June 24, 1997, by and between GE Investment Management Incorporated and
Ardshiel, as amended, amended and restated or otherwise modified in accordance
with its terms.
"MANAGEMENT AGREEMENT" shall mean the Management Agreement, dated the
date hereof, by and between Ardshiel and the Company, as amended, amended and
restated or otherwise modified in accordance with its terms.
"MANAGING STOCKHOLDERS" shall mean the Ardshiel Stockholders and
Fojtasek.
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"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger, dated
as of August 3, 1998, by and among the Company, D and W Acquisition Corp.,
Atrium and the securityholders named therein.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the Nasdaq National Market System.
"OPTION PLAN" shall mean D and W Holding's Inc. 1998 Stock Option
Plan.
"OTHER TRANSACTIONS" shall mean the transactions contemplated by the
agreements set forth in Schedule III hereto.
"PERMITTED REGISTRATION RIGHTS" shall mean all demand and piggyback
registration rights granted (i) under this Agreement and (ii) to holders of
Permitted Common Stock Rights.
"PERMITTED COMMON STOCK RIGHTS" shall mean each of
(i) the issuance, exercise, redemption and/or conversion of the
Equity Securities outstanding on the date hereof; and
(ii) any issuance and/or exercise of Equity Securities to or by the
Company's or any of its subsidiaries' officers, directors or
employees under the Option Plan, but only to the extent that the
aggregate number of shares of Common Stock covered under this
clause (ii) that are issued after the date of this Agreement does
not exceed 2% of the aggregate amount of Common Stock outstanding
on the date hereof (on a fully diluted basis).
"PERMITTED TRANSACTIONS" shall mean (i) Permitted Registration Rights
(ii) the Transactions and (iii) Permitted Common Stock Rights.
"PERMITTED TRANSFEREE" shall have the meaning set forth in Section
3.05 herein.
"PERSON" shall mean and include an individual, a corporation, a
limited liability company, an association, a partnership, a joint venture, a
trust or estate, a government or any department or agency thereof, or any other
entity or governmental
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body.
"PIGGYBACK REGISTRATION" shall have the meaning set forth in
Section 4.01.
"REGISTRATION EXPENSES" shall mean the following expenses incident to
the Company's performance of or compliance with its obligations under Sections
4.01 and 4.02 hereof, including without limitation, all SEC, NASD and securities
exchange or NASDAQ registration, listing and filing fees and expenses, fees and
expenses of compliance with applicable state securities or "blue sky" laws
(including, without limitation, reasonable fees and disbursements of counsel for
the underwriters in connection with "blue sky" qualifications of securities to
be registered), printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and all independent certified public
accountants retained by the Company (including the expenses of any annual audit
and "cold comfort" letters required by or incident to such performance and
compliance), fees and disbursements of underwriters customarily paid by issuers
or sellers of securities (including the fees and expenses of any "qualified
independent underwriter" required by the NASD), reasonable fees and expenses of
any special experts retained by the Company in connection with such
registration, fees and expenses of other Persons retained by the Company, all
transfer taxes with respect to the shares of Common Stock sold by a Stockholder
and all other expenses incurred by Stockholders customary for and incidental to
the sale and delivery of the shares of Common Stock to be sold by such
Stockholders (but not including any underwriting discounts or commission, if
any, attributable to the sale of Common Stock by holders of such Common Stock
other than the Company); PROVIDED, that the term "Registration Expenses" shall
not include fees and expenses of counsel for the Stockholders other than
reasonable fees and expenses of one counsel for all Stockholders in the case of
(i) any Piggyback Registration in connection with a Company initiated
registration or (ii) any Demand Registration and/or any Piggyback Registration
in connection with a Demand Registration.
"SEC" shall mean the Securities and Exchange Commission and any
successor agency performing the same or a similar function.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TRANSACTIONS" shall mean the Acquisition Transactions, the
Contribution Transactions, the Financing Transactions and the Other
Transactions.
"WIH" shall mean Wing Industries Holdings, Inc., a Delaware
corporation.
"WING L.P." shall mean Wing Partners, L.P., a Delaware limited
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partnership.
ARTICLE II
VOTING AGREEMENT
2.01 BOARD OF DIRECTORS OF THE COMPANY. The Company and each
Stockholder agree that the Company shall have, and each Stockholder agrees to
vote its shares of Common Stock to cause the Company to have, a Board of
Directors consisting of up to nine directors. Prior to the Expiration Date, (i)
GEIPPPII, so long as it is a Stockholder, shall nominate one person for election
as a director of the Company; provided, that, in the event the Board of
Directors consists of seven or more members, GEIPPPII, so long as it is a
Stockholder, shall be entitled to nominate two persons for election as directors
of the Company; and provided further, that during the continuation of an
Indebtedness Event, GEIPPPII, so long as it is a Stockholder, shall be entitled
to nominate the balance of the Board of Directors not otherwise required to be
nominated pursuant to this Section 2.01; and (ii) Fojtasek, so long as he holds
Equity Securities and an employee of the Company or any of its subsidiaries,
shall be nominated for election as a director of the Company. The Ardshiel
Affiliates, so long as any of them is a Stockholder, shall (a) prior to the
Expiration Date except during the continuance of an Indebtedness Event, nominate
up to six persons (subject to the number of persons nominated by GEIPPPII
pursuant to the terms of this Section 2.01) for election as directors of the
Company and (b) on and after the Expiration Date or during the continuance of an
Indebtedness Event, nominate two persons for election as directors of the
Company.
2.02 COVENANT TO VOTE. (a) Each of the Stockholders shall appear in
person or by proxy at any annual or special meeting of stockholders for the
purpose of obtaining a quorum and shall vote or cause the vote of the shares of
Common Stock owned by such Stockholder or by any Affiliate of such Stockholder,
either in person or by proxy, at any annual or special meeting of stockholders
of the Company called for the purpose of voting on the election, if such
director has been nominated for election, or removal, if such director has been
designated for removal, of directors, or take any consensual action of
stockholders with respect to such election or removal of directors, in favor of
such election of the directors nominated, or removal and/or replacement of the
directors designated, in accordance with Section 2.01 or 2.03, respectively. In
addition, each of the Stockholders shall appear in person or by proxy at any
annual or special meeting of stockholders for the purpose of obtaining a quorum
and shall vote or cause the vote of the shares of Common Stock owned by such
Stockholder or any Affiliate of such Stockholder upon any matter submitted to a
vote of the stockholders of the Company in a
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manner so as to be consistent and not in conflict with, and to implement, the
terms of this Agreement. If a Stockholder does not designate a director
pursuant to Section 2.01, each of the Stockholders shall appear in person or
by proxy at any annual or special meeting of stockholders for the purpose of
obtaining a quorum and shall vote or cause the vote of the shares of Common
Stock owned by such Stockholder or by any Affiliate of such Stockholder,
either in person or by proxy, for the re-election of the prior director
designated by the Stockholder failing to exercise his rights to designate a
director pursuant to Section 2.01.
(b) Notwithstanding anything herein to the contrary, each of the
Stockholders shall cause any director nominated by such Stockholder to abstain
from voting with respect to any exercise by the Company of the right of first
offer provided in Section 3.07 in the event such Stockholder is a Selling
Stockholder in connection therewith.
2.03 VACANCIES/REMOVALS. Each director of the Company shall be
subject to removal by the Stockholder(s) who nominated him or her at any time,
with or without cause. Each Stockholder shall have the right to call a special
meeting of Stockholders at any time, and from time to time, for the sole purpose
of removing from the Board of Directors of the Company, with or without cause,
any person or persons nominated by such stockholder for election as a director,
and in such event, the Stockholders shall vote all of their Common Stock in
support of such removal and for the election of such replacements as may be
nominated by the Stockholder who nominated the director(s) who were removed.
The Stockholders shall then cause the Company to remove from the Board of
Directors of the Company the person removed from the Board of Directors of the
Company and elect as a director of the Company the person who was elected as a
replacement to the Board of Directors of the Company.
2.04 NO VOTING OR CONFLICTING AGREEMENTS. Except as set forth in
Section 6.12, each of the Stockholders agrees that it will not and will not
permit any Affiliate to grant any proxy or enter into or agree to be bound by
any voting trust with respect to its shares of Common Stock or to enter into any
stockholder agreements or arrangements of any kind with any Person with respect
to its shares of Common Stock in any such case in a manner that is inconsistent
with the provisions of this Agreement.
2.05 ACTIONS CONSISTENT WITH AGREEMENT. The Company shall not take
any action inconsistent with the provisions of this Agreement.
2.06 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Each Stockholder agrees
to vote all its shares of Common Stock in favor of amending or changing the
Certificate of Incorporation of the Company to authorize a sufficient number of
shares of Common Stock, in the opinion of the Board of Directors, to consummate
an initial public
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offering.
2.07 EXPIRATION OF RIGHTS. The rights granted pursuant to this
Article II shall expire and be of no further force and effect on and after the
Expiration Date; provided, however, that the provisions of Section 2.01(b) and
the other provisions of this Article II insofar as they may relate to the
matters described in Section 2.01(b) shall not expire. Notwithstanding anything
herein to the contrary, the rights granted pursuant to this Article II,
including, without limitation, the provisions of Section 2.01(b) and the other
provisions of this Article II relating to the matters described in Section
2.01(b), shall expire on the date the Investment Agreement is terminated
pursuant to Section 6.14(b) thereof.
ARTICLE III
RESTRICTIONS ON TRANSFERS BY THE STOCKHOLDERS
3.01 RESTRICTIONS ON TRANSFERS GENERALLY. (a) Each Stockholder hereby
agrees that such Stockholder shall not, and shall not permit any of its
Affiliates to, directly or indirectly, sell, transfer or otherwise dispose of
any of its Equity Securities or Discount Debentures other than, subject to the
terms and conditions of this Agreement, (i) pursuant to an effective
registration statement under the Securities Act or (ii) pursuant to an exemption
from registration under the Securities Act and any state securities or "blue
sky" laws.
(b) The Managing Stockholders agree not to sell, transfer, pledge,
mortgage, hypothecate, encumber or otherwise dispose of any Equity Securities or
Discount Debentures so long as GEIPPPII shall own any Equity Securities or
Discount Debentures, respectively. Notwithstanding the provisions of this
Section 3.01(b), (i) the Managing Stockholders may (A) sell, transfer or
otherwise dispose of Equity Securities or Discount Debentures in connection with
any sale, transfer or other disposition by GEIPPPII in accordance with Section
3.02 and (B) sell, transfer or otherwise dispose of Equity Securities or
Discount Debentures pursuant to Sections 3.03, 3.05, 4.01 or 4.02, (ii) the
Ardshiel Stockholders may (A) sell, transfer or otherwise dispose of Equity
Securities or Discount Debentures pursuant to Section 3.04 and (B) if the
Investment Agreement is terminated for cause pursuant to Section 6.14(b)
thereof, subject to Section 3.07 hereof, sell, transfer or otherwise dispose of
any or all of their Equity Securities or Discount Debentures and (iii) Fojtasek
may pledge his Equity Securities in order to finance the purchase of such Equity
Securities; provided that if such pledge is made in favor of any Person other
than the Company, no foreclosure or other transfer in respect of such pledge may
be made unless such transfer is permitted under clause 3.01(b)(i).
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3.02 TAG-ALONG RIGHT. If GEIPPPII or any of its Affiliates or,
subject to Section 3.01(b), any of the Managing Stockholders propose to sell,
transfer or otherwise dispose of any Equity Securities or Discount Debentures to
any Person or Persons (other than to an Affiliate) (the "SELLING STOCKHOLDER"),
the Selling Stockholder shall notify each other Stockholder (each a "TAG ALONG
STOCKHOLDER") in writing (the "TAG ALONG NOTICE") of such proposed transfer and
its terms and conditions. Within 15 days of receipt of a Tag Along Notice, each
Tag Along Stockholder shall notify the Selling Stockholder if it elects to
participate in such transfer ("TAG ALONG RIGHT") and shall state the number of
shares of Equity Securities (in the case of a sale of Equity Securities by the
Selling Stockholder) or the amount of Discount Debentures (in the case of a sale
of Discount Debentures by the Selling Stockholder) that the Tag Along
Stockholder desires to sell. Upon electing to transfer, each Tag Along
Stockholder shall be obligated to sell, at the same price and on the same terms
as the Selling Stockholder, the number of shares or the amount of Discount
Debentures stated in its notice to the Selling Stockholder. Each Tag Along
Stockholder may elect to sell such number of Equity Securities or amount of
Discount Debentures as is equal to the number of Equity Securities or Discount
Debentures, as the case may be, to be purchased by the Buyer multiplied by a
fraction, the numerator of which shall be the number of Equity Securities or
Discount Debentures, as the case may be, held by such Tag Along Stockholder and
the denominator of which shall be the aggregate number of Equity Securities or
Discount Debentures, as the case may be, held by all transferors; PROVIDED,
HOWEVER, that the sale of the Equity Securities or Discount Debentures contained
in the Tag Along Notice is consummated within 180 days of delivery of the notice
by the Tag Along Stockholder evidencing such Stockholder's election to exercise
its Tag Along Right. Each such Tag Along Stockholder shall agree to enter into
a purchase agreement in form and substance approved by the Selling Stockholder
to the extent such agreement shall contain customary representations as to
ownership of the Equity Securities to be purchased and the absence of liens
thereon. If the sale is not consummated within such 180-day period, then each
Tag Along Stockholder shall no longer be obligated but shall continue to have
the right to sell such Stockholder's Equity Securities or Discount Debentures,
as the case may be, pursuant to such Tag Along Right and shall have the rights
under, and remain subject to, the provisions of this Section 3.02 with respect
to any subsequent proposed transfer described in this Section 3.02. In the
event that the proposed transferee does not purchase the number of Equity
Securities or Discount Debentures, as the case may be, that the Tag Along
Stockholder elects to sell pursuant to the foregoing on the same terms and
conditions as the securities purchased from the Selling Stockholder, then the
Selling Stockholder shall not be permitted to sell any securities to the
proposed transferee. If no Tag Along Notice is received by the end of the 15
days referred to above, the Selling Stockholder shall have the right for a
180-day period thereafter to transfer the securities to the proposed transferee
on terms and conditions no more favorable to the Selling Stockholder than those
stated in the Tag Along Notice and in accordance with the
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provisions of this Section 3.02.
3.03 DRAG ALONG RIGHT. (a) If at any time following the fourth
anniversary of the date of this Agreement, GEIPPPII proposes to transfer in a
bona fide arm's length sale all of the Equity Securities and/or all of the
Discount Debentures owned by GEIPPPII to any Person or Persons who are not
Affiliates of GEIPPPII (the "PROPOSED TRANSFEREE"), GEIPPPII shall have the
right (the "DRAG ALONG RIGHT"), subject to applicable law and compliance with
any other restrictions applicable to such transfer, to require all Stockholders
to sell, pursuant to Section 3.03(b), to the Proposed Transferee, on the same
terms and conditions as applicable to GEIPPPII except as limited in Section
3.03(b), all (but not less than all) of the Equity Securities and/or all (but
not less than all of the) Discount Debentures then held by such Stockholders.
(b) To exercise a Drag Along Right, GEIPPPII shall give each
Stockholder (each, a "DRAG-ALONG STOCKHOLDER"), at least 15 days prior to the
proposed transfer to the Proposed Transferee, a written notice (the "DRAG ALONG
NOTICE") containing (i) the name and address of the Proposed Transferee and
(ii) the proposed purchase price, the terms of payment and other material terms
and conditions of the Proposed Transferee's offer. Each Drag Along Stockholder
shall thereafter be obligated to sell all of its Equity Securities and/or
Discount Debentures to the Proposed Transferee. Each such Drag Along
Stockholder shall agree to enter into a purchase agreement in form and substance
approved by GEIPPPII to the extent such agreement shall contain customary
representations as to ownership of the shares to be purchased and the absence of
liens thereon and customary indemnification provisions, including
indemnification from the Drag Along Stockholder. If the sale is not consummated
within a period of 180 days following the date of the Drag Along Notice, then
each Drag Along Stockholder shall no longer be obligated to sell such
Stockholder's Equity Securities and/or Discount Debentures pursuant to such Drag
Along Right but shall have the rights under, and remain subject to, the
provisions of this Section 3.03 with respect to any subsequent proposed transfer
described in this Section 3.03. No Drag Along Stockholder shall be required to
participate in a proposed transfer pursuant to the exercise of a Drag Along
Right unless its liability for breaches of representations and warranties made
in connection with the sale thereunder is limited to no more than the total sale
price received by such Drag Along Stockholder in such sale.
3.04 PUT OPTION. (a) Notwithstanding Section 3.01 or any other
provision herein to the contrary, any of the Ardshiel Affiliates may from time
to time propose or request that GEIPPPII sell or dispose of all of GEIPPPII's
Equity Securities and Discount Debentures, in a bona fide arm's length sale, to
any Person or Persons who are not Affiliates of any of the Ardshiel Affiliates
(an "ARDSHIEL PROPOSAL") but GEIPPPII shall be under no obligation to do so;
provided, however, that if GEIPPPII has held such
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Equity Securities and Discount Debentures for at least two years and the
terms on which any of the Ardshiel Affiliates so proposes or requests
GEIPPPII to sell or dispose of such Equity Securities and Discount Debentures
would result in GEIPPPII realizing an annual internal rate of return on its
investment in the Company, WIH and Door of at least 15% (compounded
semi-annually) over the period that such Equity Securities and Discount
Debentures have been held pursuant to the calculations set forth in the
letter agreement (the "Letter Agreement") among the Ardshiel Affiliates and
GEIPPPII, dated as of the date hereof, and GEIPPPII is permitted by
applicable law and regulation to sell but refuses to sell or dispose of such
Equity Securities and Discount Debentures on such terms as set forth in the
Ardshiel Proposal, each of the Ardshiel Affiliates shall have the right (the
"PUT RIGHT") to cause GEIPPPII to purchase the Ardshiel Stockholders'
interests in any Equity Securities and Discount Debentures (the "PUT
SECURITIES") for a purchase price equal to the lesser of the price set forth
in the Ardshiel Proposal and the price determined in accordance with the
formula set forth in the Letter Agreement. GEIPPPII shall have the right to
assign such purchase obligation to any Person and GEIPPPII shall have no
obligation under this Section 3.04 subsequent to September 19, 2005.
(b) Each Ardshiel Proposal shall contain (a) the name and address of
the proposed transferee and (b) the proposed purchase price, the terms of
payment and other material terms and conditions of the proposed transaction.
Within 15 days following the receipt of an Ardshiel Proposal, GEIPPPII shall
notify the Ardshiel Affiliates if it will sell on the terms and conditions
contained in the Ardshiel Proposal, subject to review and approval of final
documentation of such Ardshiel Proposal.
(c) To exercise a Put Right, any of the Ardshiel Affiliates shall
give GEIPPPII a written notice ("PUT NOTICE") evidencing its election to
exercise its Put Right within 10 days following notice by GEIPPPII of its
refusal to sell its Equity Securities pursuant to the terms of the Ardshiel
Proposal. Within two business days following delivery of such Put Notice,
GEIPPPII shall notify the Ardshiel Affiliates if it will sell on the terms and
conditions contained in the Ardshiel Proposal. If GEIPPPII notifies the
Ardshiel Affiliates that GEIPPPII will not sell on the terms and conditions
contained in the Ardshiel Proposal, GEIPPPII or its assignee shall purchase, on
or before the date 60 days following the date of the Put Notice, the Put
Securities by wire transfer of immediately available funds, in an amount equal
to the purchase price equal to the lesser of the price stated in the Ardshiel
Proposal and the price as calculated using the procedures set forth in the side
letter among the Ardshiel Affiliates and GEIPPPII, dated as of the date hereof,
to an account or accounts designated by the Ardshiel Affiliates in the Put
Notice and the Ardshiel Stockholders shall deliver to GEIPPPII or its assignee
all of the Put Securities free of all liens and encumbrances. In connection
with the Put Right, (i) GEIPPPII and the Ardshiel Stockholders shall take such
steps as may be appropriate to ensure compliance with any applicable law, rule
or regulation or any applicable agreement, in each case, relating to the Put
Securities or the Ardshiel Stockholders' transfer thereof, including the making
by GEIPPPII of any appropriate
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representations and warranties and (ii) GEIPPPII or its assignee shall have,
as of the date of such exercise, represented and warranted to the Ardshiel
Stockholders that GEIPPPII or its assignee is purchasing the Put Securities
based solely on its own analysis regarding the Put Securities and the
Company, obtained from sources other than the Ardshiel Stockholders and that
GEIPPPII or its assignee is not relying on any representations or warranties
express or implied (other than as to the Ardshiel Stockholders' ownership of
the Put Securities and the absence of liens or encumbrances thereon) from the
Ardshiel Stockholders relating to the Put Securities or the Company.
(d) Notwithstanding anything contained in this Agreement to the
contrary, this Section 3.04 shall not apply to Randall S. Fojtasek.
3.05 TRANSFERS TO AFFILIATES. Notwithstanding anything to the
contrary contained in this Article III, (i) each of the Ardshiel Stockholders
and GEIPPPII may transfer any or all of its Equity Securities and/or Discount
Debentures to an Affiliate of such Stockholder (an "INSTITUTIONAL PERMITTED
TRANSFEREE") and (ii) Fojtasek may transfer his Equity Securities to an
Affiliate of Fojtasek approved by the Ardshiel Affiliates in writing (together
with Institutional Permitted Transferees, "Permitted Transferees"), provided
that in each case such transfer shall be subject to the transferor and
transferee agreeing in writing, for the benefit of the Company and the other
Stockholders (who shall be third party beneficiaries of such agreement) that the
transferor will repurchase such Equity Securities and Discount Debentures in the
event such transferee ceases to be an Affiliate; and provided further, that the
Permitted Transferee of a Stockholder may only transfer its Equity Securities
and Discount Debentures to the transferor Stockholder from whom such Permitted
Transferee received such Equity Securities and Discount Debentures or any of
such transferor's Permitted Transferees or otherwise in accordance with the
terms hereof.
3.06 TRANSFEREES SUBJECT TO AGREEMENT. Any transferor of Equity
Securities or Discount Debentures, other than a transferor of Equity Securities
or Discount Debentures transferring such Equity Securities or Discount
Debentures pursuant to an effective registration statement under the Securities
Act, shall, as a condition of the consummation of such transfer, sale or other
disposition, require the transferee to agree in writing to be subject to and
bound by the terms of this Agreement and to be deemed to be a Stockholder under
this Agreement (it being understood that the transferee shall be subject to the
obligations of the transferor but shall not be entitled to the rights of the
transferor unless the transferor expressly assigns such rights and, with respect
to which, if assigned, the transferor shall cease to be entitled, to the extent
of such assignment). Any transfer made in violation of this Section 3.06 shall
be null and void.
3.07 RIGHT OF FIRST OFFER. (a) Until the Expiration Date, prior to
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offering or soliciting any offers, or accepting any unsolicited offers, with
respect to the disposition of any Equity Securities (other than (i) any sale,
transfer or other disposition of such Equity Securities in connection with any
sale, transfer or other disposition by GEIPPPII in accordance with Section 3.02,
(ii) and sale, transfer or other disposition of such Equity Securities pursuant
to Sections 3.03, 3.04, 3.05, 4.01 or 4.02 or (iii) a distribution of Equity
Securities to the partners or members of a Selling Stockholder (defined below)
that is a partnership or a limited liability company), a Stockholder (the
"SELLING STOCKHOLDER") shall give written notice to the Company or, in the case
of a transfer permitted by Section 3.01(b)(ii)(B), to GEIPPPII of such proposed
transfer, together with such additional information as is necessary, or
reasonably requested by the Company or GEIPPPII, as applicable, to evaluate such
proposed transfer (the "FIRST OFFER NOTICE"). The First Offer Notice shall
constitute an invitation to the Company or GEIPPPII, as applicable, to offer to
purchase or otherwise acquire all, but not less than all, of the Equity
Securities that are the subject of such First Offer Notice.
(b) Upon receipt of a First Offer Notice pursuant to Section 3.07(a)
above, the Company or GEIPPPII, as applicable, shall have a period of 20
business days (the "OFFER PERIOD") within which to submit a proposal (each, a
"PROPOSAL") to the Selling Stockholder to purchase all, but not less than all,
of the Equity Securities that are the subject of such First Offer Notice. The
Selling Stockholder shall then have a period of 30 days from the end of the
Offer Period within which to accept or reject such Proposal.
(c) If the Selling Stockholder accepts the Proposal, the Selling
Stockholder and the Company or GEIPPPII, as applicable, shall each use
commercially reasonable efforts to consummate the transaction in accordance with
such Proposal as promptly as practicable. If, despite the use of good faith
efforts by the Selling Stockholder, any such transaction is not consummated
within 90 days of the acceptance of the Proposal, the Selling Stockholder shall,
for a period of 180 days thereafter, be free to sell, transfer or otherwise
dispose of all, but not less than all, of the Equity Securities that are the
subject of such accepted Proposal in any manner and to any Person. After such
180-day period, the Selling Stockholder shall not sell, transfer or otherwise
dispose of such shares without again complying with the provisions of this
Section 3.07.
(d) If the Selling Stockholder in its sole discretion rejects one or
more Proposals, the Selling Stockholder may, within 180 days after the
expiration of the Offer Period, sell, transfer or otherwise dispose of all, but
not less than all, of the Equity Securities that are the subject of such
rejected Proposal or Proposals on terms (including price and other terms and
conditions) that (considered as a whole) are in the Selling Stockholder's good
faith reasonable judgment more favorable to the Selling Stockholder than the
terms contained in such rejected Proposal or Proposals. After such 180-day
period, the Selling Stockholder shall not sell, transfer or otherwise dispose of
such shares
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without again complying with the provisions of this Section 3.07.
(e) If the Company or GEIPPPII, as applicable, fails to submit a
Proposal during the Offer Period, the Selling Stockholder shall be free to
sell, transfer or otherwise dispose of all, but not less than all, of the
Equity Securities that are the subject of the First Offer Notice in any
manner and to any Person for a period of 90 days following the expiration of
the Offer Period. After such 90-day period, the Selling Stockholder shall not
sell, transfer or otherwise dispose of such shares or securities without
again complying with the provisions of this Section 3.07.
3.08 EXPIRATION OF RESTRICTIONS. The restrictions set forth in
Article III hereof shall expire and be of no further force and effect on and
after the Expiration Date.
ARTICLE IV
REGISTRATION RIGHTS
4.01 PIGGYBACK REGISTRATION. (a) If the Company proposes (including in
connection with any Demand Registration Right exercised or to be exercised by a
Stockholder) to file a registration statement under the Securities Act with
respect to any Equity Security (other than pursuant to a registration statement
on Form S-4 or S-8 or any successor or similar forms in connection with an
exchange offer or any offering of securities solely to the Company's then
existing stockholders or employees of the Company and its subsidiaries), the
Company shall give written notice of such proposed filing to each Stockholder at
least 20 days prior to such proposed filing. Such notice shall offer to each
Stockholder the opportunity to include in such registration statement for resale
by the Stockholders, such number of shares of Common Stock each may request in a
written notice to the Company (which notice shall specify the number of shares
to be disposed of by such holder and the intended method of disposition thereto
within 20 days after the receipt of such notice from the Company (a "PIGGYBACK
REGISTRATION"). The Company shall permit, or shall cause the managing
underwriter of any such proposed offering to permit, the shares of Common Stock
requested to be included in the registration to be included on the same terms,
and conditions as are applicable to the other Equity Securities included in such
registration statement. If any shares of Common Stock are to be distributed
pursuant to this Section 4.01 through a firm of underwriters to the public, and
(i) GEIPPPII shall be participating in such offering or (ii) General Electric
Company has a direct or indirect interest of 5% or greater in an underwriter
selected by the Board of Directors of the Company, GEIPPPII shall have the
right, in its sole discretion, to disapprove of any such underwriter. The
Company shall not be required to maintain the effectiveness of the registration
statement beyond the earlier to occur of (i) 120 days after the effective date
of the registration statement; and (ii) consummation of the distribution by the
Stockholders whose shares of Common Stock are included in such
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registration statement.
(b) If (i) the managing underwriter or underwriters, if any, advise
the Stockholders seeking to register shares of Common Stock under this Section
4.01 in writing that in its or their opinion; or (ii) in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably determine and
notify such Stockholders of such determination, after consultation with an
investment banker of nationally recognized standing that, the number of
securities proposed to be sold in such registration (including securities to be
included pursuant to Section 4.01(a) above) will materially adversely affect the
success of such offering, the Company will include in such registration the
number of securities, if any, which in the opinion of such underwriter or
underwriters, or the Company can be sold as follows: (i) first, the shares the
Company proposes to sell; (ii) second, the shares of Common Stock requested to
be included in such registration by the Stockholders and (iii) third, the
securities requested to be included by each other Person exercising any
Piggyback Registration rights; provided, that (a) if all shares requested to be
included in such Piggyback Registration by members of any group set forth above
are not to be included, selection of shares to be included from within such
groups shall be made PRO RATA based on the number of shares that each member of
such group holds and (b) no Stockholder shall have the right to register shares
pursuant to this Section 4.01 if the Company is at such time, and has been
continuously during the immediately preceding three years, subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act and such
Stockholder is then entitled to sell all of its shares of Common Stock in less
than three months pursuant to Rule 144 (other than under Rule 144(k)).
(c) The provisions of this Section 4.01 shall also apply in the event
any subsidiary of the Company proposes to file a registration statement under
the Securities Act with respect to any of its equity securities (other than
pursuant to a registration statement on Form S-4 or S-8 or any successor or
similar forms in connection with an exchange offer or any offering of securities
solely to the Company's or its subsidiaries' then existing stockholders or
employees of such subsidiary) as if the Company had proposed such filing
pursuant to clause (a) above.
4.02 DEMAND REGISTRATION RIGHTS. Upon the written request (the
"Request") of a Stockholder that has the right to require the Company to
register under the Securities Act any or all shares of the Common Stock then
held by such Stockholder (a "DEMAND REGISTRATION RIGHT"), the Company shall
include such shares in a registration statement on Form S-1, Form S-2 or Form
S-3 (or any equivalent form), and use its best efforts to register such shares,
under the Securities Act. GEIPPPII shall have five Demand Registration Rights
provided, that, if, at any time, GEIPPPII owns less than 10% of the issued and
outstanding Common Stock and has more than one Demand
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Registration Right remaining, GEIPPPII shall not be entitled to use one of
its then remaining Demand Registration Rights. The Ardshiel Stockholders
shall have two Demand Registration Rights and Fojtasek shall have one Demand
Registration Right. A Demand Registration Right may not be exercised unless
(i) if the exercising Stockholder is GEIPPPII or an Ardshiel Stockholder, the
exercising Stockholder(s) elects to sell under the registration statement the
lesser of (x) at least 50 % of the aggregate number of shares of Common Stock
then held by such Stockholder(s) or (y) at least 5 % of the then issued and
outstanding shares of Common Stock and (ii) if the exercising Stockholder is
Fojtasek, at least 270 days have elapsed since the Company consummated an
initial public offering and Fojtasek elects to sell under the registration
statement the lesser of (x) at least 4% of the then issued and outstanding
shares of Common Stock and (iii) shares of Common Stock having an aggregate
offering price of at least $5,000,000. The Company will promptly give
written notice of such requested registration to all other Stockholders and
thereupon will use its best efforts to effect the registration under the
Securities Act of (i) the Common Stock which the Company has been so
requested to register, for disposition in accordance with the intended method
of disposition stated in such request; and (ii) all other Common Stock, the
holders of which shall have, within 20 days after the receipt of such written
notice from the Company, made written request (which notice shall specify the
intended method of disposition thereof) to the Company for registration
thereof, all to the extent required to permit the disposition (in accordance
with the intended method thereof as aforesaid) by all such holders of
securities so to be registered; provided, however, that the Company shall not
be obligated to effect any such registration pursuant to this Section 4.02
(i) at any time prior to the earlier to occur of (a) the third anniversary of
the date of this Agreement; or (b) the effective date of the first
registration statement filed by the Company with the SEC; and (ii) at any
time prior to the date six months following the consummation by the Company
of any public offering. GEIPPPII shall have the right, in its sole
discretion, to disapprove of any underwriter selected by the Board of
Directors of the Company. If the managing underwriter or underwriters, if
any, advise the Stockholders seeking to register shares of Common Stock under
this Section 4.02 in writing that in its or their opinion the number of
securities proposed to be sold in such registration will materially adversely
affect the success of such offering, the Company shall include in such
registration the number of securities, if any, which in the opinion of such
underwriter or underwriters can be sold on a PRO RATA basis based on the
number of shares that each such Stockholder holds. Notwithstanding anything
contained herein to the contrary, (i) if the Stockholder exercising a Demand
Registration Right does not sell at least 50% of the shares of Common Stock
it requested be registered in the registration, such Stockholder shall be
entitled to an additional Demand Registration Right; and (ii) any Stockholder
that sells at least 50% of the shares of Common Stock owned by it in the
registration shall lose one of its Demand Registration Rights.
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4.03 HOLDBACK AGREEMENT. Notwithstanding any other provision in this
Article IV, the Company and each Stockholder agrees it will not, and the Company
shall use its best efforts to not permit any Affiliate to (and it shall be a
condition to the rights of each Stockholder under this Article IV that such
Stockholder does not), offer for public sale any shares of Common Stock, or
effect any sale of securities pursuant to Rule 144, during the 10 days prior to
and the 90 days after the closing date of any underwritten offering thereunder
unless such shares of Common Stock are covered by such registration statement or
such shorter period is agreed to by any managing underwriter or underwriters of
such offering.
4.04 EXPENSES. All Registration Expenses in connection with any
registration under this Article IV shall be borne by the Company.
4.05 REGISTRATION PROCEDURES. In connection with the registration of
shares of Common Stock under the Securities Act pursuant to this Agreement, the
Company will furnish each Stockholder whose shares of Common Stock are
registered thereunder and each underwriter, if any, with a copy of the
registration statement (including all exhibits thereto) and all amendments
thereto and will supply each such Stockholder and each underwriter, if any, with
copies of any prospectus included therein (including any preliminary prospectus)
and all amendments and supplements thereto in such quantities as may be
reasonably necessary for the purposes of the proposed sale or distribution
covered by such registration.
In connection with the Company's registration obligations pursuant to
this Article IV, the Company will use its best efforts to effect such
registration to permit the sale of the shares of Common Stock being registered
in accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will:
(a) prepare and file with the SEC, as soon as practicable after
receiving a written notice pursuant to Section 4.02, a registration statement on
any appropriate form under the Securities Act, which form shall be selected by
the Company, shall be reasonably acceptable to any managing underwriter chosen
in accordance with Section 4.02 and shall be available for the sale of the
shares of Common Stock in accordance with the intended method or methods of
distribution thereof, and shall use its reasonable efforts to cause such
registration statement to become effective; provided that before filing a
registration statement or any prospectus related thereto or any amendments or
supplements thereto, including documents incorporated by reference, after the
initial filing of any registration statement, the Company will furnish copies of
all such documents proposed to be filed to the holders of the shares of Common
Stock covered by such registration statement and underwriters, if any, and make
the Company's representatives available for discussion of such documents and
other relevant matters and
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shall reasonably consider such changes in such documents prior to the filing
thereof as such holders or underwriters may timely and reasonably request.
If any Stockholder whose shares of Common Stock are covered by such
registration statement shall reasonably object to any disclosure in or
omission from any registration statement or any amendment thereto or any
prospectus or any supplement thereto, including documents incorporated by
reference, which the Company in good faith on the advice of counsel believes
is necessary or appropriate to be included therein or omitted therefrom, and
prior to the effectiveness of such registration advises the Company that it
chooses not to participate in such offering, such Stockholder may choose not
to participate in such offering;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the registration statement as may be necessary to keep such
registration statement effective for the required duration thereof; cause the
related prospectus to be supplemented by any required prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the relevant provisions of the Securities Act during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement or supplement to such
prospectus;
(c) notify the selling Stockholders and the managing underwriters if
any, promptly, and (if requested by any such holder) confirm such notification
in writing, (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to a registration statement or
related prospectus or for additional information, (iii) of the issuance by the
SEC of any stop order suspending the effectiveness of a registration statement
or the initiation of any proceedings for that purpose, (iv) of the receipt by
the Company of any written notification with respect to the suspension of the
qualification of any of the shares of Common Stock for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and (v) of
the existence of any fact known to the Company which results in a registration
statement, a prospectus or any document incorporated therein by reference
containing an untrue statement of a material fact or omitting to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement at the earliest
practicable moment;
(e) if reasonably requested by the managing underwriters or a selling
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Stockholder, promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriters or a selling Stockholder
agree should be included therein, subject to the last sentence of Section
4.05(a); and promptly make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(f) prior to any public offering of shares of Common Stock, register
or qualify or cooperate with the selling Stockholders, the managing
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such shares for offer and sale under the
securities or "blue sky" laws of such jurisdictions within the United States as
any seller or underwriter reasonably requests in writing and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of the shares of Common Stock covered by the applicable
registration statement; provided, that the Company will not be required to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to be so qualified or to take any action which would
subject itself to taxation (other than a nominal amount) in any such
jurisdiction or to general service of process in any jurisdiction where it is
not then so subject;
(g) cooperate with the selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing shares of Common Stock to be sold and not bearing any
restrictive legends; and enable such shares to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of shares to the underwriters;
(h) use its best efforts to cause the shares of Common Stock covered
by the applicable registration statement to be listed or registered with or
approved by any securities exchange or quotation system on which the shares of
Common Stock are then listed and by such governmental agencies or authorities
within the United States as may be reasonably necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such shares;
(i) if any fact contemplated by Section 4.05 (c)(v) shall exist,
prepare a supplement of post-effective amendment to the applicable registration
statement or the related prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the shares of Common Stock being sold thereunder, such
prospectus will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not
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misleading;
(j) provide a CUSIP number for all shares of Common Stock, no later
than the effective date of the applicable registration statement;
(k) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such shares of Common Stock and, whether or not an
underwriting agreement is entered into and whether or not the registration is an
underwritten registration: (i) make such representations and warranties to the
holders of such shares and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in primary underwritten
offerings; (ii) obtain opinions of counsel to the Company (including counsel
which may be an employee of the Company) and updates thereof which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, covering the matters customarily covered in
opinions requested by such holders and underwriters; (iii) obtain "cold comfort"
letters and updates thereof from the Company's independent certified public
accountants, addressed to the selling Stockholders and the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comforts" letters to underwriters in connection
with primary underwritten offerings; (iv) if any underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures of Section 4.06 with respect to all parties to be indemnified
pursuant to such Section 4.06; and (v) deliver such documents and certificates
as may be reasonably requested by the holders of the shares of Common Stock
being sold and the managing underwriters, if any, to evidence compliance with
clause (i) hereof and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. The
above shall be done at each closing under such underwriting or similar agreement
or as and to the extent otherwise reasonably required thereunder;
(l) make available for inspection during normal business hours by a
representative of each Stockholder, any underwriter participating in any
disposition pursuant to a registration statement and any attorney or accountants
retained by such selling Stockholders or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by such representative, underwriter, attorney or accountant
in connection with such registration statement; provided, that such
Stockholders, underwriters, attorneys or accountants execute prior thereto an
agreement with the Company that all such records, information or documents shall
be kept confidential by such persons unless (i) disclosure of such records,
information or documents is required by court or administrative order, or (ii)
such records, information or documents are or become (but only when they become)
generally
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available to the public other than as a result of disclosure in violation of
this clause (l); and
(m) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to the
Stockholders earnings statements satisfying the provisions of Section 11(a) of
the Securities Act no later than 45 days after the end of any 12-month period
(or 90 days, if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which shares of Common Stock are sold to underwriters in an
underwritten offering, or (ii) if not sold to underwriters in such an offering
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the registration statement.
The Company may require each Stockholder who is a party hereto as to
which any registration is being effected to furnish to the Company such
information and undertakings as it may reasonably request regarding such
Stockholder and the distribution of the shares of Common Stock as the Company
may from time to time reasonably request in writing.
Each Stockholder who is a party hereto agrees (i) that upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 4.05 (c)(v) such Stockholder will forthwith discontinue such
Stockholder's disposition of shares of the Common Stock pursuant to the
registration statement relating to such shares until such Stockholder's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
4.05(i) and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies then in such Stockholder's possession of the
prospectus relating to such shares current at the time of receipt of such notice
and (ii) that such Stockholder will immediately notify the Company, at any time
when a prospectus relating to the registration of such shares is required to be
delivered under the Securities Act, of the happening of any event as a result of
which information previously furnished by such holder to the Company in writing
for inclusion in such prospectus contains an untrue statement of a material fact
or omits to state any material fact required to be stated therein, or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.06 INDEMNIFICATION AND CONTRIBUTION. (a) INDEMNIFICATION. (i) In
the event of any registration (other than a registration in which shares of
Common Stock are to be distributed through a firm of underwriters to the public)
under the Securities Act of any shares of Common Stock pursuant to this
Article IV, the Company hereby agrees to indemnify and hold harmless each
Stockholder offering or selling such shares, and their respective officers,
directors, stockholders and affiliates, in connection with such offer or sale
against such losses, claims, damages, liabilities, costs or expenses (including
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reimbursement for reasonable legal and other expenses) to which any such person
may become subject under the Securities Act or otherwise insofar as such losses,
claims, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
application or other filing under any "blue sky" or state securities law, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof), cost or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, or application or other filing, in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such selling Stockholder.
(ii) In the event of any registration under the Securities Act of any
shares of Common Stock pursuant to this Article IV (other than a registration in
which shares of Common Stock are to be distributed through a firm of
underwriters to the public), each Stockholder whose shares are included in such
registration hereby agrees to indemnify and hold harmless, but only for an
amount, with respect to such Stockholder, not in excess of the net proceeds
realized by such Stockholder from the sale of its shares of Common Stock
registered pursuant to such registration statement, both the Company and its
officers, directors, stockholders and affiliates, and any other Stockholder
participating in such registration, and their respective officers, directors,
stockholders and affiliates, in connection with such offer or sale against such
losses, claims, damages, liabilities, costs or expenses (including reimbursement
for reasonable legal and other expenses) to which any such person may become
subject under the Securities Act or otherwise insofar as such losses, claims,
damages, liabilities, costs or expenses arise out of or are based solely upon
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
application or other filing under any "blue sky" or state securities law, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent that
such untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, or application or other filing, is
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contained in any written information furnished to the Company through an
instrument duly executed by such holder.
(b) CONTRIBUTION. (i) If the indemnification provided for in Section
4.06(a) is unavailable to persons to be indemnified pursuant thereto in respect
of any losses, claims, damages, liabilities, costs or expenses referred to
therein, then the Company, in lieu of indemnifying such person shall contribute
to the amount paid or payable by such person as a result of such losses, claims,
damages, liabilities, costs or expenses, in such proportion as is appropriate to
reflect the relative fault of the Company and such persons in connection with
the actions which resulted in such losses, claims, damages, liabilities, costs
or expenses, as well as any other relevant equitable considerations. The
relative fault of the Company and such persons shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
the Company or such persons, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities, costs and expenses referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.06(b) were determined by
PRO RATA allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 4.06(b),
an indemnified person shall not be required to contribute any amounts in
excess of the amount by which the total price at which the shares of Common
Stock were sold by such indemnified person and distributed to the public
exceeds the amount of any damages which such indemnified person has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission and provided, however, that a Stockholder's
aggregate liability shall be limited to the net proceeds received by such
Stockholder in such offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(iii) If indemnification is available under this Section 4.06, the
Company shall indemnify each indemnified party to the full extent provided
herein without regard to the relative fault of the Company or the indemnified
party or any other equitable consideration provided for in this Section 4.06(b).
(c) UNDERWRITTEN OFFERINGS. In the event of a registration in which
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shares of Common Stock are to be distributed through a firm of underwriters
to the public, the Company will use its reasonable efforts to include in any
underwriting agreement executed in connection therewith the provisions
contained in clauses (a) and (b) of this Section 4.06 and will agree to
provide customary indemnification and contribution provisions in favor of the
underwriters of such registered offering. In the event that any provisions
of an indemnification clause in an underwriting agreement executed by or on
behalf of a holder differs from a provision in this Article IV, such
provision in the underwriting agreement shall determine such holder's rights
in respect thereof. Each Stockholder participating in a registered offering
shall negotiate in good faith with the underwriters for such registered
offering to provide customary indemnification and contribution provisions
relating to such Stockholder in favor of such underwriters in connection
therewith. The Company shall not, and shall not be deemed, to have breached
its obligations under this Article IV if a Stockholder does not participate
in a registered offering due to the failure of such Stockholder to reach an
agreement with respect to such indemnification and contribution provisions
with the underwriters for such registered offering.
4.07 OTHER REGISTRATION RIGHTS. The Company will not grant any person
or entity any demand or piggyback registration rights with respect to any Equity
Securities other than (a) Permitted Registration Rights that would not be
inconsistent with the terms of this Article 4; (b) piggyback registration rights
("NEW PIGGYBACK RIGHTS") and (c) demand registration rights providing for
priority inclusion of shares of Common Stock owned by the holders of such rights
("NEW DEMAND RIGHTS"), provided, however, that such New Piggyback Rights and New
Demand Rights shall be subordinated to the Piggyback Registration rights herein
or the Demand Registration Rights, as the case may be unless (i) each
Stockholder whose Piggyback Registration rights herein or Demand Registration
Rights, as the case may be, would be subordinated to or PARI PASSU with such New
Piggyback Rights or New Demand Rights, as the case may be, shall consent
thereto, or (ii) such New Piggyback Rights or New Demand Rights, as the case may
be, are given in connection with financing provided to the Company and the Board
of Directors of the Company shall decide that the senior or PARI PASSU priority
of the New Piggyback Rights or New Demand Rights, as the case may be, is in the
best interests of the Company. To the extent that the Company grants to any
person or entity registration rights with respect to any securities of the
Company having provisions more favorable to the holders thereof than the
provisions contained in this Agreement, the Company will confer comparable
rights upon the Stockholders under this Agreement, but only while any
Stockholder has the benefit of Section 4.01 or 4.02.
ARTICLE V
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CERTAIN REPRESENTATIONS AND COVENANTS
5.01 STOCKHOLDER REPRESENTATION. (a) Each Stockholder represents and
warrants as to itself that as of the Closing Date (after giving effect to all
transactions occurring on or as of the Closing Date) such Stockholder is not a
party to any other agreement with respect to the holding, voting, acquisition or
disposition of shares of Equity Securities, other than agreements among GEIPPPII
and the Ardshiel Affiliates entered into from time to time.
(b) Each Stockholder represents and warrants as to itself that as of the
date hereof such Stockholder has no plan or intention to sell, transfer or
otherwise dispose of any of its Equity Securities.
5.02 COMPANY REPRESENTATION. The Company represents and warrants that
as of the Closing Date (after giving effect to all transactions occurring on or
as of the Closing Date) (a) it is not a party to any other agreement with
respect to the holding, voting, acquisition or disposition of Equity Securities
except as previously disclosed to the Stockholders, and (b) it has not granted
to any other Person any other registration rights with respect to capital stock
of the Company, and no holder of any capital stock of the Company shall have as
of the date hereof any right to require registration of any capital stock of the
Company under the Securities Act or to include any security in any registration
statement filed by the Company under the Securities Act except pursuant hereto.
5.03 LEGEND ON CERTIFICATES. The following statement shall be
inscribed on all certificates representing Equity Securities or any certificates
received with respect thereto so long as this Agreement is in effect with
respect to the Equity Securities represented by such certificates:
"The securities evidenced by this certificate are
transferable only upon compliance with the applicable
provisions of that certain Stockholders Agreement dated as
of October 2, 1998, and any amendments thereto, by and among
D and W Holdings, Inc. (the "Company") and the persons named
therein, a copy of which is on file at the principal office
of the Company, and any sale, transfer or other disposition
of this certificate in violation of said agreement shall be
invalid.
The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended
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(the "ACT"), or applicable state securities laws. These
securities have been acquired for investment and not with a
view to distribution or resale. No sale, transfer or other
disposition of the securities may be made except in
compliance with the requirements of the Act and such state
securities laws and until the Company is furnished with an
opinion of counsel reasonably satisfactory in form and
substance to the Company to that effect."
5.04 ACTIONS REQUIRING CONSENT OF GEIPPPII. (a) As long as GEIPPPII,
or any Permitted Transferee of GEIPPPII, shall hold any shares of Common Stock
(provided, that clause (xxiv) below shall apply only if GEIPPPII and its
Permitted Transferees hold, in the aggregate, at least 20% of the outstanding
shares of Common Stock on a fully diluted basis), the Company shall not and
shall not permit any direct or indirect subsidiary thereof or joint venture to
which the Company or any subsidiary is a party to undertake the following
actions without the prior written consent of GEIPPPII (or in the event GEIPPPII
ceases to hold any shares of Common Stock, without the prior written consent of
any Permitted Transferee holding not less than 50% of the number of shares of
Common Stock set forth opposite GEIPPPII's name on Schedule II hereto):
(i) create any committee of its Board of Directors, or change the
size or agreed composition of its Board of Directors;
(ii) declare or pay dividends or make other distributions;
(iii) form any direct or indirect subsidiaries or a joint venture
in which the Company or one of its subsidiaries is a party;
(iv) open any additional locations to conduct business other than
locations that consist solely of sales offices;
(v) engage in any new line of business;
(vi) modify its certificate of incorporation, by-laws or other
organizational documents in any respect;
(vii) enter into, or waive or modify (A) any provision of, any
stockholders agreement, registration rights agreement, management agreement or
investment banking agreement or (B) any executive employment agreement, in each
case, in any material respect;
(viii) redeem or repurchase any shares of any class of capital
stock or
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security of the Company, or repurchase or repay any indebtedness prior to its
stated maturity;
(ix) hypothecate, mortgage, pledge, charge or encumber any assets
having a value in the aggregate in excess of $2,000,000 per annum;
(x) borrow or lend aggregate amounts in excess of $2,000,000 or
lesser amounts if outside the ordinary course of business;
(xi) modify or restructure in any material respect the terms of any
indebtedness for borrowed money subject to item (x) above;
(xii) declare bankruptcy, dissolve, voluntarily liquidate or
voluntarily wind-up;
(xiii) enter into any contract or agreement outside the ordinary
course of business which involves aggregate consideration in excess of
$2,000,000 per annum;
(xiv) acquire or dispose of any assets in a single transaction or
series of related transactions for aggregate consideration in excess of
$2,000,000 per annum;
(xv) terminate or retain accountants, or amend or modify its
accounting practices in any material respect;
(xvi) effect any merger, amalgamation, corporate reorganization or
business combination;
(xvii) authorize, create, allot, reserve or issue additional shares
of any class of securities other than in respect of Permitted Common Stock
Rights and securities issued upon the exercise of rights previously approved in
accordance with this clause (xvii);
(xviii) register or offer securities for public sale;
(xix) select an exchange on which any securities shall be listed
or list securities on any exchange;
(xx) assume, guaranty, endorse or otherwise become liable upon the
obligation of any Stockholder or any of their respective Affiliates (other than
a subsidiary of the Company);
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(xxi) purchase or acquire, except in the ordinary course of
business, any property or assets or obligations or stock of or interest in, make
any capital contribution to, or otherwise invest directly or indirectly in, or,
except for expenses of directors of the Company incurred in connection with any
meeting of the Board of Directors of the Company, make loans or advances to, any
Stockholders or any of their respective Affiliates (other than a subsidiary of
the Company);
(xxii) pay or incur any obligation for the payment of salaries,
fees or other remuneration, or change the rate of compensation or other
remuneration, or pay any debts claimed to be owing, directly or indirectly, to
any Stockholder or director of the Company or any of its subsidiaries or to any
firm or corporation in which they have an interest other than (A) the payment to
Ardshiel or its Affiliates of closing fees in connection with the Permitted
Transactions, (B) the payment to Ardshiel or its Affiliates of fees and expenses
under the Investment Agreement and under the Management Agreement; (C) any
employment, management or consulting arrangements made with management of the
Company or directors of the Company; (D) Permitted Common Stock Rights; and
(E) customary fees and expenses of the directors of the Company or any
subsidiary paid in connection with any meeting of the Board of Directors of the
Company or such subsidiary;
(xxiii) enter into any transaction with any Stockholder or any of
their respective Affiliates unless such transaction is on terms no less
favorable to the Company than can be obtained from an unaffiliated third party
other than the payment to Ardshiel of its investment banking fee and management
fees under the Investment Agreement and the Management Agreement; or
(xxiv) adopt any shareholder rights plan (i.e., a so-called "poison
pill") in respect of the capital stock of the Company or any of its
subsidiaries.
(b) Notwithstanding any other provision of this Agreement, the prior
written consent of GEIPPPII shall not be required prior to the taking of the
actions specified in Section 5.03(a)(ix),(x),(xi) or (xiii) if such actions are
required in order to comply with an obligation of the Company or any direct or
indirect subsidiary thereof or joint venture to which the Company or any
subsidiary is a party which (i) pertains to the environment, health or safety
and (ii) is imposed by a foreign, federal, state, local or municipal law,
statute, rule or regulation or pursuant to a judgment, directive, decree, order
or permit of, or binding agreement with, any foreign, federal, state, local or
municipal governmental authority.
(c) The rights granted pursuant to this Section 5.04 shall expire and
be of no further force and effect on and after the Expiration Date.
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5.05 COVENANTS BY THE COMPANY. (a) So long as GEIPPPII or Ardatrium
holds Discount Debentures, the Company shall cause (i) Atrium Companies, Inc.
("ACI"), a wholly owned indirect subsidiary of the Company, to make dividend
payments to Atrium to enable Atrium to make interest and principal payments on,
and to redeem, prepay or repurchase all or a portion of, the Discount Debentures
to the extent ACI has funds legally available for the payment of such dividends
and ACI is not prohibited from making such dividend payments by the terms of any
contract to which it is a party and (ii) Atrium, to the extent Atrium is not
prohibited from doing so by the terms of any contract to which it or ACI is a
party, to pay interest and principal on and to redeem, prepay or repurchase (at
par plus accreted value and unpaid interest) all or a portion of the Discount
Debentures from the proceeds of any such dividend payment.
(b) So long as GEIPPPII or Ardatrium holds any Discount Debentures,
each of GEIPPPII and Ardatrium shall have the right to require the Company to
cause Atrium to register under the Securities Act any or all such Discount
Debentures then held by such noteholder (a "Note Registration Right"). Each of
GEIPPPII and Ardatrium shall have two Note Registration Rights, which rights
shall be on terms similar to, and consistent with those set forth in Article IV
hereof for Common Stock, with such changes as shall be required, in good faith,
to give meaningful effect to this Section 5.05(b).
5.06 COVENANTS BY GEIPPPII AND ARDATRIUM. GEIPPPII agrees that it
will not, in its capacity as a stockholder of the Company, vote in favor of any
amendment to the Certificate of Incorporation or the By-laws of the Company or
any of its subsidiaries if such amendment would conflict with, or be
inconsistent with, the terms of this Agreement (including, without limitation,
any amendment which would increase the number of, or otherwise modify the terms
of, actions requiring the consent of GEIPPPII).
5.07 FOJTASEK INVESTMENT RIGHT. In the event GEIPPPII any Ardshiel
Stockholder or any of such parties' respective affiliates purchases from the
Company, after the date hereof, Equity Securities issued after the date hereof,
Fojtasek and affiliates of his controlled by him shall be entitled to
participate in such investment on a PRO RATA basis (and on the same terms and
conditions as shall apply to GEIPPPII and such Ardshiel Stockholder) based on
the then relative fully diluted ownership interests in Equity Securities of
Fojtasek and any such purchasing holder of Equity Securities. GEIPPPII and/or
any such Ardshiel Stockholder, as the case may be, shall provide Fojtasek with
14 days advanced written notice of the proposed purchase and shall grant to
Fojtasek and affiliates of his controlled by him the right (the "Right") to
subscribe for and purchase such securities to be sold on such terms. The Right
may be exercised by Fojtasek and affiliates of his controlled by him at any time
by written notice to GEIPPPII and/or any such Ardshiel Stockholder, as the case
may be, received by GEIPPPII and/or
-30-
<PAGE>
any such Ardshiel Stockholder, as the case may be, within four days after
receipt of notice from GEIPPPII and/or any such Ardshiel Stockholder, as the
case may be, of the proposed purchase, and the closing of the purchase and
sale pursuant to the exercise of the Right shall occur concurrently with the
closing of such proposed purchase. Notwithstanding anything herein to the
contrary, the rights under this Section 5.07 shall not be assigned to any
Person, other than by will or by the laws of descent and distribution,
without the prior written consent of the parties hereto.
ARTICLE VI
MISCELLANEOUS
6.01 INJUNCTIVE RELIEF. The parties acknowledge that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with certain of the obligations imposed on them by this
Agreement, including without limitation those obligations set forth in Article
II, III, IV and V and that in the event of any such failure, an aggrieved Person
will be irreparably damaged and will not have an adequate remedy at law. Any
such Person shall, therefore, be entitled to injunctive relief and/or specific
performance to enforce such obligations, and if any action is brought in equity
to enforce any of such provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
6.02 FURTHER ASSURANCES. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement.
6.03 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement shall
be construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of New York without regard to
principles of conflict of laws. The parties agree to submit to the personal and
exclusive jurisdiction of the state and federal courts serving New York, New
York with respect to the enforcement or interpretation of this Agreement or the
parties' obligations hereunder. Each party hereto irrevocably waives, to the
full extent permitted by law, any objection which it may now or hereafter have
to the laying of the venue of any such proceeding brought in such a court and
any claim that any such proceeding brought in such a court has been brought in
an inconvenient forum. Nothing in this Section shall affect the right of any
party hereto to serve legal process in any manner permitted by law.
6.04 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement together
with the Investment Agreement and the Letter Agreement constitutes the entire
-31-
<PAGE>
agreement among the parties hereto with respect to the subject matter hereof,
supersedes all prior and contemporaneous agreements and understandings, if any,
of the parties with respect thereto, may not be amended or supplemented except
by an instrument or counterparts thereof in writing signed by a duly authorized
representative of (a) the Company, (b) the holders of at least 50% of the
shares of Common Stock then outstanding and (c) so long as the Investment
Agreement has not been terminated pursuant to Section 6.14(b) thereof (other
than as a result of the occurrence of a Key Man Event (as defined in such
Section 6.14(b) thereof)), Ardshiel and Ardwing and, in any such case, may not
be discharged except by such written instrument or by performance. In the event
of any conflict between the provisions of this Agreement and the Investment
Agreement, the provisions of this Agreement shall control. No waiver of any
term or provision of this Agreement shall be effective unless in writing signed
by the party to be charged and such waiver shall not be effective as to any
other provision of this Agreement.
6.05 BINDING EFFECT This Agreement shall be binding on and inure to
the benefit of the parties hereto and, subject to the terms and provisions
hereof, their respective, heirs, administrators, executors, legal
representatives, successors and permitted assigns.
6.06 INVALIDITY OF PROVISION. The invalidity or unenforceability of
any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.
6.07 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall be deemed one and the same
instrument.
6.08 NOTICES. All notices and other communications given or made
hereunder shall be in writing and, unless otherwise provided herein, shall be
deemed to have been given when received by the party to whom such notice is to
be given at its address set forth on the signature pages hereto, or such other
address for the party as shall be specified by notice given pursuant hereto.
6.09 HEADINGS. The descriptive headings of the several sections of
this Agreement are inserted for convenience only and do not constitute part of
this Agreement.
6.10 FAILURE TO DELIVER STOCK. In the event that a Stockholder having
become obligated to sell Equity Securities or Discount Debentures hereunder
shall fail to deliver such securities in accordance with the terms of this
Agreement, the purchaser of
-32-
<PAGE>
such securities may, at its option, in addition to all other remedies such
purchaser may have, send to the selling Stockholder by registered mail,
return receipt requested, the purchase price for such securities as is herein
above specified and notify the Company of such action. Following receipt of
such notice, the Company, upon written notice to the selling Stockholder, (i)
shall cancel on its books the certificate or certificates representing the
shares of stock to be sold, (ii) shall issue, in lieu thereof, a new
certificate in the name of the purchaser representing such securities and
(iii) shall deliver such new certificate or certificates to the purchaser,
and thereupon all of the selling Stockholder's rights in and to said
securities shall terminate.
6.11 PROXY. Hambro hereby appoints Ardshiel as its attorney-in-fact
and proxy to attend any and all meetings of the Stockholders, to vote all shares
of Common Stock owned by Hambro, to give or withhold a written consent in
connection with any consent solicitation, to take any action or exercise any
rights under this Agreement and to represent and otherwise to act for Hambro in
the same manner and with the same effect as if done by Hambro in connection with
the submission to the Stockholders of any matter, in each case, including,
without limitation, in connection with any decision to sell, transfer or
otherwise dispose of any Equity Securities and in effectuating any such sale,
transfer or disposition. This proxy shall be deemed to be coupled with an
interest and is irrevocable and shall remain in effect until the termination of
this Agreement in accordance with its terms. Hambro authorizes Ardshiel to
substitute any other person to act hereunder, to revoke any substitution and to
file this proxy and any substitution or revocation with the Secretary of the
Company. Hambro shall execute such instruments as Ardshiel may request in order
to evidence the granting of this proxy.
6.12 PAYMENT OF FEES. The Stockholders acknowledge and agree that the
fees and expenses of certain initial Stockholders, including without limitation,
legal fees and expenses incurred in connection with the Permitted Transactions,
may be paid by the Company.
6.13 TERMINATION OF PRIOR STOCKHOLDER AGREEMENTS. Each Stockholder (a)
acknowledges that each of (i) the Equityholders' Agreement dated as of October
25, 1996 of Wing Industries Holdings, Inc. and (ii) the Investors Agreement
dated January 9, 1998 of Door Holdings, Inc., to which it is a party is
terminated and of no further force and effect and (b) agrees that it has no
prior or future rights thereunder.
6.14 CONSENTS TO PERMITTED TRANSACTIONS. Each Stockholder hereby
consents to the Permitted Transactions.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
D AND W HOLDINGS, INC.
By:
----------------------------
Name:
Title:
Notice Information:
STOCKHOLDERS:
ARDATRIUM L.L.C.
By:
----------------------------
Name:
Title:
Notice Information:
Ardatrium L.L.C.
c/o Ardshiel, Inc.
230 Park Avenue
Suite 2527
New York, New York 10169
<PAGE>
ARDDOOR L.L.C.
By:
----------------------------
Name:
Title:
Notice Information:
Arddoor L.L.C.
c/o Ardshiel, Inc.
230 Park Avenue
Suite 2527
New York, New York 10169
ARDSHIEL, INC.
By:
----------------------------
Name:
Title:
Notice Information:
Ardshiel, Inc.
230 Park Avenue
Suite 2527
New York, New York 10169
<PAGE>
ARDWING LLC
By:
----------------------------
Name:
Title:
Notice Information:
Ardwing L.L.C.
c/o Ardshiel, Inc.
230 Park Avenue
Suite 2527
New York, New York 10169
GE INVESTMENT PRIVATE PLACEMENT
PARTNERS II, A LIMITED PARTNERSHIP
By: GE INVESTMENT MANAGEMENT INCORPORATED,
its general partner
By:
----------------------------
Name:
Title:
Notice Information:
GE Investment Private Placement Partners II
c/o GE Investment Management Incorporated
3003 Summer Street
Stamford, Connecticut 06904
<PAGE>
J O HAMBRO CAPITAL MANAGEMENT
LIMITED - ISLE OF MAN ACCOUNT 2
By: J O HAMBRO CAPITAL MANAGEMENT LIMITED
By:
----------------------------
Name:
Title:
Notice Information:
J O Hambro Capital Management Limited - Isle of Man Account 2
c/o J O Hambro Capital Management Limited
10 Park Place
London SWIA 11P
NORTH ATLANTIC SMALLER COMPANIES
INVESTMENT TRUST
By:
----------------------------
Name:
Title:
Notice Information:
North Atlantic Smaller Companies Investment Trust
J O Hambro Capital Management Limited
10 Park Place
London SWIA 11P
<PAGE>
RANDALL S. FOJTASEK
- -------------------------------
Notice Information:
WING PARTNERS, L.P.
By: ARDWING LLC, its general partner
By:
----------------------------
Name:
Title:
Notice Information:
Wing Partners, L.P.
c/o Ardshiel, Inc.
230 Park Avenue
Suite 2527
New York, New York 10169
<PAGE>
SCHEDULE I
ISSUED AND OUTSTANDING SECURITIES
<PAGE>
SCHEDULE II
OWNERSHIP OF SECURITIES
<TABLE>
<CAPTION>
Aggregate
Principal Amount
Number of Shares of at Maturity of 12%
Common Stock Discount
of the Company Debentures of
Name of Stockholder Atrium
- ------------------- ------------------- ------------------
<S> <C> <C>
Ardatrium L.L.C. 500,000 shares $200,000
Arddoor L.L.C. 146,962 shares
Ardshiel, Inc. 182 shares
Ardwing LLC 51,364 shares
GE Investment Private
Placement Partners II,
a Limited Partnership 92,970,561 shares $19,800,000
Bank of Scotland - Isle
of Man Account 2 118,755 shares
North Atlantic Smaller
Companies
Investment Trust 673,189 shares
Wing Partners, L.P. 1,120,525 shares
Randall S. Fojtasek 0 shares
</TABLE>
<PAGE>
SCHEDULE III
CERTAIN AGREEMENTS
Investment Agreement, dated as of June 24, 1997, by and between GE Investment
Management Incorporated and Ardshiel, as amended, amended and restated or
otherwise modified in accordance with its terms
Management Agreement, dated the date hereof, by and between Ardshiel and the
Company, as amended, amended and restated or otherwise modified in accordance
with its terms
Amendment Number Two to Indenture, dated the date hereof, among the Company,
WIH, Wing, Door, Darby, Total Trim and Trustee
Indemnification Escrow Agreement, dated as of October 2, 1998, by and among
Hicks, Muse Fund III, Incorporated, D and W Holdings, Inc. and Norwest Bank
Texas, NA
Amendment to Certificate of Incorporation of Door to increase capital stock
Employment Agreement and Warrant by and among D and W Holdings, Inc., Randall
Fojtasek and Atrium Companies, Inc.
Employment Agreement by and among D and W Holdings, Inc., Jeff L. Hull and
Atrium Companies, Inc.
Employment Agreement by and among D and W Holdings, Inc., Ken Gilmer and Wing
Industries, Inc.
Employment Agreement by and between Wing Industries, Inc. and Michael Quadhamer
Amendment to Employment Agreement by and between Wing Industries, Inc. and Sam
A. Wing
Amendment to Employment Agreement by and between Wing Industries, Inc. and
Robert Pischke
- ------------
(1) This agreement will not be signed as of closing; it will, however, be
permitted for post-closing purposes.
<PAGE>
Employment Agreement for Michael Flores(1)
Extension of Employment Agreement for Douglas McMillan (Super Millwork,
Inc.)(2)
Extension of Employment Agreement for Sanford Lavitt (Super Millwork, Inc.)(3)
Buy-Sell Agreements with Cliff Darby, Jimmy Darby, James McDonald, John F.
Darby, Jr., Robert Tyree, Stuart Sockwell, Ken Gilmer, Mike Quadhamer, Bob
Pischke, Greg Yates, Jim Wright, Ed Beachley, Jamey Renfrow, Mike Driscoll, Bob
Wolf, Hershal Hicks, Fred Bengston, Mike Easterly, Bob Deakin, Martin Cook,
Scott McGill, Tom Bowen, Pete Ziegler, Al Ashe, Jim McGlinn, Tom LaManna, Rich
Kettle, John Craine
D and W Holdings, Inc. Warrant for 4,735,369 shares for Randall Fojtasek
D and W Holdings, Inc. Exchange Warrant for 1,000,000 shares for Randall
Fojtasek
D and W Holdings, Inc. 1998 Stock Option Plan
D and W Holdings, Inc. Option Agreements in exchange for existing WIH or Door
options with Ken Gilmer, Mike Quadhamer, Bob Pischke, Sandy Lavitt, Doug
MacMillan, Mike Flores, Tim Tarabe, Bryan Geary, Terry Tharnish, Jay Landem,
Darren Braddy, Tom Kahn, Randy Tschiggine, Gary Reiber, Rich Rock, Lou Petix,
Jeff Wharton, Jeff Pischke, Dan Luckett, Steve Mobley, Kathi Perry, Jeanette
Dazo, Charis Avery, Jeannie Fogarty, Rosie Apodaca, Sam Wing, III, Paul Archer,
Dan Cook, Chuck Stephens, Kim Henderson, Duane Powell, Frank Blanchard, Cliff
Darby, Robert Tyree, Stuart Sockwell, Jimmy McDonald, John Darby, Jimmy Darby
D and W Holdings, Inc. Options with Ken Gilmer, Mike Quadhamer, Bob Pischke,
Sandy Lavitt, Doug MacMillan, Mike Flores, Tim Tarabe, Bryan Geary, Terry
Tharnish, Jay Landem, Darren Braddy, Tom Kahn, Randy Tschiggine, Gary Reiber,
Rich Rock, Lou Petix, Jeff Wharton, Cliff Darby, Greg Yates, Don Daly, Vickie
Dunn, Goodloe
- ------------
(1) This agreement will not be signed as of closing; it will, however, be
permitted for post-closing purposes.
(2) This agreement will not be signed as of closing; it will, however, be
permitted for post-closing purposes.
(3) This agreement will not be signed as of closing; it will, however, be
permitted for post-closing purposes.
<PAGE>
Pride, Chuck Westmorland, Dan Douthit, Patricia Murphy, Calvin Stanford, Jeff
Hull, Eric Long, Jill Anderson, Lou Simi, Russell Fojtasek, Jim Wright James
Gresham, George Frost, Ed Beachley, Jamey Renfrom, Mike Driscoll, Billy
Robinson, Horace Hicks, Bob Wolf, Hershal Hicks, Fred Bengston, Mike Easterly,
Bob Deakin, Martin Cook Scott McGill, Tom Bowen, Pete Ziegler, Al Ashe, Jim
McGlinn, Tom LaManna, Mike Hillmeyer, Rich Kettle, Dow Pointer, John Craine
D and W Holdings, Inc. Replacement Stock Option Plan
D and W Holdings, Inc. Replacement Options with Jeff Hull, Eric Long, Jill
Anderson, Lou Simi, Russell Fojtasek, Jim Wright James Gresham, George Frost, Ed
Beachley, Mike Driscoll, Billy Robinson, Horace Hicks, Fred Bengston, Mike
Easterly, Bob Deakin, Martin Cook Scott McGill, Tom Bowen, Pete Ziegler, Al
Ashe, Jim McGlinn, Tom LaManna, Mike Hillmeyer, Rich Kettle, Dow Pointer, John
Craine
Intercompany Note, dated as of the date hereof, made by Atrium Corporation in
favor of Atrium Companies, Inc.
Amended and Restated Stock Pledge and Security Agreements with respect to each
of the Amended and Restated Purchase Notes for each of Ken Gilmer, Michael
Quadhamer and Robert Pischke
Amended and Restated Purchase Note with respect to Ken Gilmer
Amended and Restated Purchase Note with respect to Michael Quadhamer
Amended and Restated Purchase Note with respect to Robert Pischke
Contribution and Subscription Agreement, dated as of October 2, 1998, by and
among Door Holdings, Inc., GEIPPPII and Arddoor
Contribution and Subscription Agreement, dated as of October 2, 1998, by and
among Wing Industries Holdings, Inc., D and W Holdings, Inc., GEIPPPII, Ardsheil
and Ardwing
Agreement of contribution of $50 million by D and W Holdings, Inc. to D and W
Acquisition Corp., dated as of October 2, 1998
Agreement of contribution of Wing and Door Common Stock by Wing and Door
stockholders to D and W Holdings, Inc., dated as of October 2, 1998
Agreement of contribution of Wing and Door Common Stock by D and W Holdings,
Inc. to Atrium, dated as of October 2, 1998
<PAGE>
Agreement of contribution of Wing and Door Common Stock by Atrium Corp. to
Atrium Companies, Inc., dated as of October 2, 1998
Option Agreement, dated as of October 2, 1998, by and among Ardshiel, Ardwing,
Arddoor and Ardatrium
Amended and Restated Restricted Stock Agreement
Change of Control Offer to Purchase
<PAGE>
NOTICE OF CHANGE OF CONTROL
AND OFFER TO PURCHASE
ATRIUM COMPANIES, INC.
Change of Control Offer to Purchase for Cash
Any and All of its 10 1/2% Senior Subordinated Notes due November 15, 2006,
Series B
($100,000,000 Aggregate Principal Amount Outstanding)
Atrium Companies, Inc. (the "Issuer") hereby offers (the "Change of Control
Offer"), pursuant to Section 4.8 of the Indenture (as amended and supplemented
through the date hereof, the "Indenture"), dated as of November 27, 1996,
between the Issuer, the Subsidiary Guarantors (as defined in the Indenture) and
United States Trust Company of New York, as trustee (the "Trustee"), on the
terms and subject to the conditions set forth herein and in the accompanying
Letter of Transmittal (the "Letter of Transmittal"), to purchase any and all of
its outstanding 10 1/2% Senior Subordinated Notes due November 15, 2006, Series
B (the "Notes") at a purchase price in cash equal to 101% of the aggregate
principal amount thereof ($1,010 per $1,000 principal amount of Notes) (the
"Change of Control Price"), plus accrued and unpaid interest, if any, to the
date of payment for, or deposit with the United States Trust Company of New
York, as depositary (the "Depositary") of an amount sufficient to pay for, Notes
accepted for purchase in the Change of Control Offer (the "Change of Control
Acceptance Date"). Capitalized terms that are not defined herein shall have the
meanings set forth in the Indenture.
The Change of Control Offer is being made in connection with the acquisition
by D and W Holdings, Inc., a Delaware corporation ("Holdings"), of Atrium
Corporation, a Delaware corporation ("Atrium Corp."), which owns 100% of the
outstanding capital stock of the Issuer. The acquisition was effected through
the merger on October 2, 1998 (the "Merger") of D and W Acquisition Corp., a
wholly owned subsidiary of Holdings ("Merger Sub"), with and into Atrium Corp.
As a result of the Merger, Atrium Corp. became a direct wholly owned subsidiary
of Holdings, the Issuer became an indirect wholly owned subsidiary of Holdings
and all the equity securities of Atrium Corp. were converted into the right to
receive cash (other than equity securities of Atrium Corp. owned by certain
members of management of Atrium Corp. which were converted into comparable
equity securities of Holdings). See "The Transactions--The Merger." Consummation
of the Merger constituted a Change of Control under the Indenture and, as a
result, the Issuer is hereby offering pursuant to Section 4.8 of the Indenture,
on the terms and subject to the conditions set forth in this Offer to Purchase
and the Letter of Transmittal, to purchase all Notes outstanding at the Change
of Control Price, plus accrued and unpaid interest, if any, to the Change of
Control Acceptance Date.
The Issuer intends to finance the amounts required to consummate the Change
of Control Offer with (i) the proceeds of a $75,000,000 term loan from a
syndicate of financial institutions, including Merrill Lynch Capital Corporation
("Merrill Lynch"), (ii) a capital contribution from Atrium Corp. consisting of
the proceeds of the issuance of $25,000,000 of Senior Discount Debentures due
2002 of Atrium Corp. (the "Discount Debentures") to GE Investment Private
Placement Partners II, a Limited Partnership ("GEIPPPII"), and Ardatrium L.L.C.,
a Delaware limited liability company ("Ardatrium"), stockholders of Holdings and
beneficial owners of the Issuer's common stock, par value $.01 per share (the
"Common Stock"), and (iii) if necessary to fund amounts in excess of
$100,000,000, the proceeds of revolving loans from a syndicate of financial
institutions, including Merrill Lynch. See "Description of Certain
Indebtedness."
THE CHANGE OF CONTROL OFFER AND WITHDRAWAL RIGHTS WITH RESPECT THERETO WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 6, 1998 (THE "CHANGE OF
CONTROL EXPIRATION DATE"). THE CHANGE OF CONTROL EXPIRATION DATE IS NOT SUBJECT
TO EXTENSION. NOTES TENDERED IN THE CHANGE OF CONTROL OFFER MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE CHANGE OF CONTROL
EXPIRATION DATE.
October 9, 1998
<PAGE>
IN ACCORDANCE WITH THE TERMS OF THE INDENTURE, IF ANY NOTES ARE TENDERED IN
THE CHANGE OF CONTROL OFFER, SUCH OFFER WILL BE CONSUMMATED PROMPTLY AFTER 5:00
P.M., NEW YORK CITY TIME, ON THE CHANGE OF CONTROL EXPIRATION DATE, WHICH DATE
IS NOT SUBJECT TO EXTENSION. UNDER THE CHANGE OF CONTROL OFFER, REGISTERED
HOLDERS ARE ENTITLED TO RECEIVE ACCRUED AND UNPAID INTEREST TO THE CHANGE OF
CONTROL ACCEPTANCE DATE.
THE LETTER OF TRANSMITTAL MUST BE USED TO TENDER NOTES. CONDITIONAL,
IRREGULAR OR CONTINGENT TENDERS WILL BE CONSIDERED DEFECTIVE.
Questions and requests for assistance or for additional copies of this Offer
to Purchase or the accompanying Letter of Transmittal may be directed to the
Depositary at the address and telephone number set forth on the back cover of
this Offer to Purchase.
If fewer than all of the Notes have been tendered and purchased in the
Change of Control Offer, the Issuer may, or may cause any affiliate to, purchase
additional Notes in the open market, in privately negotiated transactions,
through subsequent tender offers or otherwise or may seek to cause the Notes to
be retired or defeased. Any future purchases may be on the same terms or on
terms that are more or less favorable to holders than the terms of the Change of
Control Offer. Any future purchases by the Issuer or any affiliate will depend
on various factors at that time.
SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY HOLDERS OF THE NOTES IN DETERMINING WHETHER TO TENDER THEIR
NOTES IN THE CHANGE OF CONTROL OFFER.
See "Certain Forward-Looking Statements" on page 32 for a discussion of
certain statements included in this Offer to Purchase.
See "Certain Federal Income Tax Considerations" on page 85 for a discussion
of certain factors that should be considered in evaluating the Change of Control
Offer.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFER TO
PURCHASE AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER. NEITHER THE DELIVERY OF
THIS OFFER TO PURCHASE NOR ANY PURCHASE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF, OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE ISSUER AS OF SUCH DATE.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.................................................................................................... 1
RISK FACTORS............................................................................................... 9
CAPITALIZATION............................................................................................. 15
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM.................................................. 17
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF WIH..................................................... 19
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF DOOR.................................................... 20
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS...................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 32
THE CHANGE OF CONTROL OFFER................................................................................ 42
BUSINESS................................................................................................... 49
THE TRANSACTIONS........................................................................................... 65
MANAGEMENT................................................................................................. 67
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 75
BENEFICIAL OWNERSHIP....................................................................................... 80
DESCRIPTION OF CERTAIN INDEBTEDNESS........................................................................ 81
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 85
MISCELLANEOUS.............................................................................................. 87
INCORPORATION BY REFERENCE................................................................................. 87
ADDITIONAL INFORMATION..................................................................................... 87
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
iii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS OFFER TO PURCHASE. ALL
REFERENCES HEREIN TO (I) THE "ISSUER" SHALL MEAN ATRIUM COMPANIES, INC.; (II)
"WIH" SHALL MEAN WING INDUSTRIES HOLDINGS, INC. AND ITS SUBSIDIARY; (III) "DOOR"
SHALL MEAN DOOR HOLDINGS, INC. AND ITS SUBSIDIARIES; (IV) "WING" SHALL MEAN WING
INDUSTRIES, INC., A WHOLLY OWNED SUBSIDIARY OF WIH; (V) "DARBY" SHALL MEAN,
COLLECTIVELY, R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC., WHOLLY OWNED
SUBSIDIARIES OF DOOR; (VI) "ATRIUM" SHALL MEAN ATRIUM COMPANIES, INC. AND ITS
SUBSIDIARIES PRIOR TO GIVING EFFECT TO THE TRANSACTIONS (AS DEFINED HEREIN);
(VII) THE "COMBINED COMPANY" SHALL MEAN THE ISSUER AND ITS SUBSIDIARIES AFTER
GIVING EFFECT TO THE TRANSACTIONS, AND THEREFORE SHALL INCLUDE WIH, DOOR AND
THEIR RESPECTIVE SUBSIDIARIES; (VIII) THE "ATRIUM BUSINESS" SHALL MEAN THE
WINDOW AND DOOR BUSINESS CONDUCTED BY THE ISSUER AND ITS SUBSIDIARIES (EXCLUDING
WIH, DOOR AND THEIR RESPECTIVE SUBSIDIARIES); (IX) THE "WING BUSINESS" SHALL
MEAN THE DOOR BUSINESS CONDUCTED BY WIH AND ITS SUBSIDIARY; AND (X) THE "DARBY
BUSINESS" SHALL MEAN THE DOOR AND OTHER BUSINESS CONDUCTED BY DOOR AND ITS
SUBSIDIARIES. UNLESS OTHERWISE INDICATED, THE PRO FORMA INFORMATION SET FORTH IN
THIS OFFER TO PURCHASE GIVES EFFECT TO THE TRANSACTIONS AND ASSUMES NONE OF THE
NOTES ARE TENDERED IN THE CHANGE OF CONTROL OFFER.
THE COMBINED COMPANY
The Combined Company is one of the five largest window and door companies in
the United States based on revenues. The Combined Company consists of the Atrium
Business, the Wing Business and the Darby Business. Pursuant to the
Transactions, Holdings, which prior to the consummation of the Transactions was
controlled by certain stockholders of WIH and Door or their affiliates, acquired
by merger Atrium Corp., the parent holding company of the Issuer, and WIH and
Door became wholly owned subsidiaries of the Issuer. Through the Atrium
Business, the Combined Company is a leading domestic manufacturer and
distributor of residential windows and patio doors. Through the Wing Business,
the Combined Company manufactures and distributes a full range of interior solid
wood and hollow core bi-fold and passage doors and distributes exterior doors
and columns. Through the Darby Business, the Combined Company pre-hangs,
distributes and installs interior doors and installs other ancillary products.
For the 12 months ended June 30, 1998, the Combined Company's pro forma
consolidated revenues were $380.5 million and its pro forma consolidated EBITDA
was $45.7 million (including $2.9 million attributable to synergies resulting
from the Transactions).
ATRIUM BUSINESS
The Combined Company, through the Atrium Business, is one of the leading
domestic manufacturers and distributors of residential windows and patio doors
in the United States and is one of the only companies that offers a diversified
product line consisting of aluminum, vinyl and wood products. While the Atrium
Business generates revenue throughout the United States, its windows and doors
are manufactured and marketed primarily in the Southwest, South and Southeast
regions of the country. The Atrium Business has focused historically on the
ten-state "Atrium Primary Market," a region that provides a diversified and
rapidly growing customer base. The Atrium Primary Market, consisting of Alabama,
Arizona, California, Florida, Georgia, Louisiana, Nevada, Oklahoma, Tennessee,
and Texas, accounted for approximately 77% of the Atrium Business' revenues for
the fiscal year ended December 31, 1997. The Atrium Primary Market includes some
of the fastest growing residential housing markets in the United States and
accounts for approximately 44% of total national housing starts and almost a
third of total nationwide unit sales of windows. During the period from 1992 to
1997, industry wide unit sales of windows in the Atrium Primary Market increased
at a compounded annual growth rate ("CAGR") of 6.5%, over 40% faster than sales
growth for the rest of the country. With an 11.5% share of total window units in
the Atrium Primary Market, the Combined Company has a leading market share
within that market.
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For the 12 months ended June 30, 1998, the Atrium Business contributed
revenues of $227.0 million and EBITDA of $29.6 million to the Combined Company's
pro forma consolidated results of operations.
WING BUSINESS
The Combined Company, through the Wing Business, manufactures and
distributes a full range of interior solid wood and hollow core bi-fold and
passage doors and distributes exterior doors and columns. Through organic growth
and strategic acquisitions, the Wing Business has grown from a small, family-
owned business, founded in 1924, to a leading supplier of interior wood doors to
home center retailers such as Home Depot, Lowe's Companies and Builder's
Square/Home Quarters.
The Wing Business' geographic coverage has been driven by relationships with
leading home center retailers. As home center retailers have expanded throughout
the country, the Wing Business has strategically established new manufacturing
facilities to serve this customer niche more effectively. The Combined Company,
through the Wing Business, is one of the only door suppliers that can service
home center retailers on a national basis with facilities in Illinois, Ohio,
Pennsylvania and Texas and facilities expected to open in North Carolina,
Massachusetts and California.
For the 12 months ended June 30, 1998, the Wing Business contributed
revenues of $135.0 million and EBITDA of $8.7 million to the Combined Company's
pro forma consolidated results of operations.
DARBY BUSINESS
Through the Darby Business, the Combined Company pre-hangs interior and
exterior door units, with a majority of sales achieved through developers of
multi-family housing communities. The Darby Business also distributes ancillary
products for the building materials industry such as locks, windows, mirrors,
wire shelving, bathroom accessories and other complementary speciality items.
The Darby Business offers developers a total installed program in which it
supplies and installs a turnkey package of its products. The Combined Company
believes that this method of outsourcing product installation frees developers
from certain risks associated with subcontracting. The Darby Business
concentrates its marketing and sales efforts on the Northeast and Mid-Atlantic
regions. The Darby Business' customers include many of the nation's leading
multi-family community developers, who the Combined Company believes have come
to rely on the Darby Business' ability to provide high quality products and, if
desired, install those products effectively and efficiently.
For the 12 months ended June 30, 1998, the Darby Business contributed
revenues of $18.5 million and EBITDA of $4.5 million to the Combined Company's
pro forma consolidated results of operations.
BENEFITS OF THE TRANSACTIONS
The Combined Company is a diversified window and door company offering a
broad range of products. Management believes that the Combined Company will
realize significant benefits as a result of the combination of the Atrium, Wing
and Darby Businesses, including:
- BROADER PRODUCT LINES WITH CROSS-SELLING OPPORTUNITIES. The Combined
Company will offer a full line of aluminum, vinyl and wood windows and
interior solid wood and hollow core doors, as well as exterior doors and
columns. The Combined Company will also be one of only two national pre-
hangers of doors in the United States. Management believes that the strong
customer relationships established by the Atrium, Wing and Darby
Businesses, combined with the complementary nature of their product lines
and markets, create excellent cross-selling opportunities for the Combined
Company.
- SIGNIFICANTLY INCREASED GEOGRAPHIC COVERAGE. The Atrium Business has
historically targeted the Southwest, South and Southeast regions of the
United States and particularly the Atrium Primary Market. Products of the
Wing Business have been sold primarily in the Northeast and Midwest
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<PAGE>
regions of the United States. Access to these markets, together with the
large portion of the Northwest region covered by the Combined Company's
distributors, will enable the Combined Company to market its product lines
throughout all parts of the continental United States.
- MORE BALANCED END-USER SALES MIX. The Combined Company's products are
principally marketed to two segments of the building products industry:
new construction and repair and remodeling. Historically, 65% of the
Atrium Business' sales were to the new construction segment and 35% were
to the repair and remodeling segment, while 88% of the Wing Business'
sales were to the repair and remodeling segment and 12% were to the new
construction segment. For the 12 months ended June 30, 1998, approximately
45% of the Combined Company's pro forma consolidated sales were to the new
construction segment and approximately 55% were to the repair and
remodeling segment. The Combined Company believes that this greater
balance in the sales mix should enable it to withstand a downturn in
either of the segments more effectively than its constituent businesses
could on a stand-alone basis.
- INCREASED DIVERSITY OF DISTRIBUTION CHANNELS. The Atrium Business'
products have been sold primarily through home builders and independent
distributors while the Wing Business' primary market has been home center
retailers. The Combined Company expects to leverage these complementary
distribution channels by targeting the Wing Business' door products to
homebuilders and independent distributors and the Atrium Business' window
products to home center retailers.
OPERATING STRATEGY
The Combined Company's operating strategy has the following principal
components:
- LEVERAGE COMPLEMENTARY PRODUCT LINES, GEOGRAPHIC MARKETS AND DISTRIBUTION
CHANNELS. The Combined Company will offer a full range of aluminum, vinyl
and wood doors and interior and exterior doors throughout the United
States to homebuilders, independent distributors and home center
retailers, allowing it to take advantage of the benefits described above.
- REALIZE BENEFITS THROUGH OPERATIONAL SYNERGIES. The Combined Company
believes it can improve margins by continuing to enhance its
vertically-integrated operations. As the Combined Company continues to
expand through organic growth and acquisitions, management believes it can
realize more favorable raw materials pricing as a result of its increased
purchasing volume. Further, the Combined Company has identified certain
"best practices" that can be implemented, including consolidating certain
management functions, eliminating duplicative administrative functions and
expenses, rationalization of product lines and facilities, and
consolidation of freight operations.
- ACQUIRE BUSINESSES CONSISTENT WITH THE COMBINED COMPANY'S STRATEGIC
OBJECTIVES. The window and door industry remains substantially fragmented.
The Combined Company believes that there will be significant opportunities
to acquire businesses that are consistent with the Combined Company's
strategic objectives. In evaluating acquisition candidates, the Combined
Company seeks businesses that have complementary distribution channels and
product lines and strong management teams. During the last two years, the
Combined Company acquired six businesses for an aggregate purchase price
of approximately $85.0 million.
THE TRANSACTIONS
THE MERGER
On October 2, 1998, Merger Sub was merged with and into Atrium Corp., with
Atrium Corp. as the surviving corporation pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of August 3, 1998, as amended, by and
among Holdings, Merger Sub, Atrium Corp. and the securityholders listed therein.
Merger Sub was a wholly-owned subsidiary of Holdings, whose stockholders include
GEIPPPII and Ardatrium, an affiliate of Ardshiel, Inc. ("Ardshiel"). GEIPPPII is
a private equity
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<PAGE>
partnership affiliated with GE Investments, a wholly-owned investment management
subsidiary of General Electric Company. Ardshiel is a private equity investment
firm based in New York which has purchased more than 35 companies since its
inception in 1975. GEIPPPII and Ardshiel and its affiliates have co-invested in
five previous transactions.
Pursuant to the terms of the Merger Agreement, all of the outstanding equity
securities of Atrium Corp. were converted into the right to receive the merger
consideration of $97.2 million in cash net of transaction costs (the "Merger
Consideration") (other than $2.7 million of equity securities of Atrium Corp.
owned by certain members of management of Atrium Corp. which were converted into
comparable equity securities of Holdings). The Merger Consideration was funded
in part with (i) $50.0 million in cash comprising the Merger Sub Contribution
(as defined below) that became an asset of Atrium Corp. in the Merger, (ii)
$20.0 million in cash proceeds from the issuance of the Discount Debentures by
Atrium Corp. to GEIPPPII and Ardatrium (the "Discount Note Issuance"), (iii)
approximately $24.0 million in cash proceeds from a loan from the Issuer (the
"Intercompany Loan") which was funded by a portion of the proceeds of a term
loan to the Issuer under the Credit Facility (as defined herein) and (iv) $0.2
million in cash proceeds from the issuance of common stock of Holdings to
certain members of management of Atrium followed by a capital contribution of
such proceeds by Holdings to Atrium Corp. See "Description of Certain
Indebtedness."
THE RECAPITALIZATION
GEIPPPII and Ardatrium formed Holdings, acquiring all of its outstanding
common stock for an aggregate purchase price of $50.0 million. Holdings formed
Merger Sub as a wholly-owned subsidiary and contributed $50.0 million (the
"Merger Sub Contribution") in exchange for all of Merger Sub's outstanding
common stock.
Immediately prior to the consummation of the Merger, all of the outstanding
subordinated debt and warrants to purchase common stock of each of WIH and Door
(other than certain warrants to purchase common stock of WIH held by Ardshiel)
were converted into common stock of WIH and Door, respectively. The stockholders
of WIH and Door contributed their common stock in WIH and Door to Holdings in
exchange for common stock of Holdings and warrants to purchase common stock of
Holdings were substituted for certain warrants to purchase common stock of WIH
held by Ardshiel. Immediately after the consummation of the Merger, Holdings
contributed all of the common stock of WIH and Door to Atrium Corp., which in
turn contributed the common stock of WIH and Door to the Issuer. Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey"), an independent
investment banking firm, appraised the aggregate value of the WIH and Door
common stock contributed to the Issuer at $52.0 million. The transactions
described in this paragraph are referred to herein as the "Recapitalization."
THE CREDIT FACILITY AND THE CONTINGENT CAPITAL CONTRIBUTION
To finance the payment of a portion of the Merger Consideration, the
repayment and refinancing in full of the credit facilities of the Issuer, Wing
and Darby outstanding prior to the Merger (the "Existing Debt Repayment"), a
portion of the Change of Control Offer and related fees and expenses, the Issuer
entered into the Credit Facility. Amounts used to finance a portion of the
Merger Consideration were loaned by the Issuer to Atrium Corp. pursuant to the
Intercompany Loan. See "Certain Relationships and Related Transactions." The
Credit Facility is comprised of two term loan facilities in the amounts of $75.0
million and $100.0 million and a revolving credit facility and letter of
credit-sub facility in the amounts of $30.0 million and $5.0 million,
respectively. Borrowings under the Credit Facility bear interest at the Issuer's
option at either (a) the greater of (i) the Administrative Agent's (as defined
herein) corporate base rate and (ii) the federal funds rate plus 0.5% per annum,
plus in each case, the Applicable Margin (as defined herein) or (b) LIBOR plus
the Applicable Margin.
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<PAGE>
Upon the consummation of the Merger, $75.0 million of the $100.0 million
term loan facility was placed in escrow (the "Escrow") to fund a portion of the
amounts payable, if any, in the Change of Control Offer. Any revolving loans,
the proceeds of which remain in escrow after the Change of Control Expiration
Date, mature on the next succeeding day.
In addition, upon consummation of the Merger, GEIPPPII and Ardatrium
deposited into the Escrow $25.0 million. In the event amounts are payable in the
Change of Control Offer, some or all of such funds will be used to purchase
additional Discount Debentures from Atrium Corp. (the "Additional Discount
Debenture Issuance"). The proceeds of such Discount Debentures will then be
advanced by Atrium Corp. to the Issuer as a capital contribution (the
"Contingent Capital Contribution") to pay, together with the other amounts
placed in escrow described in the preceding paragraph, amounts payable in the
Change of Control Offer.
The balance (which will not exceed $1.0 million plus accrued and unpaid
interest on the Notes, if any), if any, of amounts in excess of $100.0 million
payable in the Change of Control Offer will be paid from available cash or
financed with the proceeds of revolving loans under the Credit Facility.
The Merger, the Merger Sub Contribution, the Recapitalization, borrowings
under the Credit Facility, the Intercompany Loan, the Discount Debenture
Issuance, the Additional Discount Debenture Issuance and the Contingent Capital
Contribution and the application of the proceeds of the foregoing (including the
Existing Debt Repayment) are herein referred to collectively as the
"Transactions."
The Issuer is a Delaware corporation with its principal executive offices
located at 1341 W. Mockingbird Lane, Suite 1200 W, Dallas, Texas 75247,
telephone number (214) 630-5757.
5
<PAGE>
CORPORATE STRUCTURE
The following chart depicts the corporate structure of the Combined Company
following the consummation of the Transactions:
[GRAPHIC]
As a result of the consummation of the Transactions, the Issuer has
obligations of $100.0 million outstanding under the Credit Facility pursuant to
borrowings necessary to fund the Intercompany Loan and the Existing Debt
Repayment. Atrium Corp. has obligations of approximately $24.0 million to the
Issuer pursuant to the Intercompany Loan and $20.0 million pursuant to the
Discount Debentures Issuance to GEIPPPII and Ardatrium in order to fund the
Merger Consideration.
To the extent Notes are tendered in the Change of Control Offer, the Issuer
will incur additional obligations under the Credit Facility of $75.0 million and
Atrium Corp. will incur obligations pursuant to the Additional Discount
Debenture Issuance to GEIPPPII and Ardatrium of $25.0 million in order to fund
the Change of Control Price.
6
<PAGE>
THE CHANGE OF CONTROL OFFER
<TABLE>
<S> <C>
Issuer.............................. Atrium Companies, Inc.
Change of Control Price............. 101%
Change of Control Expiration Date... November 9, 1998 at 5:00 p.m. New York City time
Interest............................ Unless the Issuer defaults in the payment of the
Change of Control Price, all Notes accepted for
payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control
Acceptance Date. Any Notes not tendered and purchased
in the Change of Control Offer will continue to accrue
interest in accordance with the Indenture.
Withdrawal Rights................... Notes tendered in the Change of Control Offer may be
withdrawn at any time prior to 5:00 p.m., New York
City time, on the Change of Control Expiration Date.
As a result, if a Registered Holder (as defined in the
Indenture) validly withdraws Notes previously tendered
in the Change of Control Offer, the Registered Holder
will not receive the Change of Control Price unless
such Notes are validly re-tendered pursuant to the
Change of Control Offer prior to the Change of Control
Expiration Date.
Source of Funds..................... The maximum amount of funds required by the Issuer to
purchase all of the Notes pursuant to the Change of
Control Offer is approximately $101.0 million plus
accrued and unpaid interest, if any, to the date of
purchase. The Issuer expects to finance the payments
of the Change of Control Offer with the proceeds of a
term loan under the Credit Facility, the Contingent
Capital Contribution and, if necessary, to fund
amounts in excess of $100.0 million, revolving loans
under the Credit Facility.
The Depositary...................... United States Trust Company of New York
</TABLE>
RISK FACTORS
An investment in the Notes involves a high degree of risk. Holders of the
Notes should carefully consider the factors set forth in "Risk Factors," as well
as the other information set forth in this Offer to Purchase, before determining
whether to tender their Notes in the Change of Control Offer.
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UNAUDITED SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited summary pro forma consolidated financial data are
derived from the Unaudited Pro Forma Consolidated Financial Statements of the
Combined Company included elsewhere in this Offer to Purchase. The pro forma
consolidated income statement data give effect to the Transactions as if they
had occurred on January 1, 1997. The pro forma consolidated balance sheet data
give effect to the Transactions as if they had occurred on June 30, 1998. The
unaudited summary pro forma consolidated financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Transactions had
been consummated on the dates indicated nor are they necessarily indicative of
the results that may be expected or achieved in the future. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Risk Factors--Substantial Leverage", and the financial statements
included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................................................... $ 357,870 $ 194,749
Gross profit.................................................................... 105,848 57,185
Selling, delivery, general and administrative expenses.......................... 76,691 41,015
Income before income taxes...................................................... 5,827 3,521
OTHER FINANCIAL DATA:
EBITDA (1)...................................................................... $ 40,816 $ 20,382
Depreciation and amortization................................................... 11,026 4,879
Capital expenditures............................................................ 5,169 2,083
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital (2)........................................................................ $ 51,128
Total assets............................................................................... 351,548
Total debt................................................................................. 220,000
Stockholders' equity....................................................................... 87,889
</TABLE>
- ------------------------
(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, and certain non-recurring expenses
related to acquisitions, management changes and other expenses. As the
Combined Company has historically incurred significant non-cash and non-
recurring charges, management believes EBITDA provides a more meaningful
comparison of historical results. While EBITDA is not intended to represent
cash flow from operations as defined by GAAP and should not be considered as
an indicator of operating performance or an alternative to cash flow or
operating income (as measured by GAAP) or as a measure of liquidity, it is
included herein to provide additional information with respect to the
ability of the Combined Company to meet its future debt service, capital
expenditures and working capital requirements. The Combined Company believes
EBITDA provides investors and analysts in the building materials industry
the necessary information to analyze and compare the financial results of
the Combined Company on a comparable basis with other companies on the basis
of operating performance, leverage and liquidity. Additionally, as EBITDA is
not defined by GAAP, it may not be calculated or comparable to other
similarly titled measures within the building materials industry.
(2) Computed as current assets less current liabilities, excluding current
portion of notes payable.
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RISK FACTORS
AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. HOLDERS OF THE
NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER
INFORMATION SET FORTH IN THIS OFFER TO PURCHASE BEFORE DETERMINING WHETHER TO
TENDER THEIR NOTES IN THE CHANGE OF CONTROL OFFER.
SUBSTANTIAL LEVERAGE
The Combined Company is highly leveraged and has substantial Indebtedness
(as defined in the Indenture). As of June 30, 1998, on a pro forma basis after
giving effect to the Transactions, the Combined Company and its consolidated
subsidiaries had an aggregate of $220.0 million of outstanding Indebtedness
including the Discount Debentures issued by Atrium Corp. The Indenture permits
the Issuer to incur additional Indebtedness, including Senior Indebtedness (as
defined in the Indenture), subject to certain limitations. See "Capitalization."
The Combined Company's high degree of leverage could have important
consequences to the holders of the Notes, including the following: (i) the
Combined Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired in the future; (ii) a substantial portion of the Combined
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 Combined Company for other purposes; (iii) certain of the Combined
Company's borrowings will be at variable rates of interest (including borrowings
under the Credit Facility), which expose the Combined Company to the risk of
increased interest rates; (iv) the indebtedness outstanding under the Credit
Facility is secured and matures prior to the maturity of the Notes; (v) the
Combined Company may be substantially more leveraged than certain of its
competitors, which may place the Combined Company at a competitive disadvantage;
and (vi) the Combined Company's substantial degree of leverage may limit its
flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Description of Certain
Indebtedness."
ABILITY TO SERVICE DEBT
The Combined Company's ability to service its indebtedness will depend on
its future performance and its ability to obtain refinancing indebtedness for at
least a portion of its long-term indebtedness (including the Notes), both of
which are subject to prevailing economic conditions and to certain financial,
business and other factors beyond its control. If the Combined Company's cash
flow and capital resources are insufficient to fund its debt service
obligations, the Combined Company may be forced to reduce or delay planned
expansion and capital expenditures, sell assets, obtain additional equity
capital or restructure its debt. There can be no assurance that the Combined
Company's operating results, cash flow and capital resources will be sufficient
for payment of its Indebtedness in the future. In the absence of such operating
results and resources, the Combined Company could face substantial liquidity
constraints and might be required to dispose of material assets or operations to
meet its debt service and other obligations, and there can be no assurance as to
the timing of such sales or the proceeds that the Combined Company could realize
therefrom. In addition, because the Issuer's obligations under the Credit
Facility bear interest at floating rates, an increase in interest rates could
adversely affect, among other things, the Combined Company's ability to meet its
debt service obligations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Certain Indebtedness."
SUBORDINATION OF THE NOTES
The Notes are unsecured, senior subordinated obligations of the Issuer and
are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Indenture) of the Issuer, including without
limitation any amounts outstanding under the Credit Facility. As of June 30,
1998, on a
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<PAGE>
pro forma basis after giving effect to the Transactions, the Issuer had $100.0
million of Senior Indebtedness outstanding.
As of June 30, 1998, the maximum amount of Senior Indebtedness the Issuer
and the Subsidiary Guarantors, collectively and in the aggregate, could incur
was $45.0 million, under the current provisions of the Indenture. Consequently,
in the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to the Issuer, assets of the Issuer will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there can be no assurance that there will be sufficient
assets to pay amounts due on all or any of the Notes.
Similarly, the Indebtedness evidenced by the Subsidiary Guarantees of the
Notes by the Subsidiary Guarantors will be subordinated to the prior payment in
full of all existing and future Guarantor Senior Indebtedness (as defined in the
Indenture), including all amounts owing pursuant to their guarantees of the
Credit Facility.
Pursuant to the Discount Debenture Indenture (as defined herein), Atrium
Corp. may not permit any of its Restricted Subsidiaries (as defined in the
Discount Debenture Indenture), including the Issuer, to guarantee any future
indebtedness of Atrium Corp. unless such subsidiary also guarantees the Discount
Debentures on a senior or PARI PASSU basis (depending upon the ranking of such
other indebtedness).
RESTRICTIVE DEBT COVENANTS
The Credit Facility contains a number of significant covenants that, among
other things, restrict the ability of the Issuer and its subsidiaries to dispose
of assets, incur additional indebtedness, incur guarantee obligations, repay
other indebtedness or amend other debt instruments, pay dividends, create liens
on assets, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, make capital expenditures, engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the Credit Facility, the Issuer is required to
comply with specified financial ratios and tests, including minimum interest
fixed charge coverage ratios and a maximum total leverage ratio. In addition,
the Discount Debenture Indenture contains certain financial and other
restrictive covenants to which the Issuer and its subsidiaries are subject.
Pursuant to the Discount Debenture Indenture, Atrium Corp. may not, and may not
permit any of its Restricted Subsidiaries to, sell or otherwise dispose of, or
permit the Issuer to issue, any capital stock of the Issuer to any person or
entity other than Atrium Corp. or a wholly owned subsidiary. See "Description of
Certain Indebtedness."
The Issuer's ability to comply with the covenants and restrictions contained
in the Credit Facility, the Discount Debenture Indenture and the Indenture 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 Credit Facility, the Discount
Debenture Indenture and the Indenture, which would permit the senior lenders or
the holders of the Discount Debentures or the Notes, as the case may be, to
declare all amounts borrowed thereunder to be due and payable immediately,
together with accrued and unpaid interest, and the commitments of the senior
lenders to make further extensions of credit under the Credit Facility could be
terminated. If the Issuer were unable to repay its indebtedness to its senior
lenders, such lenders could proceed against the collateral securing such
indebtedness as described under "Description of Certain Indebtedness."
LIMITATION ON CHANGE OF CONTROL
Upon a future Change of Control (as defined in the Indenture) the Issuer
will be required to offer to purchase all of the outstanding Notes at a price
equal to 101% of the principal amount thereof to the date of repurchase plus
accrued and unpaid interest, if any, to the date of repurchase. The Change of
Control purchase feature of the Notes, in the future, may in certain
circumstances discourage or make more difficult a sale or takeover of the
Combined Company. In particular, a future Change of Control may cause an
acceleration of, or require an offer to repurchase under, the Credit Facility
and certain other indebtedness, if any, of the Issuer and its subsidiaries, in
which case such indebtedness would be required to be repaid in full before
repurchase of the Notes. In addition, a Change of Control under the Indenture
10
<PAGE>
will also constitute a "Change of Control" for purposes of the Discount
Debenture Indenture, which would require Atrium Corp. to offer to repurchase the
Discount Debentures. The Issuer could, subject to limitations on additional
Senior Indebtedness, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations or highly leveraged
transactions that would not constitute a Change of Control under the Indenture,
but could increase the amount of indebtedness outstanding at such time or
otherwise affect the Issuer's capital structure or credit rating or otherwise
adversely affect holders of the Notes. See "Description of Certain
Indebtedness." The inability to repay such indebtedness, if accelerated, and to
purchase all of the tendered Notes would constitute an event of default under
the Indenture. Finally, there can be no assurance that the Issuer will have
funds available to repurchase the Notes upon the occurrence of a future Change
of Control.
FLUCTUATIONS IN RAW MATERIALS COST AND SUPPLY; RELIANCE ON MANUFACTURING
FACILITIES AND SUPPLIERS
The Combined Company purchases aluminum, vinyl, wood, glass and other raw
materials from various suppliers. While all such materials are available from
numerous independent suppliers, commodity raw materials are subject to
fluctuations in price. Because such materials in the aggregate constitute
significant components of the Combined Company's cost of goods sold, such
fluctuations could have a material adverse effect on the Combined Company's
results of operations. Although the Combined Company believes that it can pass
on to customers gradual increases in raw material prices, there can be no
assurance that the Combined Company will continue to be able to do so in the
future. In addition, sharp increases in raw material prices are more difficult
to pass through to the customer in a short period of time and may negatively
impact the short-term financial performance of the Combined Company. See
"Business--Inflation and Raw Materials." Loss of or interruptions of operations
at any of the Combined Company's manufacturing facilities could have an adverse
effect on the Combined Company's business. In addition, suppliers experiencing
delays or generating higher costs could adversely affect the Combined Company's
operating results.
ENVIRONMENTAL MATTERS
The past and present business operations of the Combined Company and the
past and present ownership and operation of real property by the Combined
Company are subject to extensive federal, state, local and foreign environmental
laws and regulations pertaining to the discharge of materials into the
environment, the handling and disposal of wastes (including solid and hazardous
wastes) or otherwise relating to health, safety and protection of the
environment. The Combined Company does not expect to make any expenditures with
respect to ongoing compliance with these environmental laws and regulations that
would have a material adverse effect on the Combined Company's capital
expenditures, earnings, or competitive position. However, the applicable
requirements under the law are subject to amendment, and to the imposition of
new, other, or additional requirements and to changing interpretations of
agencies or courts. No assurance can be given that new, other or additional
requirements would not be imposed or that expenditures, including material
expenditures, would not be required to comply. The nature of the Combined
Company's operations and previous operations by others at real property owned by
the Combined Company expose the Combined Company to the risk of claims under
environmental, health and safety laws and regulations. The Combined Company has
been subject to such claims in the course of its operations, and has made
expenditures to address these known conditions in a manner consistent with
applicable laws and regulations. The Combined Company does not believe that
these existing claims will have any further material effect on the Combined
Company's capital expenditures, earnings or competitive position. No assurance
can be given, however, that the discovery of presently unknown environmental
conditions, changes in environmental, health, and safety laws and regulations or
their interpretation, or other unanticipated events will not give rise to
expenditures or liabilities that may have such an effect. The Combined Company
has been named as a potentially responsible party at two superfund sites
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA") or comparable state statutes. Based on currently
available information, the Combined Company believes that its liability, if any,
associated with the remediation of these sites or facilities will be limited to
an amount
11
<PAGE>
not greater than its alleged reasonable contribution, and that this amount will
not have a material adverse effect on the Combined Company's financial condition
or operations. However, given the uncertain nature of liability under CERCLA,
and uncertainties concerning factual circumstances, the contribution of other
parties, and other issues, there can be no assurance that the liabilities in
question will not exceed the Combined Company's expectations, resulting in
material expenditures. See "Business--Government Regulation and Environmental
Matters".
INTEGRATION OF BUSINESSES
The Combined Company's future performance will depend heavily on the ability
of the Combined Company to integrate the historical Atrium, Wing and Darby
Businesses, including, without limitation, the integration of manufacturing
facilities, management information systems and corporate functions. In addition,
the integration of the businesses may divert management's attention from other
business concerns. There can be no assurance that the Combined Company's
management will be able to manage effectively the resulting business, that the
consummation of the Transactions will benefit the Combined Company or that the
Combined Company will realize any anticipated synergies as a result of the
Transactions.
CYCLICALITY
Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity and the demand for repair and
remodeling. For the 12 months ended June 30, 1998, the Combined Company believes
that approximately 45% of its pro forma consolidated revenues were related to
new home construction. Trends in the housing sector directly impact the
financial performance of the Combined Company. Accordingly, the strength of the
U.S. economy, the age of existing home stock, job growth, interest rates and
migration into the United States and migration of the population within the
United States have a direct impact on the Combined Company. Cyclical declines in
new housing starts may adversely impact the Combined Company and there can be no
assurance that any such adverse effects would not be material. See
"Business--Cyclicality."
CUSTOMER CONCENTRATION
The Combined Company, through the Wing Business, has a significant
relationship with Home Depot, one of the largest home center retailers. Home
Depot accounted for approximately 20.5% of the Combined Company's consolidated
revenues for the 12 months ended June 30, 1998 on a pro forma basis after giving
effect to the Transactions. The Combined Company's operating and financial
performance is currently dependent, in part, upon the Combined Company's
relationship with this customer. There can be no assurance that the Combined
Company will be able to maintain such relationship consistent with historic
levels, if at all.
SEASONALITY
Markets for the Combined Company's building-related products are seasonal.
Historically, the Atrium Business' products have experienced increased sales in
the second and third quarters of the year due to increased construction during
those periods. Because interior construction and repair increase during the
winter months, the first and fourth quarters of the year have historically been
peak seasons for the Wing Business' products, particularly its interior doors.
Although the Combined Company believes that the complementary nature of the
Atrium Business' and the Wing Business' selling seasons will mitigate
fluctuations in operating results, there can be no assurance that these seasonal
trends will not adversely impact the Combined Company. The Combined Company
expects to use the Credit Facility to meet seasonal variations in its working
capital requirements. See "Business--Seasonality."
DEPENDENCE ON KEY PERSONNEL
The success of the Combined Company's business is materially dependent upon
the continued services of its President and Chief Executive Officer, Randall S.
Fojtasek, and other key officers and employees. The loss of such key personnel
due to death, disability or termination of employment could
12
<PAGE>
have a material adverse effect on the results of operations or financial
condition, or both, of the Combined Company. While the Combined Company has
non-competition agreements with Mr. Fojtasek and certain other key officers and
employees, there can be no assurance that a court will find such agreements
enforceable under applicable state law.
CONTROLLING STOCKHOLDERS; AFFILIATE TRANSACTIONS
GEIPPPII and Ardshiel and its affiliates own approximately 93% of the
outstanding shares of common stock of Holdings. Additionally, Ardshiel or its
affiliates have the power to vote approximately 4% of the outstanding shares of
common stock of Holdings pursuant to proxies granted by certain stockholders of
Holdings to Ardshiel or its affiliates. As a result of this ownership and the
provisions of the stockholders agreement executed by the stockholders of
Holdings in connection with the Transactions, GEIPPPII and Ardshiel and its
affiliates are able to direct the election of 8 of the 9 members of the Board of
Directors of Holdings and therefore direct the management and policies of the
Combined Company. In addition, pursuant to the terms of such stockholders
agreement, Holdings has agreed to cause the Combined Company to make dividend
payments to make interest and principal payments on, or to repurchase, redeem or
repay, the Discount Debentures. The interests of GEIPPPII and Ardshiel and its
affiliates may differ from the interests of holders of the Notes. See
"Beneficial Ownership" and "Certain Relationships and Related Transactions."
YEAR 2000 RISK
Many existing computer systems and software products are coded to use only
two digits to identify a year in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Many computer programs and systems, including certain
programs and systems utilized by the Combined Company, are highly dependent upon
financial and other data that, based on the program's or system's inability to
distinguish between the Year 2000 and other century-end dates, could be
misreported or misinterpreted and cause significant resulting errors. If not
corrected, many computer applications could fail when processing data related to
the Year 2000. There can be no assurance that the Combined Company's computer
systems, or the computer systems of other companies with whom the Combined
Company conducts business, will be Year 2000 compliant prior to December 31,
1999 or that the inability of any such systems to process accurately Year 2000
data will not have a material adverse effect on the Combined Company's business,
operating results or financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."
COMPETITION
The Combined Company competes with other national and regional manufacturers
in many product segments. Certain of the Combined Company's principal
competitors are less highly-leveraged than the Combined Company and have greater
financial resources than the Combined Company. Accordingly, such competitors may
be better able to withstand changes in conditions within the industries in which
the Combined Company operates and may have significantly greater operating and
financial flexibility than the Combined Company. As a result of the competitive
environment in the markets in which the Combined Company operates, the Combined
Company faces (and will continue to face) pressure on sales prices of its
products from competitors (including imports in certain segments of its product
lines), as well as from large customers. As a result of such pricing pressures,
the Combined Company may in the future experience reductions in the profit
margins on its sales, or may be unable to pass future raw material price or
labor cost increases on to its customers (which would also reduce profit
margins).
There can be no assurance that the Combined Company will not encounter
increased competition in the future, which could have a material adverse effect
on the Combined Company's business. See "Business--Competition."
POTENTIAL LABOR DISPUTES
Approximately 40% of the Combined Company's hourly employees are covered by
three-year collective bargaining agreements which expire in 2001. Although the
Combined Company believes that its
13
<PAGE>
relations with its employees are satisfactory, there can be no assurance that
the Combined Company will not experience work stoppages or slowdowns in the
future. In addition, there can be no assurance that the Combined Company's
non-union facilities will not become subject to labor union organizational
efforts or that labor costs will not materially increase. See
"Business--Employees."
INTELLECTUAL PROPERTY RIGHTS AND PROTECTION
The Combined Company relies on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality and non-disclosure agreements and
other contractual provisions to protect its proprietary rights, measures that
provide only limited protection. There can be no assurance that the Combined
Company's means of protecting its proprietary rights will be adequate or that
competitors will not independently develop similar technologies. The Combined
Company has applied to register certain of its trademarks. There can be no
assurances that the Combined Company will obtain registrations of principal
marks in key markets. Failure to obtain registrations could compromise the
Combined Company's ability to protect its trademarks and brands and could
increase the risk of challenge from third parties to its use of its trademarks
and brands. Failure of the Combined Company to enforce and protect its
intellectual property rights or obtain from third parties the right to use
necessary intellectual property could have a material adverse effect on the
Combined Company's business, operating results and/or financial condition.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Notes trade in the PORTAL market. There is no other established trading
market for the Notes. The Issuer does not currently intend to list the Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system. Accordingly, there can be no assurance as to the development
of any market or the liquidity of any market that may develop for the Notes. No
assurance can be given as to the trading prices of the Notes. Future trading
prices of the Notes will depend on many factors, including, among other things,
prevailing interest rates, the Combined Company's operating results and the
market for similar securities.
The liquidity of, and trading market for, the Notes may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Combined Company.
In addition, to the extent Notes are purchased pursuant to the Change of
Control Offer, the trading market for untendered Notes could become more limited
due to the reduction in the amount of Notes outstanding after the Changes of
Control Offer, which might adversely affect the liquidity and market price of
the Notes.
CERTAIN FORWARD-LOOKING STATEMENTS
This Offer to Purchase contains certain forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995) that
involve substantial risks and uncertainties relating to the Combined Company
that are based on the beliefs of the management. When used in this Offer of
Purchase, the words "anticipate", "believe", "estimate", "expect", "intend", and
similar expressions, as they relate to the Combined Company or the Combined
Company's management, identify forward-looking statements. Such statements
reflect the current views of the Combined Company with respect to the risks and
uncertainties regarding the operations and results of operations of the Combined
Company as well as its customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment trends, changes in
levels of consumer confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs, pricing pressures,
shifts in market demand, and general economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization as of June
30, 1998 of the Issuer on an actual basis and the Combined Company as adjusted
to give effect to the Transactions. This table should be read in conjunction
with the Unaudited Pro Forma Consolidated Financial Statements and the financial
statements included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------
COMBINED
COMPANY, AS
ADJUSTED FOR
ISSUER, THE
ACTUAL TRANSACTIONS(1)
---------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of notes payable..................................................... $ 1,900 $ 1,750
Long-term debt, excluding current maturities:........................................
Credit Facility(2)................................................................. 7,858 98,250
BT Credit Facility--senior term loan facility...................................... 15,200 --
Discount Debentures--Issued by Atrium Corp......................................... -- 20,000
Notes.............................................................................. 100,000 100,000
Stockholders' (deficit) equity:
Common stock, par value $.01 per share; 3,000 shares authorized; 100 shares
outstanding...................................................................... -- --
Additional paid-in capital(3)...................................................... 33,512 85,895
Retained earnings (accumulated deficit)(3)......................................... (65,117) 1,994
Accumulated other comprehensive income............................................. 7 --
---------- ---------------
Total stockholders' (deficit) equity................................................. (31,598) 87,889
---------- ---------------
Total capitalization............................................................. $ 93,360 $ 307,889
---------- ---------------
---------- ---------------
</TABLE>
- ------------------------
(1) Assumes none of the Notes are tendered in the Change of Control Offer.
(2) The BT Credit Facility (as defined herein and as reflected in the Actual
column) was refinanced by the Credit Facility (reflected in the As Adjusted
column).
(3) Adjustments to additional paid-in-capital and retained earnings (accumulated
deficit) reflect GEIPPPII's acquisition of 94.5% of the Issuer and a portion
of the minority interests of WIH and Door. See "Unaudited Pro Forma
Consolidated Financial Statements."
15
<PAGE>
HISTORY OF THE COMBINED COMPANY
The Combined Company was formed through a series of transactions and
acquisitions. The following summary should be considered in conjunction with
reading the financial information presented in this Offer to Purchase:
July 3, 1995--The Common Stock of Atrium (formerly known as Fojtasek
Companies, Inc.), was acquired by a wholly owned subsidiary of Heritage Fund I,
L.P. in a transaction that was accounted for as a recapitalization (the
"Heritage Transaction"). The Atrium Business is the manufacture and sale of
doors, windows and various building materials throughout the United States.
Atrium was founded in 1948 as a leading vertically-integrated domestic
manufacturer and distributor of a full line of residential windows and doors and
began manufacturing operations in 1953.
September 1, 1996--Atrium purchased certain assets of Keller Aluminum
Products of Texas ("Keller"), a division of Keller Building Products, which was
owned by Keller Industries, Inc. The assets were recorded at cost.
September 30, 1996--Atrium Corp. acquired Atrium Door and Window Company of
the Northeast ("ADW--Northeast"), formerly known as Bishop Manufacturing
Company, Incorporated ("Bishop"), a manufacturer of vinyl replacement windows
and doors for the residential market in the northeast region of the United
States. Atrium Corp. contributed the capital stock of ADW--Northeast to Atrium.
The transaction was recorded under the purchase method of accounting.
October 25, 1996--WIH acquired (the "Wing Acquisition") 100% of the
outstanding common stock of Wing, and Wing Acquisition Corporation ("WAC"), a
Delaware corporation and a wholly owned subsidiary of WIH, was merged with and
into Wing, with Wing being the surviving corporation. WIH did not have any
significant activity prior to the Wing Acquisition. Wing was founded in 1924 and
incorporated in 1941. Wing manufactures and markets bifold, louver, stile and
rail, and flush doors, and related products for the home improvement and home
building industries.
November 27, 1996--Atrium was effectively recapitalized in a transaction in
which affiliates of Hicks Muse Tate & Furst Incorporated purchased approximately
82% of Atrium Corp.'s newly issued common stock and redeemed the equity
interests of selling securityholders of Atrium (the "Hicks Muse Transaction").
The redemption payments were funded through the issuance of the Notes and the
other outstanding debt of Atrium was refinanced. The transaction was accounted
for as a recapitalization.
July 1, 1997--Atrium purchased the assets of the Western Window Division of
Gentek Building Products, Inc. ("Gentek") (the results of operations associated
with these assets are referred to as "Gentek"). Gentek, located in Anaheim,
California, is engaged in the manufacture and sale of vinyl replacement windows
to independent remodelers and contractors. The acquisition was accounted for
under the purchase method of accounting.
November 10, 1997--WIH purchased certain assets of the Door Division of
Super Millwork, Inc. ("Super Millwork") in a transaction accounted for under the
purchase method of accounting (the "Super Millwork Acquisition"). The Door
Division of Super Millwork, located in Melville, New York, is engaged in the
distribution, manufacture and sale of doors and other millwork. The Door
Division, along with Marvin Windows, comprised the consolidated entity of Super
Millwork.
January 8, 1998--Door acquired all of the outstanding common stock of Darby
(the "Darby Acquisition") in a transaction accounted for under the purchase
method of accounting. Darby, founded in 1983, provides interior and exterior
doors, vanity mirrors, door knobs and locks, shelving, molding, and related
installation to contractors of apartment buildings and hotels.
March 27, 1998--Atrium purchased substantially all of the assets (the
"Masterview Acquisition") of Masterview Window Company, LLC ("Masterview"), a
privately held window and door company located in Phoenix, Arizona in a
transaction accounted for under the purchase method of accounting.
16
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
The selected consolidated historical financial data set forth below for the
five-year period ended December 31, 1997, was derived from the audited
consolidated financial statements of Atrium. The financial data as of June 30,
1998 and the six months ended June 30, 1997 and 1998 were derived from the
unaudited consolidated financial statements of Atrium, which in the opinion of
management reflect all adjustments necessary for a fair presentation of results
for such periods. Results for the interim periods are not necessarily indicative
of results for the full year. The selected consolidated historical financial
data should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and Atrium's Consolidated
Financial Statements, related notes and other financial information included
elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
----------------------------------------------------- -------------- --------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Net sales............................ $ 98,752 $ 123,571 $ 135,478 $ 156,269 $ 186,764 $ 85,277 $ 106,482
Income before income taxes and
extraordinary charges(2)(3)(4)..... 10,246 9,795 3,393 8,078 10,235 4,130(5) 4,668
BALANCE SHEET DATA (END OF PERIOD):(6)
Total assets......................... $ 52,517 $ 58,507 $ 48,569 $ 74,750 $ 83,375 $ 86,350 $ 120,190
Total debt........................... 7,614 6,786 49,000 100,000 100,000 $ 102,447 124,958
OTHER DATA:
EBITDA(7)............................ $ 12,030 $ 16,094 $ 17,070 $ 21,463 $ 25,842 $ 11,636(5) $ 12,969
Depreciation and amortization........ 1,407 1,678 2,087 5,228 3,585 1,736 2,601
Interest expense..................... 377 355 2,753 4,786 11,523 5,594 6,241
</TABLE>
- --------------------------
(1) The income statement data for Atrium for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 and six months ended June 30, 1998 includes the
acquisitions of Bishop, Gentek and Masterview from the dates of acquisition
which are September 30, 1996, July 1, 1997 and March 27, 1998, respectively.
If the acquisitions had occurred as of January 1, 1993, the selected
financial information would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
----------------------------------------------------- ----------- -----------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 124,448 $ 155,854 $ 183,621 $ 207,554 $ 218,504 $ 104,208 $ 112,701
Income before income taxes
and extraordinary
charges.................... 11,828 11,193 9,874 12,505 12,941 5,574(5) 5,222
EBITDA(6).................... 15,701 18,200 24,189 26,946 30,324 14,124(5) 13,945
Depreciation and
amortization............... 1,610 2,534 3,305 6,008 4,735 2,405 2,875
Interest expense............. 490 518 2,891 5,064 12,261 5,969 6,389
</TABLE>
The above selected consolidated historical financial data does not include
the operations of Gentek for the years ended December 31, 1993 and 1994 as
financial information was not available on a stand-alone basis.
Additionally, the selected consolidated historical financial data does not
give effect to the acquisition of Keller, as the historical results of
operations are not indicative of ongoing operations, which commenced
September 1, 1996.
(2) Effective January 1, 1994, Atrium elected to change its method of accounting
of inventory from the first-in, first-out method to the last-in, first-out
("LIFO") method. The LIFO provison in 1994 resulted in an increase in cost
of sales of $2,721. The change in LIFO reserve for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and June 30,
1998 resulted in a decrease in cost of goods sold of $851, $491, an increase
in cost of goods sold of $500 and $176 and a decrease in cost of goods sold
of $541, respectively.
(3) Atrium recorded stock option compensation expense, consisting of charges
associated with granting new stock options at exercise prices below the fair
value of the underlying common stock and the expense associated with the
cash redemption of certain options as well as amoritzation of deferred
compensation charges related to previously issued options, of $308, $3,023,
$307, $203
17
<PAGE>
and $447 for the years ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1997 and June 30, 1998, respectively.
(4) During the years ended December 31, 1995 and 1996, Atrium recorded special
charges for management bonuses, restructuring charges for severances and
consulting fees of $7,188 and $3,044, respectively.
(5) Excludes $1,193 of proceeds from an insurance settlement related to a fire
at Atrium's extrusion facility in Wylie, Texas.
(6) The balance sheet data for Atrium as of December 31, 1996 reflects the
acquisition of Bishop and the purchase of the assets of Keller.
Additionally, the balance sheet data as of December 31, 1997 reflects the
purchase of the assets of Gentek and as of June 30, 1998 reflects the
acquisition of Masterview.
(7) EBITDA includes adjustments for the charges discussed in footnotes (2) and
(4), and adjustments for certain non-recurring items related to a writedown
on real estate of $1,545 in 1994 and a writedown of inventory of $2,500 and
$816 in 1995 and 1996, respectively.
While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow or operating income (as measured
by GAAP) or as a measure of liquidity, it is included herein to provide
additional information with respect to the ability of Atrium to meet its
future debt service, capital expenditures and working capital requirements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Atrium believes EBITDA provides investors and analysts in
the building materials industry the necessary information to analyze and
compare historical results of Atrium on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
Additionally, as EBITDA is not defined by GAAP, it may not be calculated or
comparable to other similarly titled measures within the building materials
industry.
18
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF WIH
The selected income statement data set forth below for the year ended
December 31, 1995, the periods ended October 25, 1996 and December 31, 1996 and
the year ended December 31, 1997, and the selected balance sheet data at
December 31, 1996 and 1997 were derived from the audited consolidated financial
statements of WIH. The selected income statement data for the years ended
December 31, 1993, and 1994, the six months ended June 30, 1997 and 1998 and the
selected balance sheet data at December 31, 1993, 1994 and 1995 and at June 30,
1998 were derived from WIH's unaudited consolidated financial statements, which
in the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. Results for the interim periods are
not necessarily indicative of results for the full year. The selected
consolidated historical financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and WIH's Consolidated Financial Statements, related notes and other
financial information included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
PREDECESSOR WIH
---------------------------------------------- --------------------------------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, PERIOD ENDED PERIOD ENDED YEAR ENDED ENDED JUNE 30,
------------------------------- OCTOBER 25, DECEMBER 31, DECEMBER 31, --------------------
1993 1994 1995 1996 1996 1997 1997 1998
--------- --------- --------- ------------- ------------- ------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................... $ 71,925 $ 72,496 $ 68,481 $ 62,880 $ 13,200 $ 99,059 $ 47,338 $ 71,848
Income before income taxes.... 485 179 491 1,789 532 1,391 741 1,366
Net income.................... 296 35 279 1,119 303 696 391 691
BALANCE SHEET DATA (END OF
PERIOD):(1)
Total assets.................. $ 18,703 $ 20,740 $ 18,515 $ 19,966 $ 36,404 $ 55,383 $ 38,858 $ 58,277
Total debt.................... 8,995 10,296 8,522 8,154 20,489 32,238 21,967 35,458
OTHER DATA:
EBITDA(2)..................... $ 1,829 $ 1,777 $ 2,374 $ 3,014 $ 1,166 $ 5,836 $ 2,911 $ 4,384
Depreciation and
amortization................ 696 689 844 716 260 1,492 754 913
Interest expense.............. 648 909 1,039 509 374 2,953 1,416 2,105
</TABLE>
- ------------------------------
(1) On November 10, 1997, WIH purchased certain assets of the Door Division of
Super Millwork, for $12,500, including contingent payments of $2,500 based
on future operating results. The total cost of the acquisition including
transaction costs incurred aggregated $13,444. The purchase price was funded
with borrowings under a line of credit of approximately $194, term loan
borrowings of $6,750, and the issuance of exchangeable subordinated notes of
$4,000 with warrants. The balance sheet data for WIH as of December 31, 1997
reflect the Super Millwork Acquisition and the income statement data
includes the results since the date of acquisition. If the acquisition had
occurred as of January 1, 1996, the selected consolidated historical
financial data would have been as follows (no information was available for
periods prior to January 1, 1996):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales......................................................... $ 103,012 $ 122,410 $ 60,453 $ 71,848
Income before income taxes........................................ 3,550 2,001 1,113 1,366
EBITDA(2)......................................................... 5,732 6,659 3,405 4,384
Depreciation and amortization..................................... 1,069 1,536 783 913
Interest expense.................................................. 1,113 3,122 1,509 2,105
</TABLE>
(2) While EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow or operating income (as measured
by GAAP) or as a measure of liquidity, it is included herein to provide
additional information with respect to the ability of WIH to meet its
future debt service, capital expenditures and working capital requirements.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." WIH believes EBITDA provides investors and analysts
in the building materials industry the necessary information to analyze and
compare historical results of WIH on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
Additionally, as EBITDA is not defined by GAAP, it may not be calculated or
comparable to other similarly titled measures within the building materials
industry.
19
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL DATA OF DOOR
The selected combined historical financial data set forth below for the
two-year period ended December 31, 1997, were derived from the audited combined
financial statements of Darby, and from the unaudited consolidated financial
statements of Door for the six months ended June 30, 1998 and of Darby for the
six months ended June 30, 1997. The selected financial data for each of the
years ended December 31, 1993, 1994 and 1995 were derived from Darby's unaudited
combined financial statements, and are prepared on an income tax basis of
accounting. Results for the interim periods are not necessarily indicative of
results for the full year. The selected combined historical financial data
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, Darby's Combined Financial
Statements, Door's Consolidated Financial Statements related notes and other
financial information included elsewhere in this Offer to Purchase.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ----------------
1993(1) 1994(1) 1995(1) 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $7,114 $9,033 $13,034 $15,777 $16,956 $8,894 $10,432
Income from continuing operations............... 548 1,093 2,128 2,145 2,022 1,283 1,219
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................... $2,444 $3,616 $ 5,152 $ 5,325 $ 4,278 N/A $28,298
Total debt...................................... 638 608 1,139 934 6 N/A 14,785
OTHER DATA:
EBITDA(2)(3).................................... $ N/A N/A N/A $ 3,686 $ 3,804 $1,479 $ 2,351
Depreciation and amortization................... 65 114 169 189 154 71 343
Interest expense................................ 48 46 68 78 61 20 789
</TABLE>
- ------------------------------
(1) The selected combined historical financial data presented above for the
years ended December 31, 1993, 1994 and 1995 are unaudited and prepared on
an income tax basis. No adjustments have been made to conform the financial
data to accrual basis accounting in accordance with generally accepted
accounting principles.
(2) EBITDA includes a reversal of compensation expense to a former stockholder
offset by the compensation that will be received pursuant to a new
three-year consulting agreement as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------- --------------
1996 1997 1997
------- ------- --------------
<S> <C> <C> <C>
Salary............................................ $ 311 $ 311 $ 155
Bonus............................................. 1,063 1,356 0
New consulting agreement.......................... (100) (100) (50)
------- ------- -----
Net adjustment.................................... $ 1,274 $ 1,567 $ 105
------- ------- -----
------- ------- -----
</TABLE>
(3) EBITDA includes adjustments for the charges discussed in footnote (2). While
EBITDA is not intended to represent cash flow from operations as defined by
GAAP and should not be considered as an indicator of operating performance
or an alternative to cash flow or operating income (as measured by GAAP) or
as a measure of liquidity, it is included herein to provide additional
information with respect to the ability of Door to meet its future debt
service, capital expenditures and working capital requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Door believes EBITDA provides investors and analysts in the
building materials industry the necessary information to analyze and compare
historical results of Door on a comparable basis with other companies on the
basis of operating performance, leverage and liquidity. Additionally, as
EBITDA is not defined by GAAP, it may not be calculated or comparable to
other similarly titled measures within the building materials industry.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements
("Unaudited Pro Forma Financial Statements") of the Combined Company are based
on the audited and unaudited historical financial statements listed in the Index
to Financial Statements on page F-1.
The Unaudited Pro Forma Financial Statements have been prepared to give
effect to the Transactions. For financial statement purposes, WIH is deemed to
be the "accounting acquiror" in a reverse acquisition transaction.
Prior to the Transactions, GEIPPPII owned a significant interest in both WIH
and Door. As a result of the Transactions, GEIPPPII now owns approximately 94.5%
of Holdings. To the extent GEIPPPII acquired additional minority interest in WIH
and Door, such interest has been recorded at GEIPPPII's acquisition cost or
"fair value". GEIPPPII also recorded its acquisition of a 94.5% interest in
Atrium Corp. at "fair value". For purposes of the Unaudited Pro Forma Financial
Statements, GEIPPPII's basis in the companies which are a part of the
Transactions have been "pushed down" to the Unaudited Pro Forma Financial
Statements. The Unaudited Pro Forma Financial Statements also reflect various
other effects of the Transactions such as capital contributions, retirement of
existing debt and write-off of related financing costs, issuance of new debt and
transaction expenses.
The Unaudited Consolidated Pro Forma Balance Sheet has been prepared to give
effect to the Transactions as if they occurred on June 30, 1998. The Unaudited
Pro Forma Consolidated Statements of Income give effect to the Transactions as
if they occurred on January 1, 1997.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Combined Company believes are reasonable. The
Unaudited Pro Forma Financial Statements and the accompanying notes should be
read in conjunction with the historical financial statements listed in the Index
to Financial Statements on page F-1 and other financial information contained in
"the Combined Company," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein. The Unaudited Pro Forma Financial Statements are not indicative of
either future results of operations or the results that might have occurred if
the Transactions had been consummated on the indicated dates.
The Unaudited Pro Forma Financial Statements also include the effects of the
following events which were accounted for under the purchase method of
accounting:
On July 1, 1997, Atrium purchased the assets of the Western Window Division
of Gentek.
On November 10, 1997, WIH purchased certain assets of the Door Division of
Super Millwork.
On January 8, 1998, Door acquired all of the outstanding common stock of
Darby.
On March 27, 1998, Atrium purchased substantially all of the assets of
Masterview.
Accordingly the assets and liabilities acquired have been recorded at their
fair market values. These transactions have been presented in the Unaudited Pro
Forma Consolidated Statement of Income as if they occurred on January 1, 1997.
All of the transactions have been recorded in the historical balance sheets of
the respective acquiring companies as of June 30, 1998.
21
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- --------------------------
ATRIUM WING DOOR ADJUSTMENTS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 1 $ 139 $ 182 $ -- $ 322
Equity securities--available for sale............... 113 -- -- -- 113
Accounts receivable, net............................ 34,005 6,476 3,487 -- 43,968
Inventories......................................... 19,091 18,748 1,448 -- 39,287
Prepaid expenses and other current assets........... 988 935 175 -- 2,098
Deferred tax asset.................................. 692 -- -- -- 692
--------- --------- --------- ------------ -----------
Total current assets................................ 54,890 26,298 5,292 -- 86,480
PROPERTY, PLANT AND EQUIPMENT, net.................... 18,540 7,942 585 -- 27,067
GOODWILL, net......................................... 37,550 22,130 22,220 81,598(1) 218,030
2,359(2)
223(3)
51,950(4)
DEFERRED FINANCING COSTS, net......................... 5,143 1,151 198 8,653(4) 15,145
OTHER ASSETS.......................................... 4,067 756 3 -- 4,826
--------- --------- --------- ------------ -----------
Total assets........................................ $ 120,190 $ 58,277 $ 28,298 $ 144,783 $ 351,548
--------- --------- --------- ------------ -----------
--------- --------- --------- ------------ -----------
CURRENT LIABILITIES:
Current portion of notes payable.................... $ 1,900 $ 3,367 $ 500 $ (5,767)(4) $ 1,750
1,750 (4)
Accounts payable.................................... 17,350 4,746 1,166 -- 23,262
Accrued liabilities................................. 8,122 3,542 1,245 (819)(4) 12,090
--------- --------- --------- ------------ -----------
Total current liabilities........................... 27,372 11,655 2,911 (4,836) 37,102
LONG-TERM LIABILITIES:
Notes payable....................................... 123,058 32,091 14,285 (11,337)(5) 218,250
(5,286)(6)
(52,811)(4)
118,250 (4)
Deferred tax liability.............................. 1,058 449 -- -- 1,507
Other liabilities................................... 300 2,500 4,000 -- 6,800
--------- --------- --------- ------------ -----------
Total long-term liabilities......................... 124,416 35,040 18,285 48,816 226,557
--------- --------- --------- ------------ -----------
Total liabilities................................... 151,788 46,695 21,196 43,980 263,659
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock........................................ -- 1 1 (2)(7) --
Paid-in-capital..................................... 33,512 9,891 6,468 11,337 (5) 85,895
5,286 (6)
16,488 (1)
2,359 (2)
223 (3)
331 (7)
Retained earnings (accumulated deficit)............. (65,117) 1,690 633 65,117 (1) 1,994
Accumulated other comprehensive income.............. (329)(7)
7 -- -- (7)(1) --
--------- --------- --------- ------------ -----------
Total stockholder's equity (deficit)................ (31,598) 11,582 7,102 100,803 87,889
--------- --------- --------- ------------ -----------
Total liabilities and stockholder's equity
(deficit)....................................... $ 120,190 $ 58,277 $ 28,298 $ 144,783 $ 351,548
--------- --------- --------- ------------ -----------
--------- --------- --------- ------------ -----------
</TABLE>
22
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(1) Elimination of Atrium's accumulated deficit of $65,117 and unrealized gain
on equity securities available for sale of $7 and recording GEIPPPII's and
Ardshiel's basis in Atrium as follows:
<TABLE>
<S> <C>
GEIPPPII's contribution........................................... $ 49,500
Ardatrium's contribution.......................................... 500
Elimination of Atrium's historical paid-in capital................ (33,512)
---------
Net increase in Atrium's paid-in capital.......................... $ 16,488
---------
---------
As a result of the above entries, the following details the net
increase in goodwill:
Elimination of Atrium's accumulated deficit..................... $ 65,117
Elimination of unrealized gain on equity securities available
for sale...................................................... (7)
Net increase in Atrium's paid-in capital........................ 16,488
---------
Net increase in goodwill........................................ $ 81,598
---------
---------
</TABLE>
(2) Recording of GEIPPPII's purchase of additional interest of WIH of 5.03% from
89.47% fully converted basis prior to the Transactions to 94.50% immediately
after the Transactions as follows:
<TABLE>
<S> <C> <C>
GEIPPPII's basis in WIH prior to the Transactions......... $ 22,160
GEIPPPII's purchase of minority interest.................. 1,818
Basis of remaining minority interest...................... 1,300
---------
Adjusted basis in WIH..................................... 25,278
Historical equity of WIH ................................. 11,582
Conversion of exchangeable subordinated notes payable
(5)..................................................... 11,337
---------
Adjusted equity of WIH after conversion of debt........... 22,919
---------
Net increase in equity related to the acquisition of WIH's
minority interest....................................... $ 2,359
---------
---------
</TABLE>
(3) Recording of GEIPPPII's purchase of additional interest of Door of 2.19%
from 92.31% fully converted basis prior to the Transactions to 94.50%
immediately after the Transactions as follows:
<TABLE>
<S> <C> <C>
GEIPPPII's basis in Door prior to the Transactions ....... $ 11,391
GEIPPPII's purchase of minority interest.................. 379
Basis of remaining minority interest...................... 841
---------
Adjusted basis in Door.................................... $ 12,611
Historical equity of Door................................. 7,102
Conversion of subordinated note payable (6)............... 5,286
---------
Adjusted equity of Door after conversion of debt.......... 12,388
---------
Net increase in equity related to the acquisition of
Door's minority interest................................ $ 223
---------
---------
</TABLE>
23
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(4) To record borrowings under the Credit Facility, including related deferred
financing costs, to record the Existing Debt Repayment and the write-off of
associated deferred financing costs.
<TABLE>
<S> <C> <C>
NOTES PAYABLE
Borrowings under the Credit Facility
B Tranche............................................. $ 75,000
C Tranche............................................. 25,000
Discount Debentures issued by Atrium Corp............... 20,000
---------
Total Notes Payable (including $1,750 of current
portion).............................................. $ 120,000
Less Existing Debt Repayment:
Atrium Notes Payable--Current Portion................. (1,900)
WIH Notes Payable--Current Portion.................... (3,367)
Door Notes Payable--Current Portion................... (500)
---------
(5,767)
Atrium Notes Payable--Long Term Portion............... (23,058)
WIH Notes Payable--Long Term Portion (including
capital leases)..................................... (20,754)
Door Notes Payable--Long Term Portion................. (8,999)
---------
(52,811)
Atrium accrued interest............................... (162)
WIH accrued interest.................................. (633)
Door accrued interest................................. (24)
---------
(819)
DEBT FINANCING COSTS
Debt financing costs capitalized........................ (11,000)
Write off of associated deferred financing costs
Atrium ............................................... 998
WIH................................................... 1,151
Door.................................................. 198
---------
Net increase in deferred financing costs................ (8,653)
---------
Net increase in goodwill................................ $ 51,950
---------
---------
</TABLE>
(5) Conversion of GEIPPPII's and Ardshiel's interest in WIH's exchangeable
subordinated notes payable of $12,460 and $40, respectively, less $1,163 of
unamortized discount related to detachable warrants converted to common
stock pursuant to the Recapitalization.
(6) Conversion of GEIPPPII's and Ardshiel's interest in Door's subordinated note
payable of $5,940 and $60, respectively, less $714 of unamortized discount
related to detachable warrants converted to common stock pursuant to the
Recapitalization.
(7) Elimination of Door's retained earnings and common stock and the elimination
of WIH common stock as Atrium's Common Stock remains outstanding.
Note: No adjustment has been made in the Unaudited Pro Forma Financial
Statements to conform the accounting policies of Atrium, WIH and Door.
The Combined Company believes there will not be material adjustments to
the balance sheet, other than as shown above, in the application of the
purchase price.
24
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 AND 1998 PRO FORMA
COMPLETED --------------------------
HISTORICAL ACQUISITIONS ATRIUM
---------- ------------------ ACQUISITIONS BEFORE
ATRIUM GENTEK MASTERVIEW ADJUSTMENTS TRANSACTIONS
---------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES................ $186,764 $6,733 $25,007 $-- $218,504
COST OF GOODS SOLD....... 121,301 5,083 19,056 -- 145,440
---------- ------ ---------- ----------- ------------
Gross profit........... 65,463 1,650 5,951 -- 73,064
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses............. 44,486 982 3,105 (124)(a) 48,449
Stock option
compensation
expense.............. 307 -- -- -- 307
---------- ------ ---------- ----------- ------------
44,793 982 3,105 (124) 48,756
---------- ------ ---------- ----------- ------------
Income (loss) from
operations......... 20,670 668 2,846 124 24,308
INTEREST EXPENSE......... 11,523 -- 779 1,654(f) 13,956
OTHER INCOME (EXPENSE),
net.................... 1,088 -- (30) -- 1,058
---------- ------ ---------- ----------- ------------
Income before income
taxes.............. 10,235 668 2,037 (1,530) 11,410
PROVISION (BENEFIT) FOR
INCOME TAXES........... 4,068 267 -- 172(j) 4,507
---------- ------ ---------- ----------- ------------
NET INCOME (LOSS)........ $ 6,167 $ 401 $ 2,037 $(1,702) $ 6,903
---------- ------ ---------- ----------- ------------
---------- ------ ---------- ----------- ------------
<CAPTION>
1997
COMPLETED
ACQUISITIONS PRO FORMA
HISTORICAL ------------ --------------------------
---------- SUPER ACQUISITION WIH BEFORE
WIH MILLWORK ADJUSTMENTS TRANSACTIONS
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET SALES................ $99,059 $23,351 $-- $122,410
COST OF GOODS SOLD....... 78,270 18,085 -- 96,355
---------- ------------ ----------- ------------
Gross profit........... 20,789 5,266 -- 26,055
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses............. 16,445 4,487 225(b) 21,157
Stock option
compensation
expense.............. -- -- -- --
---------- ------------ ----------- ------------
16,445 4,487 225 21,157
---------- ------------ ----------- ------------
Income (loss) from
operations......... 4,344 779 (225) 4,898
INTEREST EXPENSE......... 2,953 169 708(g) 3,830
OTHER INCOME (EXPENSE),
net.................... -- -- -- --
---------- ------------ ----------- ------------
Income before income
taxes.............. 1,391 610 (933) 1,068
PROVISION (BENEFIT) FOR
INCOME TAXES........... 695 -- (110)(k) 585
---------- ------------ ----------- ------------
NET INCOME (LOSS)........ $ 696 $ 610 $(823) $ 483
---------- ------------ ----------- ------------
---------- ------------ ----------- ------------
<CAPTION>
PRO FORMA
HISTORICAL --------------------------
---------- ACQUISITION DOOR BEFORE
DOOR ADJUSTMENTS TRANSACTIONS
---------- ----------- ------------
<S> <C> <C> <C>
NET SALES................ $16,956 $-- $16,956
COST OF GOODS SOLD....... 10,227 -- 10,227
---------- ----------- ------------
Gross profit........... 6,729 -- 6,729
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses............. 4,707 (1,013)(c) 3,694
Stock option
compensation
expense.............. -- -- --
---------- ----------- ------------
4,707 (1,013) 3,694
---------- ----------- ------------
Income (loss) from
operations......... 2,022 1,013 3,035
INTEREST EXPENSE......... 61 1,510(h) 1,571
OTHER INCOME (EXPENSE),
net.................... 90 -- 90
---------- ----------- ------------
Income before income
taxes.............. 2,051 (497) 1,554
PROVISION (BENEFIT) FOR
INCOME TAXES........... -- 528(l) 528
---------- ----------- ------------
NET INCOME (LOSS)........ $ 2,051 $(1,025) $ 1,026
---------- ----------- ------------
---------- ----------- ------------
<CAPTION>
PRO FORMA
------------------------------------------
THE COMBINED THE COMBINED
COMPANY ADJUSTMENTS COMPANY
BEFORE AFTER AFTER
TRANSACTIONS TRANSACTIONS TRANSACTIONS
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES................ $357,870 $-- $ 357,870
COST OF GOODS SOLD....... 252,022 -- 252,022
------------ ------------ ------------
Gross profit........... 105,848 -- 105,848
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses............. 73,300 3,391(d) 76,691
Stock option
compensation
expense.............. 307 208(e) 515
------------ ------------ ------------
73,607 3,599 77,206
------------ ------------ ------------
Income (loss) from
operations......... 32,241 (3,599) 28,642
INTEREST EXPENSE......... 19,357 4,606(i) 23,963
OTHER INCOME (EXPENSE),
net.................... 1,148 -- 1,148
------------ ------------ ------------
Income before income
taxes.............. 14,032 (8,205) 5,827
PROVISION (BENEFIT) FOR
INCOME TAXES........... 5,620 (1,637)(m) 3,983
------------ ------------ ------------
NET INCOME (LOSS)........ $ 8,412 $(6,568) $ 1,844
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
25
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(a) Reflects net decrease in the amortization expense relating to goodwill
as a result of Atrium's acquisition of Gentek and Masterview on July 1,
1997 and March 27, 1998, respectively, as follows:
<TABLE>
<S> <C>
Amortization expense of Gentek goodwill of $3,320 being amortized over 40
years $ 42
Elimination of Masterview's historical amortization expense of goodwill of
$10,689 being amortized over 15 years..................................... (698)
Amortization expense of goodwill of $21,282 being amortized over 40 years... 532
---------
$ (124)
---------
---------
</TABLE>
(b) Reflects net increase in selling, delivery, general and administrative
expenses resulting from the elimination of certain one-time costs, and
the amortization expense relating to goodwill and non-compete agreement
as a result of the Super Millwork Acquisition on November 10, 1997, as
follows:
<TABLE>
<S> <C>
Elimination of a one-time transaction bonus and associated payroll taxes
paid to senior executive in connection with the Super Millwork
Acquisition............................................................... $ (32)
Amortization expense of goodwill of $9,945 being amortized over 40 years.... 207
Amortization of non-compete agreement being amortized over 5 years.......... 50
---------
$ 225
---------
---------
</TABLE>
(c) Reflects net decrease in selling, delivery, general and administrative
expenses for amortization expense relating to goodwill and compensation
expense resulting from Door's acquisition of the common stock of Darby as
follows:
<TABLE>
<S> <C>
Reduction of compensation expense paid to a former stockholder's salary and
bonus compensation that will be received pursuant to a three year
employment agreement..................................................... $ (1,676)
Compensation expense paid to a former stockholder pursuant to a three year
employment agreement..................................................... 100
Amortization of goodwill of $22,503 being amortized over 40 years.......... 563
---------
$ (1,013)
---------
---------
</TABLE>
(d) Reflects net increase in amortization expense relating to goodwill as a
result of the Transactions:
<TABLE>
<S> <C>
Elimination of historical goodwill amortization............................ $ (2,060)
Amortization of $218,030 of goodwill being amortized over 40 years......... 5,451
---------
$ 3,391
---------
---------
</TABLE>
26
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(e) Reflects net increase in stock option compensation expense as a result
of the Transactions:
<TABLE>
<S> <C>
Elimination of historical stock option compensation......................... $ (307)
Stock option compensation related to 2,600,000 shares issued at $.01 with a
fair market value of $1.00 vesting over five years........................ 515
---------
$ 208
---------
---------
</TABLE>
(f) Reflects net increase in interest expense resulting from Atrium's
acquisition of Gentek and Masterview as follows:
<TABLE>
<S> <C>
Interest expense resulting from the borrowing of $6,500 on Atrium's
revolving credit facility at 7.9% for Gentek.............................. $ 257
Elimination of historical interest expense of Masterview related to debt
that was paid off including the amortization of related deferred financing
costs..................................................................... (779)
Interest expense resulting from borrowings under a $17,500 term loan at
7.875% for Masterview..................................................... 1,378
Interest expense resulting from the borrowing of $9,029 on Atrium's
revolving credit facility at 7.9% for Masterview.......................... 713
Amortization of deferred financing costs of $508 related to the issuance of
the term loan and amendment of the revolving credit facility for
Masterview................................................................ 85
---------
$ 1,654
---------
---------
</TABLE>
(g) Reflects net increase in interest expense resulting from the Super
Millwork Acquisition as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense.................................. $ (169)
Interest expense resulting from the borrowing of $194 under Wing's revolving
credit facility at 10.0%.................................................. 16
Interest expense resulting from the borrowing of $6,750 under Wing's term
loan facility at 8.8%..................................................... 495
Interest expense resulting from the borrowing of $4,000 exchangeable
subordinated debt at 11.0%................................................ 366
---------
$ 708
---------
---------
</TABLE>
(h) Reflects net increase in interest expense resulting from Door's
acquisition of the common stock of Darby as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense.................................. $ (61)
Interest expense resulting from the issuance of $10,000 senior debt at
8.5%...................................................................... 850
Interest expense resulting from the issuance of $6,000 subordinated debt at
11.5%..................................................................... 690
Amortization of deferred financing costs being amortized over 7 years....... 31
---------
$ 1,510
---------
---------
</TABLE>
27
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(i) Reflects net increase in interest expense resulting from the
Transactions:
<TABLE>
<S> <C>
Elimination of historical interest expense related to debt to be repaid,
including amortization of deferred financing costs....................... $ (8,365)
Interest expense resulting from the borrowing of $100,000 at 9% pursuant to
the Credit Facility...................................................... 9,000
Interest expense resulting from the borrowing of $20,000 Discount
Debentures at 12% issued by Atrium Corp. (non-cash payment-in-kind by
Atrium Corp.)............................................................ 2,400
Amortization of deferred financing costs of $11,000 related to the Credit
Facility................................................................. 1,571
---------
$ 4,606
---------
---------
</TABLE>
The Pro Forma Consolidated Statement of Income has been prepared assuming
that none of the Notes will be tendered in the Change of Control Offer.
In the event all of the Notes were tendered in the Change of Control
Offer, adjusted net interest expense would decrease by $1,500.
Borrowings under the Credit Facility bear interest at a variable rate. A
one percentage point increase or decrease in the applicable interest rate
would increase or decrease adjusted net interest expense by $1,000.
(j) Reflects the income tax provision related to the historical earnings of
Gentek and Masterview and the income tax effect of the pro forma
adjustments discussed in (a) and (f) using the federal statutory income
tax rate of 34%. Prior to the Masterview Acquisition, Masterview, a
limited liability company, was classified as a partnership for federal
and state income tax purposes with income or loss accruing directly to
the members. Accordingly, no provisions or credits for federal or state
income taxes are reflected in the Masterview historical financial
statements.
(k) Reflects the income tax provision related to the historical earnings of
Super Millwork and the income tax effect of the pro forma adjustments
discussed in (b) and (g) using the federal statutory income tax rate of
34%. Prior to the acquisition, Super Millwork was classified as an
S-corporation for federal and state income tax purposes with income or
loss accruing directly to the shareholders. Accordingly, no provisions or
credits for federal or state income taxes are reflected in the Super
Millwork historical financial statements.
(l) Reflects the income tax provision related to the historical earnings of
Darby and the income tax effect of the pro forma adjustments discussed in
(c) and (h) using the federal statutory income tax rate of 34%. Prior to
the acquisition, Darby was classified as an S-corporation for federal and
state income tax purposes with income or loss accruing directly to the
shareholders. Accordingly, no provisions or credits for federal or state
income taxes are reflected in the Darby historical financial statements.
(m) Reflects the income tax effect of the pro forma adjustments discussed in
(e) and (i) using the federal statutory income tax rate of 34%. No income
tax effect has been reflected for the pro forma adjustment discussed in
(j) as the additional goodwill recorded as a result of the Transactions
is non-deductible for federal tax purposes.
28
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 PRO FORMA
COMPLETED ----------------------------- THE COMBINED
HISTORICAL ACQUISITION ATRIUM HISTORICAL COMPANY
----------- ------------- ACQUISITIONS BEFORE -------------------- BEFORE
ATRIUM MASTERVIEW ADJUSTMENTS TRANSACTIONS WIH DOOR TRANSACTIONS
----------- ------------- --------------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES................. $ 106,482 $ 6,219 $ -- $ 112,701 $ 71,848 $ 10,432 $ 194,981
COST OF GOODS SOLD........ 70,526 4,687 -- 75,213 56,197 6,386 137,796
----------- ------ ----- ------------ --------- --------- ------------
Gross profit............ 35,956 1,532 -- 37,488 15,651 4,046 57,185
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses.............. 24,377 834 (45)(b) 25,166 12,180 2,043 39,389
Stock option
compensation
expense............... 447 -- -- 447 -- -- 447
----------- ------ ----- ------------ --------- --------- ------------
24,824 834 (45) 25,613 12,180 2,043 39,836
----------- ------ ----- ------------ --------- --------- ------------
Income from
operations.......... 11,132 698 45 11,875 3,471 2,003 17,349
INTEREST EXPENSE.......... 6,241 158 386(d) 6,785 2,105 789 9,679
OTHER INCOME (EXPENSE),
net..................... (223) (173) 171(f) (225) -- 5 (220)
----------- ------ ----- ------------ --------- --------- ------------
Income before income
taxes................. 4,668 367 (170) 4,865 1,366 1,219 7,450
PROVISION FOR INCOME
TAXES................... 1,711 -- 67(g) 1,778 675 586 3,039
----------- ------ ----- ------------ --------- --------- ------------
NET INCOME................ $ 2,957 $ 367 $ (237) $ 3,087 $ 691 $ 633 $ 4,411
----------- ------ ----- ------------ --------- --------- ------------
----------- ------ ----- ------------ --------- --------- ------------
<CAPTION>
PRO FORMA
---------------------------
THE COMBINED
ADJUSTMENTS COMPANY
AFTER AFTER
TRANSACTIONS TRANSACTIONS
------------- ------------
<S> <C> <C>
NET SALES................. $ (232)(a) $ 194,749
COST OF GOODS SOLD........ (232)(a) 137,564
------------- ------------
Gross profit............ -- 57,185
OPERATING EXPENSES:
Selling, delivery,
general and
administrative
expenses.............. 1,626(c) 41,015
Stock option
compensation
expense............... -- 447
------------- ------------
1,626 41,462
------------- ------------
Income from
operations.......... (1,626) 15,723
INTEREST EXPENSE.......... 2,303(e) 11,982
OTHER INCOME (EXPENSE),
net..................... (220)
------------- ------------
Income before income
taxes................. (3,929) 3,521
PROVISION FOR INCOME
TAXES................... (783)(h) 2,256
------------- ------------
NET INCOME................ $ (3,146) $ 1,265
------------- ------------
------------- ------------
</TABLE>
29
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(a) Represents the elimination of intercompany sales of $232 from WIH to Door
during the first six months of 1998.
(b) Reflects net decrease in the amortization expense relating to goodwill as a
result of the Masterview Acquisition as follows:
<TABLE>
<S> <C>
Elimination of historical amortization of goodwill of $10,689 being amortized over 15 years.......... $ (178)
Amortization of goodwill of $21,282 associated with the Transactions being amortized over 40 years... 133
---------
$ (45)
---------
---------
</TABLE>
(c) Reflects net increase in amortization expense relating to goodwill as a
result of the Transactions:
<TABLE>
<S> <C>
Elimination of historical goodwill amortization..................................................... $ (1,099)
Amortization of $218,030 of goodwill being amortized over 40 years.................................. 2,725
---------
$ 1,626
---------
---------
</TABLE>
(d) Reflects net increase in interest expense as a result of the Masterview
Acquisition as follows:
<TABLE>
<S> <C>
Elimination of historical interest expenses related to debt that was paid off including the
amortization of related deferred financing costs..................................................... $ (158)
Interest expense resulting from the issuance of $17,500 term loan at 7.875%........................... 345
Interest expense resulting from the borrowing of $9,029 on Atrium's revolving credit facility at
7.9%................................................................................................. 178
Amortization of deferred financing costs of $508 related to the issuance of the term loan and
amendment of the revolving credit facility........................................................... 21
---------
$ 386
---------
---------
</TABLE>
(e) Reflects net increase in interest expense resulting from the Transactions:
<TABLE>
<S> <C>
Elimination of historical interest expense related to debt to be repaid, including amortization of
deferred financing costs........................................................................... $ (4,183)
Interest expense resulting from the borrowing of $100,000 at 9% pursuant to the Credit Facility..... 4,500
Interest expense resulting from the borrowing of $20,000 Discount Debentures at 12% issued by Atrium
Corp. (non-cash payment-in-kind by Atrium Corp.)................................................... 1,200
Amortization of deferred financing costs of $11,000 related to the Credit Facility.................. 786
---------
$ 2,303
---------
---------
</TABLE>
The Pro Forma Consolidated Statement of Income has been prepared assuming
that none of the Notes will be tendered in the Change of Control Offer. In
the event all of the Notes were tendered in the Change of Control, adjusted
net interest expense would decrease by $750.
Borrowings under the Credit Facility bear interest at a variable rate. A one
percentage point increase or decrease in the applicable interest rate would
increase or decrease adjusted net interest expense by $500.
30
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
(f) Reflects the elimination of one-time bonuses and associated payroll taxes
aggregating $171 paid to certain members of senior management of Masterview
in connection with the Masterview Acquisition.
(g) Reflects the income tax provision related to the historical earnings of
Masterview and the income tax effect of the pro forma adjustments discussed
in notes (b), (d) and (f) using the federal statutory income tax rate of
34%. Prior to the acquisition, Masterview, a limited liability company, was
classified as a partnership for federal and state income tax purposes with
income or loss accruing directly to the memebers. Accordingly, no provisions
or credits for federal or state income taxes are reflected in the Masterview
historical financial statements.
(h) Reflects the income tax effect of the pro forma adjustment discussed in (e)
using the statutory federal income tax rate of 34%. No income tax effect has
been reflected for the pro forma adjustment discussed in (f) as the
additional goodwill recorded as a result of the Transactions is
non-deductible for federal tax purposes.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of Atrium, WIH and Door which appear elsewhere
in this Offer to Purchase.
CERTAIN FORWARD-LOOKING STATEMENTS
This Offer to Purchase contains certain forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995) that
involve substantial risks and uncertainties relating to the Combined Company
that are based on the beliefs of the management. When used in this Offer of
Purchase, the words "anticipate", "believe", "estimate", "expect", "intend", and
similar expressions, as they relate to the Combined Company or the Combined
Company's management, identify forward-looking statements. Such statements
reflect the current views of the Combined Company with respect to the risks and
uncertainties regarding the operations and results of operations of the Combined
Company as well as its customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment trends, changes in
levels of consumer confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs, pricing pressures,
shifts in market demand, and general economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
ATRIUM
The operations of Atrium are cyclical in nature and generally result in
significant increases during the peak building season which coincides with the
second and third quarters of the year. Accordingly, results of operations for
the six months ended June 30 are not necessarily indicative of results expected
for the full year.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, information
derived from Atrium's consolidated statements of income expressed as percentage
of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- PERIOD ENDED PERIOD ENDED
1995 1996 1997 JUNE 30, 1997 JUNE 30, 1998
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................... 69.4 65.5 65.0 63.8 66.2
--------- --------- --------- ----- -----
Gross profit............................................... 30.6 34.5 35.0 36.2 33.8
Selling, delivery, general and administrative expenses..... 21.6 22.3 23.8 24.4 22.9
Special charges............................................ 5.3 1.9 -- -- --
Stock option compensation expense.......................... 0.2 1.9 0.1 0.2 0.4
--------- --------- --------- ----- -----
Income from operations................................... 3.5 8.4 11.1 11.6 10.5
Interest expense........................................... (2.0) (3.1) (6.2) (6.6) (5.9)
Other income (expense), net................................ 1.1 (0.1) 0.6 1.2 (0.2)
--------- --------- --------- ----- -----
Income before income taxes and extraordinary charge........ 2.6 5.2 5.5 6.2 4.4
Provision for income taxes................................. 1.1 1.7 2.2 2.2 1.6
--------- --------- --------- ----- -----
Income before extraordinary charge......................... 1.5 3.5 3.3 4.0 2.8
Extraordinary charge, net of income tax benefit............ -- 0.8 -- -- --
--------- --------- --------- ----- -----
Net income................................................. 1.5% 2.7% 3.3% 4.0% 2.8%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
32
<PAGE>
PERIOD ENDED JUNE 30, 1998 COMPARED TO PERIOD ENDED JUNE 30, 1997
NET SALES. Net sales increased by $21,205 from $85,277 during the first six
months of 1997 to $106,482 during the first six months of 1998. The increase was
primarily due to sales from Atrium Door and Window Company--West Coast
("ADW-West Coast") and Atrium Door and Window Company of Arizona
("ADW-Arizona"), acquired in July, 1997 and March, 1998, respectively.
Additionally, the Issuer (i) experienced growth at the Atrium Wood division,
("Atrium Wood"), which was selected to be the supplier in a national patio door
sales program beginning the third quarter of 1997, (ii) the addition of a
significant customer at Atrium's Extruders division ("Extruders"), and (iii)
continued growth at the Kel-Star Building Products division ("Kel-Star").
COST OF GOODS SOLD. Cost of goods sold increased from 63.8% of net sales
during the first six months of 1997 to 66.2% during the first six months of
1998. The increase was due largely to increases in direct labor and raw material
costs which were partially offset by improvements in material costs at the
Atrium Wood division, due to the product reengineering which occurred during
1997, as well as the absorption of certain fixed overhead costs over a larger
revenue base.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $3,522 from $20,815 (24.4% of net
sales) during the first six months of 1997 to $24,377 (22.9% of net sales)
during the first six months of 1998. The increase was primarily due to the
inclusion of selling, delivery, general and administrative expenses of
ADW-Arizona and ADW-West Coast for three and six months, respectively, as well
as an increase in amortization expense related to software implementation costs,
resulting from additional amounts capitalized during 1997. Additionally, selling
and delivery expenses increased due to the increase in net sales.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $244 from $203 during the first six months of 1997 to $447 during the
first six months of 1998. In addition to normal recurring stock option
compensation expense of $211, Atrium recorded a one-time charge of $236
associated with certain variable options.
INTEREST EXPENSE. Interest expense increased $647 from $5,594 during the
first six months of 1997 to $6,241 during the first six months of 1998. The
increase was due to an increase in average outstanding debt related to the
$17,500 senior term loan issued in connection with the Masterview Acquisition,
on March 27, 1998.
OTHER INCOME (EXPENSE). Other income (expense) decreased $1,260 from other
income of $1,037 during the first six months of 1997 to other expense of $223
during the first six months of 1998. The 1997 period includes an insurance
settlement of $1,193 from the business interruption portion of the Issuer's
insurance claim filed as a result of the January 1997 fire at the Extruders
facility.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by $30,495 from $156,269 in 1996 to $186,764
in 1997. The increase was primarily due to the increase in sales of $19,708 at
the ADW-Northeast, Kel-Star and Woodville Extruders ("Woodville Extruders")
divisions, all of which were acquired during the second half of 1996, and
ADW-West Coast, acquired from Gentek, effective July 1, 1997. Additionally,
Atrium experienced slight growth at its distribution centers and within its core
manufacturing divisions, including significant growth at the Atrium Wood
division, which was awarded a national patio door sales contract during the
second quarter of 1997.
COST OF GOODS SOLD. Cost of goods sold decreased from 65.5% of net sales
during 1996 to 65.0% of net sales during 1997. The decrease was due largely to
on-going cost reductions at Atrium Wood, which were offset by start-up
inefficiencies at Kel-Star.
33
<PAGE>
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $9,671 from $34,815 (22.3% of
sales during 1996) to $44,486 (23.8% of sales during 1997). The increase was
largely due to the inclusion of twelve months of selling, delivery, general and
administrative expenses at the ADW-Northeast, Kel-Star, Woodville Extruders and
ADW-West Coast divisions, as well as amortization expense related to software
implementation costs. Additionally, delivery expenses were negatively affected
during 1997 as a result of a fire at the Extruders division in January.
SPECIAL CHARGES. Special charges during 1996 consisted of $3,044 in
management bonuses which were the result of the Hicks Muse Transaction. There
were no special charges in 1997.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
decreased $2,716 from $3,023 during 1996 to $307 during 1997. In 1997, stock
option compensation expense related to amortization of deferred compensation
charges related to previously issued options and the cash redemption of certain
options issued to a former executive of the Issuer. In 1996, stock option
compensation expense consisted of charges associated with the granting of new
stock options at exercise prices below the fair value of the underlying common
stock and the expense associated with the cash redemption of certain options,
both resulting from the Hicks Muse Transaction, and amortization of deferred
compensation charges related to previously issued options. Included in stock
option compensation expense during 1996 is $1,320 representing the difference
between the fair market value of common stock of Atrium Corp. and the exercise
price associated with a warrant granted to an executive of Atrium in connection
with the Hicks Muse Transaction.
INTEREST EXPENSE. Interest expense increased $6,736 from $4,786 during 1996
to $11,522 during 1997. The increase was due largely to an increase in average
outstanding debt which resulted from the issuance of the Notes, which were
issued in connection with the Hicks Muse Transaction, as well as borrowing under
the BT Credit Facility. Interest expense during 1997 includes amortization of
the related deferred financing costs.
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased $1,270
from other expense of $182 in 1996 to other income of $1,088 in 1997. Other
income in 1997 includes an insurance settlement of $1,193. This settlement with
Atrium's insurance carrier resulted from the business interruption portion of
Atrium's insurance claim filed as a result of a fire at the Extruders division
in January 1997.
EXTRAORDINARY CHARGE. Extraordinary charge of $1,176 during 1996 represents
the write-off of certain deferred financing charges incurred in connection with
the Heritage Transaction, as all then outstanding debt was retired with a
portion of the proceeds from the issuance of Notes. This amount is net of income
tax benefit of $720.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased by $20,791 from $135,478 during 1995 to
$156,269 during 1996. The increase in sales primarily resulted from combined
sales of $5,519 at ADW-Northeast, acquired September 30, 1996, and Kel-Star and
Woodville Extruders, which resulted from a June 13, 1996 asset purchase, an
increase of $10,719 at the Atrium Aluminum division and an increase of $4,097 at
Atrium Vinyl division, which was a start-up operation in 1995.
COST OF GOODS SOLD. Cost of goods sold decreased from 69.4% of sales during
1995 to 65.5% of sales during 1996. This improvement was due largely to the
reduction from 1995 to 1996 in charges associated with inventory and other
product reserves at Atrium Wood of approximately $1,684. The remainder was due
to a decrease in raw material prices, the replacement of a significant low
margin customer of H-R Windows with customers at higher margins, sales price
increases at the Atrium Aluminum division, and three months of operations at
ADW-Northeast, which has a significantly lower cost of goods sold percentage
than the core company divisions.
34
<PAGE>
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $5,512 from $29,303 (21.6% of
sales during 1995) to $34,815 (22.3% of sales during 1996). The increase was
largely due to the addition of selling, delivery, general and administrative
expenses at the ADW-Northeast, Kel-Star and Woodville Extruders and ADW-West
Coast divisions. Additionally, general and administrative expenses increased due
to the amortization of certain non-compete agreements and the combined
consulting fees at three of Atrium's divisions.
SPECIAL CHARGES. Special charges decreased $4,144 from $7,188 during 1995
to $3,044 during 1996. Special charges during 1996 consisted of $3,044 in
management bonuses, which were the result of the Hicks Muse Transaction. Special
charges during 1995 included officer and management bonuses of $6,380 in
connection with the Heritage Transaction, consulting fees of $408 and a
restructuring charge of $400.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $2,715 from $308 during 1995 to $3,023 during 1996. Stock option
compensation expense consisted of charges associated with the granting of new
stock options at exercise prices below the fair value of the underlying common
stock and the expense associated with the cash redemption of certain options,
both resulting from the Hicks Muse Transaction, and amortization of deferred
compensation charges related to previously issued options. Included in stock
option compensation expense is $1,320 representing the difference between the
fair market value of common stock of Atrium Corp. and the exercise price
associated with a warrant granted to an executive of Atrium in connection with
the Hicks Muse Transaction.
INTEREST EXPENSE. Interest expense increased $2,033 from $2,753 during 1995
to $4,786 during the year ended 1996. The increase was primarily due to the debt
incurred in connection with the Heritage Transaction, which was outstanding for
five months of 1995, as compared to eleven months of 1996. The remainder of the
increase was due to interest related to the Notes, offered in connection with
the Hicks Muse Transaction, which occurred on November 27, 1996 and the
amortization of deferred financing charges for a full year in 1996.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased $1,624
from other income of $1,442 during 1995 to other expense of $182 for 1996. In
1995, Atrium had rental income prior to the distribution of certain rental
property in the Heritage Transaction and a gain on sale of assets associated
with the sale of Atrium's truck fleet in 1995.
EXTRAORDINARY CHARGE. Extraordinary charge of $1,176 for 1996 represents
the write-off of certain deferred financing charges incurred in connection with
the Heritage Transaction, as all outstanding debt was retired with a portion of
the proceeds from the issuance of Notes. This amount is net of income tax
benefit of $720.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations and cash provided by financing activities are
Atrium's principal resources of liquidity. Cash provided by operations was
$2,751 for the first six months of 1998 as compared to cash used in operations
of $909 for the same period in 1997. The increase in cash provided by operations
in the 1998 period was primarily due to a significant build-up in inventories at
Atrium Wood, which occurred during the second quarter of 1997. This increase was
due to the selection of Atrium Wood to be the supplier of a national patio door
sales program, which began during the third quarter of 1997. Cash used in
investing activities increased from $2,521 during the first six months of 1997
to $28,683 during the first six months of 1998, while cash provided by financing
activities increased from $2,921 to $25,932 during the same period. The increase
in cash used in investing activities and cash provided by financing activities
was primarily due to the Masterview Acquisition, which totaled approximately
$26,800 and was financed with a $17,500 term loan and borrowings under the BT
Credit Facility of approximately $9,300.
During 1997, cash was primarily used for the acquisition of the ADW-West
Coast and capital expenditures. Operating activities provided cash of $9,103 in
1997, compared with $8,767 in 1996. The
35
<PAGE>
increase in cash from operations was attributable primarily to an increase in
net income of $1,924. Cash flows from financing activities decreased from cash
provided of $6,497 in 1996 to cash provided of $1,694 in 1997, primarily due to
the Hicks Muse Transaction in 1996, in which $100,000 of Notes were used to pay
off Atrium's previously outstanding debt and fund certain shareholder
distributions made by Atrium Corp.
During 1996, cash was primarily used for the acquisition of the Bishop
Manufacturing Companies, capital expenditures, debt repayments and to fund
distributions to Atrium Corp. in connection with the Hicks Muse Transaction.
Operating activities provided cash of $8,767 in 1996, compared with $6,907 in
1995. The increase in cash from operations was attributable primarily to an
increase in net income of $2,354 net of an extraordinary charge associated with
the write-off of certain deferred financing charges of $1,176. The increase in
net income was partially offset by an increase in working capital of $3,200
associated with an increase in accounts receivable and decrease in inventory
(excluding Bishop). Cash flows from financing activities increased from cash
used of $4,799 to cash provided of $6,497 primarily due to the issuance of
$100,000 of the Notes, which were used to pay off Atrium's previously
outstanding debt and fund certain shareholder distributions made by Atrium Corp.
Additionally, the Company borrowed approximately $10,900 to fund the acquisition
of Bishop.
Capital expenditures (exclusive of the ADW-West Coast acquisition in 1997
and the ADW-Northeast acquisition in 1996) totaled $877, $1,259, $3,438, $3,380
and $2,357 for the six month periods ended June 30, 1998 and 1997 and for the
years ended December 31, 1997, 1996 and 1995, respectively. Capital expenditures
during the 1998 and 1997 periods included significant amounts to increase the
capacity of and further automate the extrusion and window manufacturing plants
and to purchase management information system hardware. Capital expenditures
exclude costs related to the implementation of Atrium's new management
information system, which include internally capitalized costs. Capital
expenditures in 1996 included $1,150 for the acquisition of certain assets of
Keller (Kel-Star and Woodville Extruders).
Atrium had a $20,000 revolving credit facility with Bankers Trust Company
(the "BT Credit Facility") prior to the consummation of the Transactions.
Borrowings under the revolving credit facility were $7,858 at June 30, 1998,
excluding outstanding letters of credit totaling $1,309. Letters of credit
secured workers compensation benefit payments and certain other obligations.
Because of the seasonal nature of the business, Atrium's borrowing requirements
are traditionally highest during the second quarter. At June 30, 1998 Atrium had
additional borrowing capacity of approximately $10,833.
36
<PAGE>
WIH
OVERVIEW
WIH's results are generally affected by the level of activity in residential
repair and remodeling in WIH's primary markets (the northeastern and mid-western
United States) and throughout the United States. This activity is influenced by
regional and national economic trends, such as availability of consumer credit,
interest rates, job formation, age of housing stock, migration into and within
the United States and consumer confidence. Accordingly, results of operations
for the six months ended June 30, 1998 are not necessarily indicative of results
expected for the full year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the WIH's consolidated statements of income expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 77.4 75.2 79.0 78.3 78.2
--------- --------- --------- --------- ---------
Gross profit................................................ 22.6 24.8 21.0 21.7 21.8
Selling, delivery, general and administrative expenses...... 20.3 20.6 16.6 17.1 17.0
--------- --------- --------- --------- ---------
Income from operations.................................... 2.2 4.2 4.4 4.6 4.8
Interest expense............................................ (1.5) (1.2) (3.0) (3.0) (2.9)
--------- --------- --------- --------- ---------
Income before income taxes.................................. 0.7 3.1 1.4 1.6 1.9
Provision for income taxes.................................. 0.3 1.2 0.7 0.7 0.9
--------- --------- --------- --------- ---------
Net income.................................................. 0.4% 1.9% 0.7% 0.9% 1.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
PERIOD ENDED JUNE 30, 1998 COMPARED TO PERIOD ENDED JUNE 30, 1997
NET SALES. Net sales increased by $24,510 from $47,338 in the first six
months of 1997 to $71,848 in the first six months of 1998. The increase was due
in part to the increase in sales to the large home center retail chains. The two
largest home center retailers, which are WIH's top two customers, are growing in
excess of 25% per year. Also, $14,337 of the increase is attributable to the
Super Millwork Acquisition in November 1997.
COST OF GOODS SOLD. Cost of goods sold was consistent as a percentage of
net sales at 78.3% and 78.2% for the six month periods ended June 30, 1998 and
1997 respectively. Although lumber prices decreased during the six months ended
June 30, 1998 compared to the six months ended June 30, 1997, manufacturing
overhead expense increased due to operational start-up costs related to the
Mount Pleasant, Texas facility, a solid wood engineered door component part
manufacturing facility. As a result, cost of goods sold remained consistent
between the two periods.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $4,069 from $8,111 (17.1% of sales
for the six months ended June 30, 1997) to $12,180 (17.0% of sales for the six
months ended June 30, 1998). An increase in goodwill, amortization and
management fees relating to the Super Millwork Acquisition in November, 1997 was
offset by decreases in freight costs per unit as additional
prehanging/distribution facilities are opened. As a result, selling, delivery,
general and administrative expenses remained consistent between the two periods.
INTEREST EXPENSE. Interest expense increased $689 from $1,416 for the six
months ended June 30, 1997 to $2,105 for the six months ended June 30, 1998. The
increase was due largely to an increase in average outstanding debt which
resulted from the incurrence of additional debt related to the Super Millwork
Acquisition in November 1997 as well as borrowings under WIH's $14,500 revolving
credit facility (the
37
<PAGE>
"WIH Credit Facility"). Interest expense for both periods includes amortization
of the related deferred financing costs.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by $22,979 from $76,080 in 1996 to $99,059
in 1997. The increase was primarily due to the increase in sales to the large
home center retail chains, WIH's two largest customers, which have experienced
sales growth in excess of 25%. Additionally, the increase included $4,140 from
the Super Millwork Acquisition in November 1997.
COST OF GOODS SOLD. Cost of goods sold increased from 75.2% of net sales
during 1996 to 79.0% of net sales during 1997. The increase is largely the
result of significant start-up costs incurred at the Cleveland prehanging
facility, the Allentown, Pennsylvania prehanging and hollow core manufacturing
facility and transition costs associated with moving a portion of the sales
volume attributable to the Super Millwork Acquistion to the Allentown facility.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $807 from $15,638 (20.6% of sales
during 1996) to $16,445 (16.6% of sales during 1997). The decrease as a
percentage of sales is primarily attributable to lower freight costs per unit as
additional prehanging/distribution facilities are opened. Additionally, retail
store display expenses were reduced as a result of the implementation of a lower
cost display program.
INTEREST EXPENSE. Interest expense increased $2,070 from $883 during 1996
to $2,953 during 1997. The increase was due largely to an increase in average
outstanding debt which resulted from the incurrence of additional debt related
to the Wing Acquisition in October 1996 and the Super Millwork Acquisition in
November 1997, as well as borrowings under the WIH Credit Facility. Interest
expense during 1996 and 1997 includes amortization of related deferred financing
costs.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased by $7,599 from $68,481 during 1995 to
$76,080 during 1996. The increase in sales primarily resulted from an increase
of $5,400 related to start-up of prehanging operations in the Greenville and
Chicago facilities in 1995.
COST OF GOODS SOLD. Cost of goods sold decreased from 77.4% of sales during
1995 to 75.2% of sales during 1996. This improvement was due largely to the
unusually high lumber prices experienced during 1995 and start-up costs in 1995
related to the Greenville and Chicago hollow core door operations.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $1,707 from $13,931 (20.3% of
sales during 1995) to $15,638 (20.6% of sales during 1996). The increase as a
percentage of sales is attributable to one-time bonuses paid to management of
$1,456 and the dissolution cost of $366 related to a pension plan. These
increases were partially offset by savings related to the transition to less
highly compensated field service personnel. Additionally, certain general and
administrative expenses were reduced or eliminated as part of the consolidation
of the Dallas corporate headquarters with the Greenville, Texas, manufacturing
operations.
INTEREST EXPENSE. Interest expense decreased $156 from $1,039 during 1995
to $883 during the year ended 1996. The decrease was primarily due to the
payment of debt related to positive cash flow generated from business operations
in 1996.
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DOOR
OVERVIEW
Darby, wholly-owned subsidiaries of Door, provide interior and exterior
doors, vanity mirrors, door knobs and locks, shelving, molding, and related
installation to contractors of apartment buildings and hotels. These entities
perform work in approximately 28 states, mainly in the South, Mid-Atlantic and
Northeast. Door's results are generally impacted by the level of activity in
residential new construction and remodel/replacement in Door's principal
markets. This activity is influenced by regional and national economic trends,
such as availability of consumer credit, interest rates, job formation,
migration into and within the United States and consumer confidence.
Accordingly, results of operations for the six months ended June 30, 1998 are
not necessarily indicative of results expected for a full year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from Door's combined statements of income expressed as a percentage of
net sales.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales....................................................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................................................. 60.6 60.3 60.5 61.2
--------- --------- --------- ---------
Gross profit.................................................................... 39.4 39.7 39.5 38.8
Selling, delivery, general and administrative expenses.......................... 25.8 27.8 24.8 19.6
--------- --------- --------- ---------
Income from operations........................................................ 13.6 11.9 14.7 19.2
Interest income................................................................. 0.3 0.4 -- --
Interest expense................................................................ (0.5) (0.4) (0.2) (7.5)
Other income (expense), net..................................................... 0.1 0.2 (0.1) --
Provision for income taxes...................................................... -- -- -- 5.6
--------- --------- --------- ---------
Net income...................................................................... 13.5% 12.1% 14.4% 6.1%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
PERIOD ENDED JUNE 30, 1998 COMPARED TO PERIOD ENDED JUNE 30, 1997
NET SALES. Door's net sales increased 17.3% from $8,894 in 1997 to $10,432
in 1998 due primarily to the increased volume of material sales. Sales of
materials increased 21.8% from $7,530 in 1997 to $9,175 in 1998. Contract
installation sales decreased from $1,364 in 1997 to $1,257 in 1998, a decrease
of 7.8%.
COST OF GOODS SOLD. Cost of goods sold increased 18.7% from $5,380 in 1997
to $6,386 in 1998 due primarily to the increase in sales discussed above. As a
percentage of sales, cost of goods sold increased slightly from 60.5% to 61.2%.
As a percentage of material sales, cost of goods sold of materials remained
flat. Installation cost of sales decreased 4.9% from $793 in 1997 to $754 in
1998. As a percentage of installation sales, cost of installation sales
increased from 58.2% in 1997 to 60.0% in 1998.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses decreased 7.2% from $2,202 in 1997 to $2,043
in 1998. As a percentage of sales, selling, delivery, general and administrative
expenses decreased from 24.8% in 1997 to 19.6% in 1998. The decrease relates to
the elimination of the former stockholder's salary and bonus in 1998 due to the
Darby Acquistion.
INTEREST EXPENSE. Interest expense increased in excess of 100% from $20 in
1997 to $789 in 1998. This increase is primarily attributable to significantly
higher average debt balances relating to the Darby Acquisition.
39
<PAGE>
PROVISION FOR INCOME TAXES. Effective January 8, 1998, in connection with
the Darby Acquisition, the stockholders of Door elected to be taxed as a C
corporation and, accordingly, revoked the S corporation status. As a result,
Door recorded a deferred tax asset and recognized income tax expense at the
effective date of the change.
NET INCOME. As a result of the above factors, net income decreased 50.7%
from $1,283 in 1997 to $633 in 1998. As a percentage of sales, net income
decreased from 14.4% in 1997 to 6.1% in 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Door's net sales increased 7.5% from $15,777 in 1996 to $16,956
in 1997 due primarily to the increased volume of material sales and increased
sales from contract installations. Sales of materials increased 5.2% from
$13,444 in 1996 to $14,140 in 1997. Contract installation sales increased $483
from $2,333 in 1996 to $2,816 in 1997, and increase of 21%.
COST OF GOODS SOLD. Cost of goods sold increased 7.0% from $9,561 in 1996
to $10,227 in 1997, due primarily to the increase in sales discussed above. As a
percentage of sales, cost of goods sold decreased slightly from 60.6% to 60.3%.
Cost of goods sold of materials increased 5.9% from $8,086 in 1996 to $8,567 in
1997. As a percentage of material sales, cost of goods sold of materials
increased slightly from 60.1% to 60.6%. Installation cost of sales increased
12.5% from $1,475 in 1996 to $1,660 in 1997. As a percentage of installation
sales, cost of installation sales decreased from 63.2% in 1996 to 59.0% in 1997.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased 15.6% from $4,071 in 1996 to
$4,707 in 1997. As a percentage of sales, selling, delivery, general and
administrative expenses increased from 25.8% in 1996 to 27.8% in 1997. These
increases related to primarily higher employee bonuses, professional fees and
bad debt expense. The majority of the additional professional fees were incurred
to assist in marketing Darby for sale.
INTEREST EXPENSE. Interest income increased 5.2% from $58 in 1996 to $61 in
1997. Interest expense decreased 21.8% from $78 in 1996 to $61 in 1997. This
decrease in interest expense was the result of Darby paying off their long-term
debt during 1997.
NET INCOME. As a result of the above factors, net income decreased 4.0%
from $2,134 in 1996 to $2,051 in 1997. As a percentage of sales, net income
decreased from 13.5% in 1996 to 12.1% in 1997.
THE COMBINED COMPANY
YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date filed. These programs were designed and developed without considering
the impact of the upcoming century change in the Year 2000. Moreover, these
programs often are highly dependent upon financial and other data that, based on
the program's inability to distinguish between the Year 2000 and other
century-end dates, could be misreported or misinterpreted and cause significant
resulting errors. If not corrected, many computer applications could fail when
processing data related to the Year 2000.
The analysis of the Year 2000 implications includes (i) the Combined
Company's information technology such as software and hardware, (ii) the
Combined Company's non-information systems or embedded technology such as
microcontrollers contained in various equipment safety systems, facilities and
utilities and (iii) the readiness of key third-party suppliers (collectively,
the "Year 2000 Issue").
The Combined Company is assessing the impact of the Year 2000 Issue and has
or intends to modify portions of its hardware and software so that its computer
systems will function properly with respect to date in the Year 2000 and
thereafter. The Combined Company has reviewed and continues to review each
operating unit for the appropriate information system enhancements, with respect
to both the Year 2000
40
<PAGE>
Issue as well as strategic system upgrade. For acquired businesses, this
assessment begins during the acquisition process as part of the Combined
Company's due diligence analysis.
To achieve its overall operating strategy, management intends to enhance its
information technology by installing new software to implement a fully
integrated manufacturing system (a "Software System") for its operating units.
The Software Systems that the Combined Company intends to install are intended
to be Year 2000 compliant. Each operating unit was prioritized for installation
of the system based on any Year 2000 Issues, with approximately 70% of the
operating units being completed as of June 30, 1998. After determining which
operating units would be prioritized, the operating units were separated into
multiple installation phases, with each phase having its own implementation
timeline. Management believes that the final phase of implementation and
installation of the Software Systems will be completed by the second quarter of
1999.
The total amount of costs to be incurred by the Combined Company to address
these system enhancements is estimated at $750. The Combined Company has
expensed approximately $500 through June 30, 1998.
FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which is
effective for financial statement periods, beginning after December 15, 1997.
This statement will have no effect on the Combined Company's financial position,
results of operations or cash flows.
LIQUIDITY
Pursuant to the Credit Facility, the Combined Company has two term loan
facilities in the amounts of $75,000 and $100,000 and a revolving credit
facility and letter of credit-sub facility in the amounts of $30,000 and $5,000,
respectively. Borrowings under the Credit Facility were $100,000 at October 2,
1998, excluding the proceeds from the term loan placed in Escrow of $75,000 and
outstanding letters of credit totalling $2,600. At October 2, 1998, the Combined
Company had additional borrowing capacity of $27,400.
The Combined Company believes that the combination of cash generated from
operations and borrowings available under the revolving credit facility will
provide sufficient funds for its capital requirements for the time period.
41
<PAGE>
THE CHANGE OF CONTROL OFFER
TERMS OF THE CHANGE OF CONTROL OFFER
The Issuer hereby makes the Change of Control Offer pursuant to Section 4.8
of the Indenture and offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to purchase for cash
all of the outstanding Notes for the Change of Control Price. The Change of
Control Price for each $1,000 principal amount of Notes tendered pursuant to the
Change of Control Offer is 101% of the aggregate principal amount ($1,010 per
$1,000 principal amount) of Notes, plus accrued and unpaid interest, if any, to
the Change of Control Acceptance Date.
The Change of Control Offer will expire at 5:00 p.m., New York City time, on
the Change of Control Expiration Date, which date is not subject to extension.
Notes tendered in the Change of Control Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Change of Control Expiration Date in
accordance with the procedures described under "--Withdrawal Rights."
Upon the terms of the Change of Control Offer, the Issuer will purchase by
accepting for payment, and will pay for, all Notes properly tendered prior to
5:00 p.m., New York City time, on the Change of Control Expiration Date. Any
Notes not tendered and purchased in the Change of Control Offer will continue to
accrue interest in accordance with the Indenture. Unless the Company defaults in
the payment of the Change of Control Price, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Acceptance Date. If less than all the principal amount of any
Note is validly tendered and accepted pursuant to the Change of Control Offer,
the Company shall issue and the Trustee shall authenticate and deliver to or on
the order of the Registered Holder thereof, at the expense of the Company, a new
Note of authorized denominations, in a principal amount equal to the portion of
the Note not tendered or not accepted, as the case may be, as promptly as
practicable after the Change of Control Expiration Date. If a Registered Holder
tender is less than all of the Notes held by such Registered Holder, such
Registered Holder shall tender Notes only in $1,000 denominations.
REGISTERED HOLDERS OF NOTES MAY CHOOSE TO PARTICIPATE IN THE CHANGE OF
CONTROL OFFER BY COMPLETING AND SIGNING THE LETTER OF TRANSMITTAL. REGISTERED
HOLDERS WHO HOLD PHYSICAL CERTIFICATES WILL ALSO BE REQUIRED TO SURRENDER THEIR
NOTES, WITH THE FORM ENTITLED "OPTION OF HOLDER TO ELECT PURCHASE" ON THE
REVERSE SIDE OF THE NOTE COMPLETED, TO THE DEPOSITARY PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE CHANGE OF CONTROL EXPIRATION DATE. PURSUANT TO THE
INDENTURE, THE CHANGE OF CONTROL EXPIRATION DATE IS A FIXED DATE WHICH IS NOT
SUBJECT TO EXTENSION.
If fewer than all of the Notes have been tendered and purchased in the
Offer, the Issuer may, or may cause any affiliate to, purchase additional Notes
in the open market, in privately negotiated transactions, through subsequent
tender offers or otherwise or may seek to cause the Notes to be retired or
defeased. Any future purchases may be on the same terms or on terms that are
more or less favorable to holders than the terms of the Change of Control Offer.
Any future purchases by the Issuer or such affiliate will depend on various
factors at that time.
ACCEPTANCE FOR PAYMENT
Upon the terms of the Change of Control Offer, the Issuer will purchase by
accepting for payment, and will pay for, all Notes properly tendered pursuant to
the Change of Control Offer prior to 5:00 p.m., New York City time, on the
Change of Control Expiration Date. In all cases, payments will be made for Notes
validly tendered pursuant to the Change of Control Offer, only after timely
receipt by the Depositary of (a) either (i) certificates for all physically
delivered Notes in proper form for transfer or (ii) a timely confirmation (a
"Book-Entry Confirmation") of a book-entry transfer of such Notes into the
Depositary's account at a Book-Entry Transfer Facility (as defined herein)
pursuant to the procedures described under "--Procedures for Tendering
Notes--Book-Entry Transfer," including delivery of any
42
<PAGE>
required documents, (b) a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), together with any required signature
guarantees or, in the case of a book-entry transfer, an Agent's Message (as
defined below) and (c) any other documents required by the Letter of Transmittal
or, in the case of a book-entry transfer, any other documents required by the
Book-Entry Transfer Facility.
The term "Agent's Message" means a message transmitted by a Book-Entry
Facility to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation, which states that such Book-Entry Transfer Facility has received
an express acknowledgment from the participant in such Book-Entry Transfer
Facility tendering the Notes that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that the Issuer may enforce
such agreement against the participant.
The Issuer shall be deemed to have accepted for payment (and thereby to have
purchased) tendered Notes as, if and when the Issuer gives oral or written
notice to the Depositary of the Issuer's acceptance of such Notes for payment
pursuant to the Change of Control Offer. Subject to the terms and conditions of
the Change of Control Offer, payment for Notes so accepted will be made by
deposit of the Change of Control Price therefor with the Depositary on the
Change of Control Acceptance Date which will promptly follow the Change of
Control Expiration Date. The Depositary will act as agent for tendering
Registered Holders for the purpose of receiving payment from the Issuer and then
transmitting payment to such Registered Holders. The Issuer will pay as part of
the Change of Control Price accrued and unpaid interest, if any, on the
principal amount of Notes tendered and accepted for payment until the Change of
Control Acceptance Date, and interest will cease to accrue on the Change of
Control Acceptance Date on the Notes purchased in the Change of Control Offer.
Under no circumstances will any interest be payable because of any delay in the
transmission of funds to the holder of purchased Notes.
If less than all the principal amount of any Note is validly tendered and
accepted pursuant to the Change of Control Offer, the Issuer shall issue and the
Trustee shall authenticate and deliver to or on the order of the Registered
Holder thereof, at the expense of the Issuer, a new Note of authorized
denominations, in a principal amount equal to the portion of the Note not
tendered or not accepted, as the case may be, as promptly as practicable after
the Change of Control Expiration Date.
PROCEDURES FOR TENDERING NOTES
VALID TENDER. Except as set forth below, for a Registered Holder to validly
tender Notes pursuant to the Change of Control Offer, a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof), together with any
signature guarantees or, in the case of a book-entry transfer, an Agent's
Message, and any other documents required by the Instructions to such Letter of
Transmittal, must be received by the Depositary at one of the addresses set
forth on the back cover of this Offer to Purchase prior to 5:00 p.m., New York
City time, on the Change of Control Expiration Date (in order to receive the
Change of Control Price) and either (i) certificates representing such Notes in
proper form for transfer must be received by the Depositary at such address or
(ii) such Notes must be transferred pursuant to the procedures for book-entry
transfer described under "--Book-Entry Transfer" below and a Book-Entry
Confirmation must be received by the Depositary, in each case, prior to 5:00
p.m., New York City time, on the Change of Control Expiration Date. A Registered
Holder who desires to tender Notes in the Change of Control Offer but cannot
comply with the procedures set forth herein for tender on a timely basis or
whose Notes are not immediately available must comply with the procedures for
guaranteed delivery described under "--Guaranteed Delivery Procedures" below.
In all cases, notwithstanding any other provision hereof, the payment for
Notes tendered and accepted for payment pursuant to the Change of Control Offer
will be made only after timely receipt by the Depositary of (i) certificates
representing such Notes in proper form for transfer or a Book-Entry Confirmation
with respect to such Notes, (ii) the Letter of Transmittal properly completed
and duly executed (or a facsimile thereof), together with any required signature
guarantees and, in the case of a book-entry transfer, an Agent's Message, and
(iii) other documents required by the Letter of Transmittal.
43
<PAGE>
ONLY REGISTERED HOLDERS ARE ENTITLED TO TENDER THEIR NOTES PURSUANT TO THE
CHANGE OF CONTROL OFFER. A PERSON WHO IS A BENEFICIAL OWNER OF NOTES BUT IS NOT
A REGISTERED HOLDER AND WHO SEEKS TO TENDER HIS/HER NOTES IN THE CHANGE OF
CONTROL OFFER MUST (I) CONTACT THE REGISTERED HOLDER OF SUCH NOTES AND INSTRUCT
SUCH REGISTERED HOLDER TO TENDER ON SUCH PERSON'S BEHALF, (II) OBTAIN AND
INCLUDE WITH THE LETTER OF TRANSMITTAL, NOTES PROPERLY ENDORSED FOR TRANSFER BY
THE REGISTERED HOLDER OR ACCOMPANIED BY A PROPERLY COMPLETED BOND POWER IN A
FORM SATISFACTORY TO THE ISSUER FROM THE REGISTERED HOLDER, WITH SIGNATURES ON
THE ENDORSEMENT OR BOND POWER GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED
HEREIN) OR (III) EFFECT A RECORD TRANSFER OF SUCH NOTES FROM THE REGISTERED
HOLDER TO SUCH BENEFICIAL OWNER AND COMPLY WITH THE REQUIREMENTS APPLICABLE TO
REGISTERED HOLDERS FOR TENDERING NOTES.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Notes at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Change of Control Offer within two business days
after the date of this Offer to Purchase, and any financial institution that is
a participant in the Book-Entry Transfer Facility's system and whose name
appears on a security position listed as the record owner of the Notes may make
book-entry delivery of Notes by causing the Book-Entry Transfer Facility to
transfer such Notes into the Depositary's account at the Book-Entry Transfer
Facility in accordance with the Book-Entry Transfer Facility's procedure for
such transfer. However, although a delivery of Notes may be effected through
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or a facsimile thereof) properly completed
and duly executed, along with any required signature guarantees or, in the case
of a book entry transfer, an Agent's Message, and any other documents, must in
any case be transmitted to and received by the Depositary at the address set
forth on the back cover of this Offer to Purchase prior to 5:00 p.m., New York
City time, on the Change of Control Expiration Date (in order to receive the
Change of Control Price), or the guaranteed delivery procedures described below
must be complied with. In addition, participants in the Book-Entry Transfer
Facility's system who wish to make book-entry delivery of the Notes in the
Change of Control Offer as described above, must execute a participant's letter
(which will be distributed to participants by the Book-Entry Facility)
instructing the Book-Entry Transfer Facility's nominee to complete and execute
any documentation required.
IN ORDER FOR A TENDERING REGISTERED HOLDER TO BE ASSURED OF PARTICIPATING IN
THE CHANGE OF CONTROL OFFER, SUCH REGISTERED HOLDER MUST PROPERLY TENDER NOTES
IN ACCORDANCE WITH THE PROCEDURES SET FORTH HEREIN AND IN THE LETTER OF
TRANSMITTAL PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE CHANGE OF CONTROL
EXPIRATION DATE IN ORDER TO RECEIVE THE CHANGE OF CONTROL PRICE.
GUARANTEED DELIVERY PROCEDURES. Registered Holders who wish to tender their
Notes pursuant to the Change of Control Offer and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Depositary prior to the
Change of Control Expiration Date may effect such a tender and delivery if
(1) the tender is made by or through a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act, including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities dealer,
municipal securities broker, government securities dealer or government
securities broker; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a
savings institution that is a participant in a Notes Transfer Association
recognized program (an "Eligible Institution");
(2) the Depositary receives, prior to 5:00 p.m., New York City time, on
the Change of Control Expiration Date, from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) substantially in the form
provided by the Issuer which (i) sets forth the name and address of the
Registered Holder of the
44
<PAGE>
Notes, the certificate number or numbers of such Notes and the principal
amount of Notes tendered, (ii) states that the tender is being made thereby
and (iii) guarantees that, within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, (A) the
Letter of Transmittal properly completed (or facsimile thereof) together
with (B) the certificate(s) representing the Notes or a Book-Entry
Confirmation of transfer of such Notes into the Depositary's account at the
Book-Entry Transfer Facility will be deposited by the Eligible Institution
with the Depositary and any other documents required by the Letter of
Transmittal; and
(3) such properly completed and executed Letter of Transmittal (or
facsimile thereof) and, in the case of a book-entry transfer, an Agent's
Message, as well as the certificates representing all tendered Notes in
proper form for transfer or confirmation of a book-entry transfer of such
Notes into the Depositary's account at a Book-Entry Transfer Facility and
all other documents required by the Letter of Transmittal are received by
the Depositary within three New York Stock Exchange trading days after the
date of execution of the Notice of Guaranteed Delivery.
THE LETTER OF TRANSMITTAL AND NOTES MUST BE SENT ONLY TO THE DEPOSITARY. DO
NOT SEND LETTERS OF TRANSMITTAL OR NOTES TO THE ISSUER.
TENDER CONSTITUTES AN AGREEMENT. The proper tender of Notes pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering holder and the Issuer upon the terms and conditions of the Change
of Control Offer and a representation that (i) such holder owns the Notes being
tendered and is entitled to tender such Notes as contemplated by the Change of
Control Offer, within the meaning of Rule 14e-4 under the Exchange Act and (ii)
the tender of such Notes complies with Rule 14e-4.
Further, by executing a Letter of Transmittal (as set forth above and
subject to and effective upon acceptance for purchase and payment for the Notes
tendered therewith), a tendering holder irrevocably sells, assigns and transfers
to or upon the order of the Issuer or its assignee all right, title and interest
in and to all such Notes tendered thereby, waives any and all rights with
respect to the Notes (including, without limitation, the tendering holder's
waiver of any existing or past defaults and their consequences with respect to
the Notes, and releases and discharges any obligor or parent of any obligor of
the Notes from any and all claims such holder may have now, or may have in the
future, arising out of or related to the Notes, including, without limitation,
any claims that such holder is entitled to receive additional principal or
interest payments with respect to the Notes or to participate in any redemption
or defeasance of the Notes), and each such holder irrevocably selects and
appoints the Depositary the true and lawful agent and attorney-in-fact of such
holder (with full knowledge that the Depositary also acts as agent of the Issuer
and as the Trustee under the Indenture) with respect to such Notes, with full
power of substitution and resubstitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest) to (a) deliver certificates
representing such Notes, or transfer ownership of such Notes on the account
books maintained by a Book-Entry Transfer Facility, together, in each case, with
all accompanying evidences of transfer and authenticity, to or upon the order of
the Issuer, (b) present such Notes for transfer on the relevant security
register and (c) receive all benefits or otherwise exercise all rights of
beneficial ownership of such Notes (except that the Depositary will have no
rights to or control over funds from the Issuer, except as agent for the Issuer
for the Change of Control Price), all in accordance with the terms of the Change
of Control Offer.
PROPER EXECUTION AND DELIVERY OF THE LETTER OF TRANSMITTAL. THE METHOD OF
DELIVERY OF NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF
THE TENDERING REGISTERED HOLDERS AND DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED AND THE MAILING
SHOULD BE SUFFICIENTLY IN ADVANCE OF THE CHANGE OF CONTROL EXPIRATION DATE TO
ENSURE TIMELY DELIVERY. THE LETTER OF TRANSMITTAL MUST BE USED TO TENDER NOTES.
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<PAGE>
Except as otherwise provided below, all signatures on the Letter of
Transmittal or notice of withdrawal, as the case may be, must be guaranteed by
an Eligible Institution, provided, however, that signatures on the Letter of
Transmittal need not be guaranteed if (a) the Letter of Transmittal is signed by
the Registered Holder(s) of Notes tendered therewith and such Registered
Holder(s) have not completed the portion entitled "Special Payment Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (b) such
Notes are tendered for the account of an Eligible Institution.
If the Letter of Transmittal is signed by the Registered Holder(s) of Notes
tendered thereby, the signature(s) must correspond with the name(s) as written
on the face of the Notes without alteration, enlargement or any change
whatsoever. If any of the Notes tendered thereby are held by two or more
Registered Holders, all such Registered Holders must sign the Letter of
Transmittal. If any of the Notes tendered thereby are registered in different
names on different Notes, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If Notes that are not tendered for purchase pursuant to the Change of
Control Offer are to be returned to a person other than the Registered Holder,
then certificates for such Notes must be endorsed or accompanied by an
appropriate instrument of transfer (the sufficiency of which will be determined
by the Issuer in its sole discretion), signed exactly as the name of the
Registered Holder appears on the certificates, with the signatures on the
certificates or instruments of transfer guaranteed by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the Registered
Holder(s) of Notes tendered thereby, Notes must be endorsed or accompanied by
appropriate bond powers in a form satisfactory to the Issuer, in either case,
signed exactly as the name(s) of the Registered Holder(s) appear(s) on such
Notes. If the Letter of Transmittal or any Notes or bond power is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must so indicate when signing, and proper evidence satisfactory to
the Issuer and the Trustee of the authority of such person so to act must be
submitted.
By executing the Letter of Transmittal (or facsimile thereof), the tendering
holders of Notes waive any right to receive any notice of the acceptance for
purchase of their Notes.
Tendering Registered Holders should indicate in the applicable box in the
Letter of Transmittal the name and address to which payments or substitute
certificates evidencing Notes for amounts not tendered are to be issued or sent,
if different from the name and address of the person signing the Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, such payments, or Notes not
tendered, as the case may be, will be returned to the Registered Holder of Notes
tendered.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Notes will be resolved by the Issuer, in its
sole discretion, whose determination will be final and binding. The Issuer
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which may, in the opinion of counsel for the Issuer,
be unlawful. Conditional, irregular or contingent tenders will be deemed
defective. The Issuer also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Notes tendered pursuant
to the Change of Control Offer. The Issuer's interpretation of the terms and
conditions of the Change of Control Offer (including the instructions in the
Letter of Transmittal) will be, in its sole discretion, final and binding.
Unless waived, any irregularities in connection with tenders must be cured
within such time as the Issuer shall determine. The Issuer, the Depositary and
the Trustee shall not be under any duty to give notification of defects in such
tenders and shall not incur liabilities for failure to give such notification.
Tenders of Notes will not be deemed to have been made until such irregularities
have been cured or waived by the Issuer. Any Notes received by the Depositary
that are not properly tendered and as to which the irregularities have not been
cured or waived by the Issuer will be returned by the Depositary to the
tendering holder, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Change of Control Offer Expiration Date.
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TRANSFER TAXES. Except as provided below, the Issuer will pay all transfer
taxes, if any, applicable to the transfer and sale of Notes to it pursuant to
the Change of Control Offer. If, however, substitute Notes for amounts not
tendered are to be delivered to, or are to be registered or issued in the name
of, any person other than the Registered Holder of Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer or sale of Notes to the Issuer pursuant to the
Change of Control Offer, the amount of any such transfer taxes (whether imposed
on the Registered Holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
BACKUP FEDERAL INCOME TAX WITHHOLDING. To prevent backup U.S. federal
income tax withholding, each tendering Registered Holder of Notes must provide
the Depositary with such Registered Holder's correct taxpayer identification
number and certify that such Registered Holder is not subject to backup U.S.
Federal income tax withholding by completing the Substitute Form W-9 included in
the Letter of Transmittal, or if such Registered Holder is not a U.S. person, by
completing a Form W-8. For a discussion of other federal income tax consequences
to Registered Holders, see "Certain Federal Income Tax Considerations."
CONDITIONS TO THE CHANGE OF CONTROL OFFER. The Change of Control Offer is
not subject to any conditions.
WITHDRAWAL RIGHTS
The Change of Control Offer and withdrawal rights will expire at 5:00 p.m.,
New York City time, on November 6, 1998, the Change of Control Expiration Date,
which date is not subject to extension. Notes tendered in the Change of Control
Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Change of Control Expiration Date. As a result, if a Registered Holder
validly withdraws Notes previously tendered in the Change of Control Offer, the
Registered Holder will not receive the Change of Control Price unless such Notes
are validly re-tendered pursuant to the Change of Control Offer prior to the
Change of Control Expiration Date. The Registered Holder will have no right to
withdraw Notes previously tendered in the Change of Control Offer after 5:00
p.m., New York City time, on the Change of Control Expiration Date.
WITHDRAWAL OF NOTES HELD IN PHYSICAL FORM. For a withdrawal to be
effective, a Registered Holder of Notes held in physical form must provide a
written, telegraphic or facsimile transmission notice of withdrawal to the
Depositary at its address set forth on the back cover page of this Offer to
Purchase prior to 5:00 p.m., New York City time, on the Change of Control
Expiration Date, which notice must contain: (A) the name of the person who
tendered the Notes; (B) a description of the Notes to be withdrawn; (C) the
certificate numbers shown on the particular certificates evidencing such Notes;
(D) the aggregate principal amount represented by such Notes; (E) the signature
of such Registered Holder of the Notes executed in the same manner as the
original signature on the Letter of Transmittal (including any signature
guarantee (if such original signature was guaranteed)); (F) if such Notes are
held by a new beneficial owner, evidence satisfactory to the Issuer that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Notes; and (G) if such Notes were tendered by book-entry transfer, the
Registered Holder's Book-Entry Transfer Facility participation number. A
purported notice of withdrawal which lacks any of the required information will
not be an effective withdrawal of a tender previously made.
WITHDRAWAL OF NOTES HELD IN BOOK-ENTRY FORM. For a withdrawal to be
effective, a Registered Holder of Notes held with a Book-Entry Transfer Facility
must (i) call such Registered Holder's broker and instruct such broker to
withdraw such tender of Notes by debiting the Depositary's account at the Book-
Entry Transfer Facility of all Notes to be withdrawn; and (ii) instruct such
broker to provide a written,
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telegraphic or facsimile transmission notice of withdrawal to the Depositary
prior to 5:00 p.m., New York City time, on the Change of Control Expiration
Date. Such notice of withdrawal shall contain (A) the name of the person who
tendered the Notes; (B) a description of the Notes to be withdrawn; (C) the
aggregate principal amount represented by such Notes; and (D) if such Notes are
held by a new beneficial owner, evidence satisfactory to the Issuer that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Notes. A purported notice of withdrawal which lacks any of the required
information will not be an effective withdrawal of a tender previously made.
If the Issuer is delayed in its acceptance for payment for any Notes
(whether before or after the Issuer's acceptance for payment of such Notes), or
is unable to accept for payment or pay for Notes pursuant to the Change of
Control Offer for any reason then, without prejudice to the Issuer's rights
hereunder, tendered Notes may be retained by the Depositary on behalf of the
Issuer and may not be withdrawn except to the extent that tendering holders of
such Notes are entitled to withdrawal rights as set forth herein, subject to
Rule 14e-1(c) under the Exchange Act, which provides that no person who makes a
tender offer shall fail to pay the consideration offered, or return the
securities deposited by or on behalf of the holders of such securities, promptly
after the termination or withdrawal of the tender offer.
Any permitted withdrawals of Notes tendered in the Change of Control Offer
may not be rescinded, and any Notes so withdrawn will thereafter be deemed not
validly tendered for purposes of the Change of Control Offer; provided, however,
that withdrawn Notes may be re-tendered by following the procedures for
tendering on or prior to the Change of Control Expiration Date.
All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Issuer, in its sole discretion whose
determination will be final and binding. None of the Issuer, the Depositary, the
Trustee or any other person is under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
The Notes are debt obligations of the Issuer and are governed by the
Indenture. There are no appraisal or similar statutory rights available to
Registered Holders in connection with the Change of Control Offer.
SOURCE OF FUNDS
The maximum amount of funds required by the Issuer to purchase all the Notes
pursuant to the Change of Control Offer is approximately $101.0 million plus
accrued and unpaid interest. The Issuer expects to finance the payments of the
Change of Control Offer with the proceeds of the term loan under the Credit
Facility, the Contingent Capital Contribution and, if necessary to pay amounts
in excess of $100.0 million, revolving loans under the Credit Facility.
THE DEPOSITARY
United States Trust Company of New York has been appointed as Depositary for
the Change of Control Offer. The Letter of Transmittal and certificates and all
correspondence in connection with the Change of Control Offer should be sent or
delivered by each Registered Holder or such Registered Holder's broker, dealer,
commercial bank, trust company or other nominee to the Depositary at the address
and telephone number set forth on the back cover page of this Offer to Purchase.
United States Trust Company of New York is the Trustee under the Indenture.
Any Registered Holder who has questions concerning tender procedures or
whose Notes have been mutilated, lost, stolen or destroyed, or who wants
additional copies of this Offer to Purchase, should contact the Depositary at
the address and telephone number set forth on the back cover of this Offer to
Purchase.
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BUSINESS
COMPANY OVERVIEW
The Combined Company is one of the five largest window and door companies in
the United States based on revenues. The Combined Company consists of the Atrium
Business, the Wing Business and the Darby Business. Pursuant to the
Transactions, Holdings, which prior to the consummation of the Transactions was
controlled by certain stockholders of WIH and Door or their affiliates, acquired
by merger Atrium Corp., the parent holding company of the Issuer, and WIH and
Door became wholly owned subsidiaries of the Issuer. Through the Atrium
Business, the Combined Company is a leading domestic manufacturer and
distributor of residential windows and patio doors. Through the Wing Business,
the Company manufactures and distributes a full range of interior solid wood and
hollow core bi-fold and passage doors and distributes exterior doors and
columns. Through the Darby Business, the Combined Company pre-hangs, distributes
and installs interior doors and installs other ancillary products.
For the 12 months ended June 30, 1998, the Combined Company's pro forma
consolidated revenues were $380.5 million and its pro forma consolidated EBITDA
was $45.7 million (including $2.9 million attributable to synergies resulting
from the Transactions).
ATRIUM BUSINESS
The Combined Company, through the Atrium Business, is one of the leading
domestic manufacturers and distributors of residential windows and patio doors
in the United States and is one of the only companies that offers a diversified
product line consisting of aluminum, vinyl and wood products. While the Atrium
Business generates revenue throughout the United States, its windows and doors
are manufactured and marketed primarily in the Southwest, South and Southeast
regions of the country. The Atrium Business has focused historically on the
ten-state "Atrium Primary Market," a region that provides a diversified and
rapidly growing customer base. The Atrium Primary Market, consisting of Alabama,
Arizona, California, Florida, Georgia, Louisiana, Nevada, Oklahoma, Tennessee
and Texas, and accounted for approximately 77% of the Atrium Business' revenues
for the fiscal year ended December 31, 1997. The Atrium Primary Market includes
some of the fastest growing residential housing markets in the United States and
accounts for approximately 44% of total national housing starts and almost a
third of total nationwide unit sales of windows. During the period from 1992 to
1997, industry wide sales of windows in the Atrium Primary Market increased at a
CAGR of 6.5%, over 40% faster than sales growth for the rest of the country.
With an 11.5% share of total window units in the Atrium Primary Market, the
Combined Company has a leading market share within that market.
For the 12 months ended June 30, 1998, the Atrium Business contributed
revenues of $227.0 million and EBITDA of $29.6 million to the Combined Company's
pro forma consolidated results of operations.
WING BUSINESS
The Combined Company, through the Wing Business, manufactures and
distributes a full range of interior solid wood and hollow core bi-fold and
passage doors and distributes exterior doors and columns. Through organic growth
and strategic acquisitions, the Wing Business has grown from a small, family-
owned business to a leading supplier of interior wood doors to home center
retailers such as Home Depot, Lowe's Companies and Builder's Square/Home
Quarters.
The Wing Business' geographic coverage has been driven by relationships with
leading home center retailers. As home center retailers have expanded throughout
the country, the Wing Business has strategically established new manufacturing
facilities to serve this customer niche more effectively. The Combined Company,
through the Wing Business, is one of the only door suppliers that can service
home center retailers on a national basis with facilities in Illinois, Ohio,
Pennsylvania and Texas and facilities expected to open in North Carolina,
Massachusetts and California.
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For the 12 months ended June 30, 1998, the Wing Business contributed
revenues of $135.0 million and EBITDA of $8.7 million to the Combined Company's
pro forma consolidated results of operations.
DARBY BUSINESS
Through the Darby Business, the Combined Company pre-hangs interior and
exterior door units, with a majority of sales achieved through developers of
multi-family housing communities. The Darby Business also distributes ancillary
products for the building materials industry such as locks, windows, mirrors,
wire shelving, bathroom accessories and other complementary speciality items.
The Darby Business offers developers a total installed program in which it
supplies and installs a turnkey package of its products. The Combined Company
believes that this method of outsourcing product installation frees developers
from certain risks associated with subcontracting crews. The Darby Business
concentrates its marketing and sales efforts on the Northeast and Mid-Atlantic
regions. The Darby Business' customers include many of the nation's leading
multi-family community developers, who the Combined Company believes have come
to rely on the Darby Business' ability to provide high quality products and
install those products effectively and efficiently.
For the 12 months ended June 30, 1998, the Darby Business contributed
revenues of $18.5 million and EBITDA of $4.5 million to the Combined Company's
pro forma consolidated results of operations.
BENEFITS OF THE TRANSACTIONS
The Combined Company is a diversified window and door company offering a
broad range of products. Management believes that the Combined Company will
realize significant benefits as a result of the combination of the Atrium, Wing
and Darby Businesses, including:
- BROADER PRODUCT LINES WITH CROSS-SELLING OPPORTUNITIES. The Combined
Company will offer a full line of aluminum, vinyl and wood windows and
interior solid wood and hollow core doors, as well as exterior doors and
columns. Management believes that the Combined Company will also be one of
only two national pre-hangers of doors in the United States. The strong
customer relationships established by the Atrium, Wing and Darby
Businesses, combined with the complementary nature their product lines and
markets create excellent cross-selling opportunities for the Combined
Company.
- SIGNIFICANTLY INCREASED GEOGRAPHIC COVERAGE. The Atrium Business has
historically targeted the Southwest, South and Southeast regions of the
United States and particularly in the Atrium Primary Market. Products of
the Wing Business have been sold in the Northeast and Midwest regions of
the United States. Access to these markets, together with the large
portion of the Northwest region covered by the Combined Company's
distributors, will enable the Combined Company to market all its product
lines throughout all parts of the continental United States.
- MORE BALANCED END-USER SALES MIX. The Combined Company's products are
principally marketed to two segments of the building products industry:
new construction and repair and remodeling. Historically, 65% of the
Atrium Business' sales were to the new construction segment and 35% were
to the repair and remodeling segment, while 88% of the Wing Business'
sales were to the repair and remodeling segment and 12% were to the new
construction segment. For the 12 months ended June 30, 1998, approximately
45% of the Combined Company's pro forma consolidated sales were to the new
construction segment and approximately 55% were to the repair and
remodeling segment. The Combined Company believes that this greater
balance in the sales mix should enable it to withstand a downturn in
either of the segments more effectively than its constituent businesses
could on a stand-alone basis.
- INCREASED DIVERSITY OF DISTRIBUTION CHANNELS. The Atrium Business'
products have been sold primarily through home builders and independent
distributors while the Wing Business' primary market
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has been home center retailers. The Combined Company expects to leverage
these complementary distribution channels by targeting the Wing Business'
door products to homebuilders and independent distributors and the Atrium
Business' window products to home center retailers.
OPERATING STRATEGY
The Combined Company's operating strategy has the following principal
components:
- LEVERAGE COMPLEMENTARY PRODUCT LINES, GEOGRAPHIC MARKETS AND DISTRIBUTION
CHANNELS. The Combined Company will offer a full range of aluminum, vinyl
and wood doors and interior and exterior doors throughout the United
States to homebuilders, independent distributors and home center
retailers, allowing it to take advantage of the benefits described above.
- REALIZE BENEFITS THROUGH OPERATIONAL SYNERGIES. The Combined Company
believes it can improve margins by continuing to enhance its
vertically-integrated operations. As the Combined Company continues to
expand through organic growth and acquisitions, management believes it can
realize more favorable raw materials pricing as a result of its increased
purchasing volume. Further, the Combined Company has identified certain
"best practices" that can be implemented, including consolidating certain
management functions, eliminating duplicative administrative functions and
expenses, rationalization of product lines and facilities, and
consolidation of freight operations.
- ACQUIRE BUSINESSES CONSISTENT WITH THE COMBINED COMPANY'S STRATEGIC
OBJECTIVES. The window and door industry remains substantially fragmented.
The Combined Company believes that there will be significant opportunities
to acquire businesses that are consistent with the Combined Company's
strategic objectives. In evaluating acquisition candidates, the Combined
Company seeks businesses that have complementary distribution channels and
product lines and strong management teams. During the last two years, the
Combined Company acquired six businesses for an aggregate purchase price
of approximately $85.0 million.
PRODUCTS
The Combined Company estimates that 50-55% of its 1998 revenues will be
derived from the sale of windows, 40-45% of its 1998 revenues will be derived
from the sale of doors, and approximately 5% of its 1998 revenues will be
derived from the sale of other products and services.
WINDOWS--OVERVIEW. The Combined Company estimates that 81% of the Atrium
Business' 1998 revenues will be derived from the sale of windows and patio doors
and 19% from the sale of aluminum and vinyl extrusions, which are used primarily
as component parts in the production of windows and doors. The Combined Company
estimates that 69% of the Atrium Business' 1998 revenues will be derived from
the sale of aluminum products, 21% from vinyl products and 10% from wood
products.
The Combined Company, through the Atrium Business, is one of a limited
number of window and door manufacturers which offers a diversified product line
that consists of a full range of aluminum, vinyl and wood windows and patio
doors. The full product line allows the Combined Company to differentiate itself
from its competition, leverage its distribution system and ensure that it is
well-positioned to benefit from any shifts in product preference. As significant
regional product preferences exist among aluminum, vinyl and wood, a full
product line is important to serve a national customer base effectively.
WINDOWS--ALUMINUM. As a result of the warmer climate and more value
conscious buyers, aluminum windows are the products of choice in the Atrium
Primary Market. While vinyl and wood provide enhanced thermal efficiency, homes
in the warmer climates of the Southeast, South and Southwest do not require this
feature. Similarly, in the relatively less-expensive homes in the South,
builders are unlikely to install expensive windows as home buyers tend to value
the most cost effective alternative available. Since the cost to the builder is
higher for vinyl and wood, the builder is unlikely to use these higher priced
windows unless they are able to pass those costs on to the home buyer.
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The Combined Company believes that new construction growth will continue to
be highest in the warmer Southern states where aluminum windows are preferred.
Furthermore, as the housing stock in the warmer climates ages (houses built
during the initial "Sun Belt" migrations are now 20 to 30 years old), the repair
and remodeling segment will experience increasing growth. Due to the Atrium
Business' long-standing presence in these markets and the strength of its brand
name, the Combined Company should continue to benefit from these trends.
The Combined Company assembles its aluminum windows and doors at the Atrium
Aluminum, H-R, Kel-Star and Masterview divisions, under the ATRIUM AND H-R
WINDOWS brands.
WINDOWS-VINYL. Demand for vinyl windows, particularly in colder climates,
has significantly increased over the last five years as vinyl windows have
gained acceptance as a substitute for primed wood windows. This trend has been
strengthened as prices for vinyl windows have become more competitive to wood
products and durability and energy efficiency have improved. The Atrium Business
entered the fragmented vinyl window market in mid-1995 when it began fabricating
its own vinyl windows. By leveraging the ATRIUM brand name and existing
distribution channels and through growth and acquisitions, the Atrium Business
has been able to capture share within its existing markets, and in the Northeast
and West.
The Atrium Business has increased vinyl revenues to $34.8 million for the 12
months ended June 30, 1998 after entering the vinyl market in mid-1995. The
Bishop and Gentek acquisitions have provided additional manufacturing capacity
and distribution capability, notably strengthening the Atrium Business' ability
to compete effectively in the vinyl markets. The Combined Company expects to
generate an increasing percentage of its revenues and earnings from the
manufacture and sale of vinyl products.
Presently, the Atrium Business' vinyl windows and doors are manufactured by
the Atrium Vinyl division in Dallas, its ADW-Northeast and ADW-New England
subsidiaries in Bridgeport, CT and Clinton, MA, respectively and its ADW-West
Coast facility in Anaheim, CA. The Combined Company markets all its vinyl
products under the ATRIUM name in order to leverage the brand's recognition
among builders and consumers.
WINDOWS--WOOD. The ATRIUM name gained its wide recognition in the 1970s and
1980s through the success of the Atrium Business' Atrium line of wood patio
doors. In an effort to capitalize on this success, the Atrium Business added a
wood window line in 1991. The wood products, which are presently being sold
throughout most of the Atrium Business' geographic markets, complete the
Combined Company's diversified window product line. The Combined Company's
Atrium Wood division manufactures both aluminum-clad and primed wood windows and
doors.
While the Atrium Wood business has not been profitable historically, losses
have been reduced substantially over the last two years as the Atrium Business'
line of wood and patio doors has further penetrated the home center market. The
resulting increased volume has helped reduce raw material costs and increase
capacity utilization. Management expects significant advantages in combining the
Atrium Wood business with the Wing Business's existing wood operations.
DOORS. The Combined Company, through the Wing Business and the Darby
Business, markets a full line of interior and exterior doors. The Combined
Company's interior door products include hollow core, solid wood and french
doors, in slab or pre-hung form, and bi-fold doors. The Combined Company's
exterior door products include wood entry doors and aluminum, vinyl and wood
patio doors.
A substantial portion of the Combined Company's door sales are interior
doors. There are two broad categories of interior doors: bi-fold doors and
passage doors. Bi-fold doors are hinged folding doors. Passage doors are the
traditional doors used to connect rooms. There are also two types of interior
wood bi-fold doors and passage doors: solid wood doors and hollow core doors.
Solid wood doors are made completely of wood. Hollow core doors consist of two
door facings glued to a wood frame and are hollow on the inside. Both solid wood
and hollow core passage doors are sold one of two ways, either as slabs or as
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pre-hung units. Slabs refer to the actual door itself and pre-hung units refer
to slab doors already hinged to a door frame at the factory.
The Combined Company estimates that approximately 60% of all passage doors
sold through home center retailers are sold as pre-hung units, mainly because of
the ease of installation for the do-it-yourself consumer. The Combined Company,
through the Wing Business and the Darby Business, is one of the few
vertically-integrated companies that both manufactures the door slabs and
pre-hangs the doors. The Wing Business' line of solid wood and hollow core
pre-hung doors accounts for approximately 47% of total dollar sales for the 12
months ended June 30, 1998. The Combined Company believes that sales of this
line will continue to grow and will represent a larger portion of total sales in
the future.
The Wing Business' solid wood door line consists of doors sold as slabs as
part of three major product lines and, for the 12 months ended June 30, 1998,
accounted for approximately 30% of total dollar sales. The solid wood line
consists of bi-folds, French doors and passage doors. The Combined Company
believes that it is the largest solid wood bi-fold door manufacturer in the
world with a 50% market share. The Wing Business has recently introduced a less
expensive version of its solid wood bi-folds to broaden its product line to
compete at lower price points. The hollow core door line consists of both hollow
core bi-folds and hollow core passage doors. For the 12 months ended June 30,
1998, hollow core doors accounted for approximately 10% of total dollar sales.
The Combined Company, through the Atrium Business and the Darby Business,
also produces and markets a line of aluminum, vinyl and wood patio doors,
including center hinge, French and sliding patio doors.
OTHER PRODUCTS AND SERVICES. The Combined Company also manufactures and
distributes other products including cafe doors, exterior doors, columns and
shutters. The Combined Company manufactures two types of cafe doors as well as
louvered shutters. The shutters can be used both for interior and exterior
applications. Columns come in many styles and are purchased from domestic
suppliers. Exterior doors are purchased from international suppliers and are
pre-hung by the Wing Business.
The Combined Company also offers, through the Darby Business, pre-hung doors
and other building materials that it distributes. The Darby Business receives
door components from third parties, prehangs the doors at its factory, and then
ships the ready to be installed unit to a job site. Through the Darby Business,
the Combined Company offers a turnkey total installation program in which the
Combined Company supplies and installs all interior doors, exterior doors,
mouldings, locks, hardware, wire shelving, bath accessories, plate glass
mirrors, mailboxes, and toilet partitions. This concept allows a developer to
transfer the risk associated with retaining reliable work crews and provides
protection from cost overruns. Management believes that developers view this as
a value added service and are willing to pay a premium price for it.
OPERATIONS
WINDOWS-OVERVIEW. The Combined Company, through the Atrium Business,
manufacturers and sells its windows through a vertically-integrated process that
includes extrusion, fabrication and distribution. At its three extrusion plants
in Texas, the Combined Company produces aluminum extrusions and extrudes
non-rigid vinyl components that are then delivered to fabrication facilities
located in Arizona, California, Connecticut, Massachusetts, Nevada and Texas.
The finished products are distributed through multiple distribution channels
including company-owned distribution centers.
The Combined Company realizes many operational and cost benefits from its
vertically-integrated window operations. By extruding aluminum and vinyl
components in-house, the Combined Company is able to secure a low-cost, reliable
source of extrusions, control product quality and reduce inventory levels. The
integration of extrusion and fabrication operations gives the Combined Company
significantly more control over its manufacturing costs. The Combined Company
continually works to achieve cost savings
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through increased capacity utilization at its highly efficient facilities,
adoption of best practices, reduction of material cost, rationalization of
product lines, and reduction of inventory. In order to complement its
manufacturing operations, the Combined Company maintains company-owned
distribution locations in key markets where available independent distributors
are weak or where the company has been unable to make adequate arrangements with
existing distributors.
The Combined Company continues to build on what management believes is its
position as one of the industry's lowest cost manufacturers. Being able to
maintain low production costs is one of the reasons the Atrium Business has
consistently achieved EBITDA margins between a 12.0% to 15.0% range, which are
approximately 3.0% to 5.0% higher than industry averages. Because of the scale
of its operations, the Combined Company is able to negotiate significant price
concessions for its raw materials, including glass and vinyl. The Atrium
Business purchased approximately fifty-five million square feet of glass in
1997, making it one of the largest buyers of flat glass in the country. This is
an important consideration, since total cost of raw materials typically
comprises 45% to 50% of revenue.
WINDOWS--EXTRUSION. By extruding aluminum and non-rigid vinyl in-house, the
Combined Company maintains a high quality reliable supply of an essential
assembly component. The Combined Company is able to control the quality of the
extruded components which reduces the likelihood of scrap from substandard
components. The Combined Company is also able to coordinate the timely
production and delivery of extrusions with the production needs of the
fabrication plants so that fabrication operations are able to maintain even
inventory levels and work flow, reduce throughput time and increase overall
plant efficiency.
The Combined Company's Extruders and Woodville Extruders divisions produce
aluminum extrusions, and the Dow-Tech Plastics ("Dow-Tech") division extrudes
non-rigid vinyl extrusions, for use in window and door manufacturing at the
Company's fabrication facilities. The Combined Company's extrusion operations
also sell extrusions to third parties (65% of extrusion revenues are from
third-party sales, of which approximately one-third are to non-window
companies). These third party sales include not only competitors in the door and
window industry, but also companies that use aluminum extrusions for components
in the manufacture of tents and awnings, hand railings, recreational vehicles
and boat components, heating, ventilation and air conditioning products.
In the aluminum extrusion process, aluminum billet is heated in an oven and
hydraulically pressed through a die to form a shaped lineal or "rail." The
lineal is then air-cooled, straightened, cut into the finished product length
and tempered in an aging oven. The extrusion may then be electrostatically
painted in the Combined Company's painting operations or anodized by a third
party.
In the non-rigid vinyl extrusion process, vinyl pellets are vacuum-loaded
into hoppers feeding each of Dow-Tech's nine extrusion lines. The material is
heated and extruded through a die by an extrusion screw. The extrusion is
water-cooled as it is pulled from the die at varying rates depending on the
profile being extruded. Flexible vinyl is typically rolled onto reels and more
rigid vinyl is cut to the stock length of twelve feet or to other lengths
specified by the customer. The Combined Company does not currently extrude large
vinyl frame components, but intends to expand its vinyl extrusion capabilities
to include rigid vinyl extrusion as vinyl product sales continue to increase.
EXTRUDERS: The Atrium Business commenced extruding aluminum product
components used in the fabrication of products in 1974. The division currently
operates two extrusion presses on two ten-hour shifts, five to six days a week.
The extrusion operation in Wylie is extremely efficient and has provided the
Atrium Business a significant competitive advantage over the years.
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WOODVILLE EXTRUDERS: Acquired in 1996 as part of the Keller acquisition,
Woodville Extruders provides the Combined Company and third party customers with
aluminum extrusions. The division operates one extrusion line consisting of an
extrusion press, a billet oven and a paint line. The addition of Woodville
Extruders increased the Combined Company's extrusion capacity by approximately
35%. This eliminated the need for the outsourcing of extrusion during peak
production periods, as well as provided capacity for future growth without any
need for additional capital expenditure. The Combined Company is evaluating
moving Woodville Extruders' extrusion press to Wylie to consolidate the two
extrusion operations. In so doing, the Combined Company will eliminate the
overhead associated with operating the independent facility and expects to
realize at least $0.5 million in EBITDA from the effort.
DOW-TECH: Acquired in 1990, Dow-Tech Plastics extrudes non-rigid vinyl
sub-components used in the fabrication of aluminum, vinyl and wood windows and
doors. Approximately 67% of Dow-Tech's volume in 1997 was sold to third party
customers with the remainder used in the fabrication of the company's products.
In addition, Dow-Tech now provides the company's vinyl operations with vinyl
sub-components, thereby reducing its raw material costs. Since Dow-Tech's
sub-components are used by wood, vinyl and aluminum window fabrications, the
vinyl extrusion capability allows the Combined Company to generate additional
profits throughout product lines.
WINDOWS--FABRICATION. The Combined Company fabricates a broad line of
aluminum, vinyl and wood windows and doors at eight fabrication facilities in
Arizona, California, Connecticut, Massachusetts, Nevada and Texas. The Atrium
Wood division fabricates the Combined Company's wood products. The Combined
Company's vinyl products are made by the Atrium Vinyl division and ADW-West
Coast, ADW-Northeast and ADW-New England subsidiaries. The Combined Company
produces aluminum windows at its Atrium Aluminum division (formerly "Skotty
Aluminum Products"), as well as at its H-R Windows, Kel-Star Building Products
and Masterview divisions. Additionally, specialty windows are fabricated at the
Combined Company's Las Vegas distribution facility.
In the aluminum window fabrication process, extrusions are cut to size and
notched and mechanically fastened to form frames (comprised of sills and jambs)
and sashes (comprised of center bars, lock rails, lift rails and sash rails).
Flat glass, purchased cut-to-size or sized in-house with a computer-numerically-
controlled glass optimizer, is insulated and finished. Pre-prepared insulated
glass and component parts are assembled and transferred to a staged shipping
area along assembly lines set up according to product type. In the fabrication
of vinyl windows, frame extrusions are cut with computer-numerically-controlled
optimizing saws, notched and welded. The frame is then placed on assembly lines
on which insulated glass and sashes are installed. In the fabrication of wood
window and door products, pre-cut, precision-milled wood components are glued
and screwed together, sanded and affixed with appropriate hardware. These units
are then glazed and packaged for final shipment.
DOORS--OVERVIEW. The Wing Business has been manufacturing wood products in
Texas since 1953 and today has three primary manufacturing facilities in the
state. As home centers (such as Home Depot and Lowe's) have expanded throughout
the country, the Wing Business has strategically established four new
manufacturing operations in Ohio, Pennsylvania, Illinois and Texas in order to
serve these customers more efficiently. The Combined Company, through the Wing
Business, believes it is one of the only door suppliers which can service the
home centers on a national basis. As the home centers continue to expand into
new markets, the Combined Company expects to open new facilities to serve these
regions. The Combined Company is currently planning new sites in North Carolina,
Massachusetts and California and has signed a lease in North Carolina as a
result of its customers' plans to expand in these areas in 1999.
DOORS--SOLID WOOD. Two manufacturing processes are involved in producing
the Combined Company's solid wood passage and bi-fold doors lines based on the
thickness of the door: one for doors 1 3/8" thick and another for doors 1 1/8"
and 7/8" thick.
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The 1 3/8" doors are produced in a multi-stage manufacturing process. Most
of the wood parts for these doors are purchased as dimensional cutstock which is
then machined into final assembly parts. The doors are constructed using
hardwood dowels and glue. After final assembly, passage doors are trimmed,
sanded and packaged for transfer to a finished goods warehouse or to the
pre-hanging department to be assembled as a pre-hung door. The bi-folds are
processed on the same line and then hinged and packaged on a separate line.
Solid wood 1 1/8" and 7/8" doors (primarily bi-folds) are produced in
manufacturing cells that combine or link several machining and assembly steps
together to increase production efficiency and reduce material handling. The
primary raw materials involved in manufacturing these doors include pine cut
stock, decorative glass, hardware and packaging materials. Molded stiles
(vertical components) are trimmed, drilled, mortised and/or grooved prior to
assembly. Rails (horizontal components) are molded, trimmed and doweled prior to
assembly. Raised panels and decorative glass are added to other final assembly
stations. Similar to the 1 3/8" doors, these doors are constructed using
hardwood dowels and glue. Hardware is added and the doors are packaged prior to
transfer to the finished goods warehouse.
DOORS--HOLLOW CORE. The assembly process is less complex for hollow-core
doors. These doors have either wood facings (lauan, red oak, birch, etc.) or
hardboard facings (flush and molded). The assembly process involves passing
rails, stiles and other pieces of core through a glue roller and placing a wood
or hardboard facing on both sides of the core. Pallets of glued doors are placed
in a cold press, allowed to cure in overnight storage, and then trimmed in a
door sizer. Flush door slabs are either labeled for transfer to the finished
goods warehouse or are transferred to the pre-hanging department to be assembled
into pre-hung doors.
Hollow-core bi-folds are processed in a similar fashion as the hollow-core
slabs except that a wider center stile is included in the core and the door is
"split" into two panels on the door sizer. These two panels are then hinged and
packaged for transfer to the finished goods warehouse.
DOORS--PRE-HUNG ASSEMBLY. Pre-hung doors are assembled by mortising the
edges of slab doors for hinges and then boring the doors for locksets in an
automated pre-hanging machine. The stop is trimmed, mitered and applied to jambs
on a stitcher. Slab doors are hinged to a jamb and the two side jambs are
stapled to the head jamb. Certain pre-hung doors require casing attached to the
jambs. The pre-hung doors are then labeled, palletized and transferred to the
finished goods warehouse.
The Combined Company utilizes proven industry methods for the manufacture of
solid wood and hollow-core doors and for the assembly of pre-hung doors.
However, certain of the Combined Company's processes are unique and have been
patented or are protected internally as proprietary.
SALES, MARKETING AND DISTRIBUTION
One of the key components of the Combined Company's marketing strategy is to
capitalize on the complementary nature of the Atrium Business' and the Wing
Business' distribution channels. Historically, the majority of the revenues of
the Atrium Business have been derived from sales to remodelers, homebuilders,
lumberyards and wholesalers. The Wing Business has targeted principally home
center retailers. Approximately 80% of the Wing Business' revenues are derived
from sales to national home center retailers. The Company believes that it can
tap new markets for its products by targeting the Wing Business' door products
to homebuilders and independent distributors and the Atrium Business' window
products to home center retailers.
WINDOWS. Each of the Combined Company's fabrication divisions distributes
its products through a combination of two-step distribution to wholesalers and
dealers, one-step distribution (in some regions, through company-owned
distribution centers) to lumberyards and home centers, and direct sales to large
homebuilders and independent contractors. In addition, more than one division of
the Atrium Business may sell its products into the same geographic channels. The
Combined Company believes that this
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distribution strategy maximizes its market penetration and reduces reliance upon
any one distribution channel for the sale of its products. Furthermore, as a
manufacturer and distributor of windows and doors for more than four decades,
the Atrium Business has developed long-standing relationships with key
distributors in each of its markets. In each instance, the Combined Company
seeks to secure the leading distributors in each market. If the Combined Company
cannot secure a top tier distributor in a desired geographic market, it will
consider the acquisition or start up of its own distribution center in such
market.
The Combined Company also sells to major home center retailers and smaller
regional-based retail centers. Although these have gained greater importance to
the Combined Company because they target the repair and remodeling market, they
still account for less than one-fifth of total sales for the Atrium Business.
One of the Combined Company's goals is to increase the Atrium Business' market
share in the repair and remodeling market by capitalizing on the Wing Business'
strong relationship with home center retailers.
The Combined Company utilizes the following distribution channels for its
windows:
DIRECT DISTRIBUTION: The Combined Company sells its windows and doors
directly to contractors, remodelers and other homebuilders without the use of an
intermediary. By selling directly to builders, the Combined Company is able to
increase its gross profits while at the same time offering builders more
favorable pricing.
ONE-STEP DISTRIBUTION: The Combined Company sells its finished windows
directly to lumberyards, building products distributors, home centers, and
company-owned distribution centers, which will then sell to contractors,
homebuilders or remodelers. While it is not required that lumberyards or
building products distributors carry the Atrium's Business' products on an
exclusive basis, it is not unusual for them to do so. In addition, they
generally purchase based on orders, keeping little or no inventory. One-step
distribution tends to be used most often in metropolitan areas.
TWO-STEP DISTRIBUTION: Commonly used in more rural regions, two-step
distribution is the selling of completed doors and windows to a wholesaler or
distributor who then sells the products to lumberyards, building products
retailers and home centers. These intermediaries will in turn sell the windows
and doors to the homebuilders, homeowners or remodelers. The wholesalers and
distributors tend to maintain product inventory in order to service the needs of
their client base for small quantities. Essentially, these middlemen sell to
customers who do not have the volume to purchase directly from the Combined
Company. Two-step distribution is more common in rural areas since urban areas
are serviced by home centers and large lumberyards.
COMPANY-OWNED DISTRIBUTION CENTERS: The Combined Company maintains
company-owned distribution locations in key markets where available independent
distributors are weak or where the company has been unable to make adequate
arrangements with existing distributors. Company-owned distribution centers
essentially act as one-step distributors.
The Combined Company, through its Atrium Business, owns and operates eight
distribution centers, consisting of ADW-Arizona and Atrium Door & Window
Company-Nevada ("ADW-Nevada"), both of which also assemble some of the products
they distribute, and Atrium Door & Window Company-Texas ("ADW-Texas"), H-R
Windows Distributors ("H-R Distributors"), Atrium Door & Window Company-New York
("ADW-New York") and ADW-West Coast (three centers). ADW-Arizona and ADW-Nevada
carry the Atrium Business' products and sell directly to homebuilders in their
respective regions. ADW-Texas sells the Atrium Business' products and
distributes directly to large homebuilders in Texas. H-R Distributors sells
directly to large homebuilders in Texas. ADW-New York markets the Atrium
Business' products primarily to remodelers and contractors within a seven-state
region in the Northeast. The three ADW-West Coast facilities market to
remodelers and contractors in the California, Utah and Pacific Northwest
regions. The Atrium Business has over 4,000 active accounts. Eight of its top
ten customers have been with the Atrium Business for over five years.
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To enhance its market coverage and leverage its considerable brand equity,
the Combined Company currently markets its windows and patio doors under
primarily two brand names, ATRIUM and H-R WINDOWS. Due to the fact that Atrium
enjoys such significant national name recognition at both the building trade and
consumer levels, Combined Company decided to bring the product lines of almost
all its other brands under the Atrium name. The Combined Company has now
completed rolling its SKOTTY and BISHOP product lines, as well as those from the
Gentek acquisition, into the ATRIUM brand. The Combined Company expects to
extend the ATRIUM brand to other products, as well as to appropriate product
lines acquired in the future.
The Combined Company markets its window products through a sales force
consisting of approximately 50 company salaried and commissioned sales
representatives and approximately 75 independent commissioned sales
representatives. Each of the Atrium Business' divisions is supported by a sales
manager, direct sales representatives and independent representatives. The sales
managers coordinate marketing activities among both company and independent
representatives. Company sales representatives focus primarily on direct sales
to homebuilders, remodelers and contractors, while independent sales
representatives sell to home centers, lumberyards and wholesalers. In general,
independent sales representatives carry the Atrium Business' window and door
products on an exclusive basis, although they may carry other building products
from other manufacturers.
The Atrium Business' well-rounded product line has also been an asset to its
sales force, especially when it is exploring a new distribution channel
opportunity. Distributors have come to recognize the Atrium Business as a WINDOW
supplier, as opposed to an ALUMINUM window supplier or a VINYL window supplier.
The distributors frequently do not buy the whole range of products since
regional tastes vary and distributors tend to work according to regions.
However, these distributors value the Atrium Business' ability to provide these
products should they ever demand it.
The Combined Company believes that customer services plays a key role in the
marketing process. On-time delivery of products, order fill rate, consistency of
service and flexibility in meeting changing customer requirements have made it
possible for the Combined Company to build a large and loyal customer base that
includes companies such as Centex Homes, one of the nation's largest
home-builders, and Home Depot, the nation's largest home center retailer.
DOORS. The Wing Business' marketing strategy centers primarily on the fact
that the Wing Business can supply home center retailers with a complete line of
interior wood doors. The Combined Company, through its Wing Business, is the
only company in the industry who is able to provide this convenience. The
"one-stop shopping" the Combined Company provides enables retailers to reduce
their transaction costs, as they have to pay only one invoice, work with one
sales representative, and schedule the receipt of goods with only one company.
The Wing Business' goal is to be the "preferred supplier" for the door aisle of
home center retailers. The Combined Company believes it can capitalize on the
Wing Business' relationship with home center retailers by offering the Atrium
Business' full line of windows to home center retailers.
According to the NATIONAL HOME CENTER NEWS/Lebhar Friedman and Fairfield
Research, in response to the question "what suppliers could do to increase
retailer purchases," 28% of the retailers responded with more communications,
cooperation and service and 18% answered promotional support. Only 14% responded
with lower prices. The Combined Company believes it has capitalized on this
industry need and has been able to command a price premium relative to
competitors because of the services it provides, the wide assortment of products
is manufacturers, and the in-store support it furnishes primarily through its
merchandising managers.
In 1996, the Wing Business started a new pricing/product offering strategy
which focuses on offering the end consumer lower price points without
sacrificing profit margins. The Combined Company will accomplish this strategy
in two steps. First, the Combined Company has consolidated the current product
offerings in order to simplify the overall offering and reduce inventory levels.
Second, on the remaining
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product offerings, the Combined Company offers good, better and best products to
the market. Certain of the products in the offering have been redesigned (with
particular emphasis on taking costs out of the products) in order to have an
offering with three distinct price points. This promotes more "trading up" to
the Wing Business' higher quality products by the customer and displays a
complete product line.
The Wing Business uses an internal sales force consisting of seven people.
In addition, senior executives are actively involved with both sales and
customer service. This group is segregated between national and regional
accounts. Approximately 80% of the Wing Business sales are made to national
retail home center chains. The internal sales force was realigned in early 1995
reducing the sales staff from 18 to 7 while increasing the number of merchandise
managers. As a result, the Combined Company has a smaller, more focused sales
force which is better structured to give the home centers the attention required
at the store level.
To assist the sales force and provide better service to its customers, the
Wing Business has over 20 merchandising managers. The merchandising managers
provide home center retailers with in-store services such as product knowledge
seminars, store product resets (to straighten stock and fix displays), sales
analysis, and in-store merchandising. They also work with the retailers to
resolve claims issues and to handle product returns. This is a significant
advantage to the Combined Company which very few suppliers can offer.
Promotional efforts are focused on the home center industry and its
customers. Cooperative advertising programs are offered to certain of the Wing
Business' major customers, giving the Wing Business exposure in its customers'
local media (e.g., newspaper, radio, television) in order to generate sales at
individual locations. The Combined Company also invests in in-store displays
showing operating door units and photographs in-room settings in order to
generate sales once customers are in the stores. Product knowledge classes are
frequently held to inform store employees about the features and benefits of
each product. Award winning packaging and in-store signage are used to further
general awareness within the stores. The Combined Company also offers retailers
a video showing how quickly a homeowner can install a bi-fold door using only
basic hand tools.
INDUSTRY OVERVIEW
In 1997, the U.S. residential window and door expenditures reached
approximately $8.5 billion. The domestic window market has grown more than 33%
in unit sales over the last five years, and has outpaced the growth in the
domestic building materials industry. F.W. Dodge estimates that sales of window
units will reach 59.7 million by 2002. The domestic door market has grown more
than 11.2% in sales over the last four years. According to Door and Window
Fabricator magazine, the North American interior door market represents more
than 90 million units annually. The Combined Company estimates that over 60
million interior doors were sold in the U.S. in 1997.
The residential window industry can be divided into two end-use segments:
new construction (an estimated 17.0 million window shipments in 1997) and
repair/remodeling (approximately 41.1 million windows sold in 1997). The
Combined Company believes that the repair/remodeling segment will continue to
experience strong growth due to the strength of sales of existing homes and the
increase in the average age of homes from 23 years to 28 years in the last
decade. The Combined Company believes the expected growth in this segment
represents an especially attractive opportunity to leverage existing
relationships with the home center retailers. The home center industry is one of
the fastest growing retail sectors in the United States. According to the
National Home Center News, the U.S. retail home improvement market was expected
to grow from $140.0 billion in 1995 to over $170 billion by the year 2000.
WINDOWS-ALUMINUM. In the Atrium Primary Market, aluminum windows are the
products of choice and regional standard because of their low cost, durability
and suitability to warm climates. Because aluminum is the least expensive window
alternative, homebuilders generally prefer aluminum to control costs, as a home
buyer is not generally willing to pay for the increased cost of vinyl or wood.
Aluminum is
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not utilized as frequently in homes in the North and the Northeast regions of
the United States due to historical architectural trends and the superior
insulating qualities of wood and vinyl windows.
WINDOWS-VINYL. Vinyl windows represent the middle price point of windows.
Vinyl windows have thermal efficiency characteristics that approach those of
wood windows, but some homeowners do not consider them as aesthetically
pleasing. Historically, vinyl windows have not been as popular as aluminum
windows in warmer climates such as those found in the Atrium Primary Market
because of the increased cost of vinyl and because early vinyl windows suffered
from ultra violet degradation, which caused the vinyl to become brittle after
prolonged exposure to the sun. However, in recent years, advances in plastics
have increased the quality and durability of vinyl windows.
WINDOWS-WOOD. Wood is the most thermally efficient window material,
however, it is the most expensive and requires the greatest amount of
maintenance. Unit sales of aluminum-clad and vinyl-clad wood windows, which are
classified as wood, have grown so that, overall, the wood window market share
has been stable for the last several years. In clad windows, composite materials
such as aluminum, vinyl, fiberglass or industrial coating are applied to the
exterior of the window frame so that the frame inside the house has the desired
aesthetics while the exterior frame has the desired durability or insulating
features. Due to maintenance issues surrounding all wood windows, the Company
believes that the trend towards aluminum- and vinyl-clad wood windows and
composite frame materials will continue.
DOORS. The Combined Company sells through the Wing Business predominantly
solid wood and hollow core interior doors. According to Door and Window
Fabricator, sales volumes for residential interior passage doors in North
America reached 30.4 million units, while a total of 34.05 million residential
closet and bi-fold doors were shipped, 80% of them into the new home market. The
U.S. door market has increased 11.2% in total dollar sales over the last four
years. As a reaction to the increase in price of solid wood doors, industry-wide
sales of hollow core doors have increased.
Demand for doors is derived from three principal segments: new residential
construction, repair and remodeling and commercial construction. The Wing
Business is primarily affected by repair and remodeling expenditures as its
products are predominately sold at home centers that cater to the
"do-it-yourself" market and to the smaller builders who principally do
remodeling work. The Combined Company estimates that interior doors sold to the
repair and remodeling segment constitute approximately one-third of all interior
doors sold in the U.S. The Combined Company believes that the repair and
remodeling segment will continue to experience strong growth since approximately
three quarters of total housing transactions are sales of existing homes.
According to data from the Census Bureau and U.S. Department of Commerce,
total sales in the residential repair and remodeling markets have grown from
$91.3 billion in 1986 to $125.3 billion in 1997, and, over the period of the
last 25 years, total expenditures in this sector grew more than $100.0 billion.
In addition, the Wing Business' products are carried in 80% of Home Depot stores
and almost 100% of Lowe's stores, the two leaders in the home center retail
industry, both of which experience strong growth of 20-25% per year. The
Combined Company believes that, as a result of the growth of the home center
retailers and the Wing Business' relationship with Home Depot and Lowe's, its
sales will continue to increase and it will experience significant growth in the
home center retail sector.
COMPETITION
The residential window and door industry is highly fragmented. With few
exceptions, competitors are privately-owned, regional companies with sales under
$100 million. On a national basis the Combined Company competes with a few
national companies in different regions, products, distribution channels and
price points, but does not compete against any company across all of these
areas. The Combined Company competes with various other companies in specific
regions within each market.
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The Combined Company's major competitors in the Atrium Primary Market for
the sale of aluminum windows are Reliant Building Products, Inc. and Caradon
Better-Bilt Inc. In the vinyl window and door segment, there is no dominant
manufacturer that operates on a national basis. Regional manufacturers that
compete on a local and regional basis characterize the segment. Historically,
demand for vinyl windows and doors has been concentrated in the cooler regions
of the United States. The Combined Company's major competitors for the sale of
vinyl windows are SilverLine Building Products and Milgard Manufacturing Inc. In
addition, the Combined Company competes with a number of regional manufacturers
that sell directly to repair and remodeling contractors.
In the wood window and door segment of the industry, two large
manufacturers, Andersen Corporation and Pella Corporation, sell premium products
on a national basis. The Combined Company's wood windows and doors are sold at a
medium price point and primarily through home centers throughout the United
States. The Combined Company has many competitors of its price point in the wood
window and door segment, including Kolbe & Kolbe Millwork Co. Inc. and Hurd
Millwork Co. Inc.
The Combined Company estimates that approximately 60% of all interior
passage doors sold through home centers are pre-hung. The Combined Company
expects this trend to continue growing due to the convenience and ease of
installation of pre-hung doors. The pre-hung door industry is very fragmented
and consists primarily of hundreds of small companies that do not manufacture
doors and who have annual sales of under $20 million each. These companies are
finding it increasingly difficult to compete due to their lack of manufacturing
capability. One of the Combined Company's key competitors is Premdor, Inc.,
based in Canada, which both manufactures and pre-hangs doors. Other competitors
include Steves and Sons in San Antonio, TX and Haley Bros. in Los Angeles,
California.
The hollow core door market is growing, as the price of the product has
increased its market share relative to solid wood doors. Key competitors of the
Combined Company in this market include Premdor, Inc, Steves and Sons, Lifetime,
Arrow Door and Jeld-Wen. This market is characterized by medium sized regional
companies with annual revenues ranging from $40.0 million to $60.0 million and
with one to three manufacturing facilities.
The wood passage door market is characterized by all sizes of regional and
national door manufacturers. Many smaller manufacturers who tended to specialize
in this category have been driven out of the market as demand for passage doors
shifted to the lower cost hollow core doors and South American companies with
less expensive wood sources developed enough infrastructure to compete in the
United States. Manufacturing capacity has been consolidated in larger cost
competitive manufacturers who offer diversified product lines and have greater
financial resources. The Combined Company's main domestic competitors in this
product line are primarily Jeld-Wen and Woodgrain Millwork. Its foreign
competitors are primarily Andinos and Sincol from South America.
The Combined Company has identified four companies that focus on the
pre-hanging and installing doors and other building products to developers of
multi-family projects: Royal Door Ltd. located in Houston, Texas, Daven Products
based in Dallas, Texas, Delta Millwork in Orlando, Florida and Universal
Construction Company located in Orlando, Florida.
INFLATION AND RAW MATERIALS
During the past several years, the rate of general inflation has been
relatively low and has not had a significant impact on the Combined Company's
results of operations. The Combined Company purchases raw materials, including
aluminum, glass, wood and vinyl, that are subject to fluctuations in price that
may not reflect the rate of general inflation. These materials fluctuate in
price based on supply and demand. Historically, there have been periods of
significant and rapid aluminum and wood price changes, both upward and downward,
with a concurrent short-term impact on the Combined Company's operating margins.
The Combined Company has historically mitigated the effects of these
fluctuations over the long-term by passing through price increases to its
customers and through other means. For example, the
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Atrium Business enters into forward commitments for aluminum billet to hedge
against price changes. See the footnotes to Atrium's Consolidated Financial
Statements for the year ended December 31, 1997. The primary raw materials used
in the production of the Combined Company's windows and doors are readily
available and are procured from numerous suppliers. Currently, wood is purchased
through multiple sources from around the world, with little dependence on one
company or one country.
SEASONALITY
The new home construction market and the market for external repairs and
remodeling in northern climates are seasonal, with increased related product
sales in the second and third quarters. The market for interior repairs and
remodeling in northern climates tends to grow in the fourth and first quarters.
Although this results in seasonal fluctuations in the sales of certain of the
Combined Company's products, the complementary nature of the Atrium Business'
and the Wing Business' selling seasons should mitigate for the Combined Company
what had historically been a more significant seasonal variation in working
capital requirements before the Transactions.
CYCLICALITY
Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity and the demand for repair and
remodeling. For the 12 months ended June 30, 1998, the Combined Company believes
that approximately 45% of its pro forma consolidated revenues were related to
new home construction. Trends in the housing sector directly impact the
financial performance of the Combined Company. Accordingly, the strength of the
U.S. economy, the age of existing home stock, job growth, interest rates and
migration of the inter/intra U.S. population have a direct impact on the
Combined Company. Cyclical declines in new housing starts may adversely impact
the Combined Company and there can be no assurance that any such adverse effects
would not be material. See "Risk Factors--Cyclicality."
EMPLOYEES
The Combined Company employs approximately 3,000 persons, of whom
approximately 2,950 are employed at the Combined Company's manufacturing
facilities and distribution centers and approximately 50 are employed at
corporate headquarters. Approximately 1,200 of the Combined Company's hourly
employees are covered by collective bargaining agreements. The Issuer entered
into collective bargaining agreements in 1998 with the United Needle and
Industrial Trade Employee Union, SWRJB, ACTWU, AFL-CIO-CLC, covering certain
employees at the Atrium Aluminum, H-R Windows, Atrium Wood and Extruders
manufacturing facilities, all of which expire in May, 2001.
In addition, the Issuer has collective bargaining agreements with The Sheet
Metal International Association Local Union NO. 54, due to expire on September
30, 2001, for its Kel-Star operations and Local Union 2743, Southern Council of
Industrial Workers, Chartered By United Brotherhood of Carpenters and Joiners of
America, AFL/CIO, due to expire on October 6, 2001, for its Woodville Extruders
operations. There are no union affiliations in connection with the Atrium
Business' Bishop facilities or with the Wing or Darby Businesses. The Combined
Company may experience additional union-organizing activities in the future,
which may result in the negotiation of additional collective bargaining
agreements. There is no assurance that any additional negotiations or collective
bargaining agreements would not have an adverse effect on the results of
operations of the Combined Company. The Combined Company believes that its
relationship with its employees is satisfactory.
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FACILITIES
The Combined Company's operations are conducted at the owned or leased
facilities described below:
<TABLE>
<CAPTION>
CAPACITY
(SQUARE) OWN
LOCATION PRINCIPAL USE FEET LEASE
- -------------------------------- ---------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Dallas, Texas*.................. Fabrication (H-R Windows) 186,000
Fabrication (Atrium Wood) 266,000
Fabrication (Atrium Vinyl) 90,000
-----------
542,000 Lease
Irving, Texas................... Fabrication (Atrium Aluminum) 147,218
Extrusion (North Texas Die & Tool) 1,400
-----------
148,618 Own
Irving, Texas................... Distribution (Atrium Door & Window Distributors of Texas)
22,000
Fabrication (Atrium Aluminum) 98,000
-----------
120,000 Own
Wylie, Texas.................... Extrusion (Extruders) 100,000 Own
Carrollton, Texas............... Extrusion (Dow-Tech) 25,200 Lease
Phoenix, Arizona................ Distribution (Atrium Door & Window Distributors of
Arizona) 44,743 Lease
Las Vegas, Nevada............... Distribution (Atrium Door & Window Distributors of Nevada) 30,400 Lease
Woodville, Texas................ Fabrication (Kel-Star Building Products) 180,000
Extrusion (Woodville Extruders) 120,000
-----------
300,000 Lease
San Antonio, Texas.............. Distribution (H-R Distributors) 10,000 Lease
Anaheim, California............. Fabrication (ADW--West Coast) 80,000 Lease
Union City, California.......... Distribution (ADW--West Coast) 10,000 Lease
Portland, Oregon................ Distribution (ADW--West Coast) 10,000 Lease
Salt Lake City, Utah............ Distribution (ADW--West Coast) 10,000 Lease
Clinton, Massachusetts.......... Fabrication (ADW-New England) 31,000 Own
Bridgeport, Connecticut......... Fabrication (ADW-Northeast) 75,000 Lease
Farmingdale, New York........... Distribution (Atrium Door & Window Distributors of New
York) 6,000 Lease
Greenville, Texas............... Manufacture of solid wood and hollow core bi-fold and
passage doors; pre-hanging; warehouse; office 180,000 Own
Greenville, Texas............... Door finishing operation; custom door manufacture;
warehouse; office 30,000 Lease
Hanover Park, Illinois.......... Manufacture of hollow core bi-fold and passage doors;
pre-hanging; warehouse 73,000 Lease
Allentown, Pennsylvania......... Manufacture of hollow core bi-fold and passage doors; door
pre-hanging; warehouse 105,000 Lease
Cleveland, Ohio................. Door pre-hanging; warehouse 30,000 Lease
Charlotte, North Carolina....... Door pre-hanging; warehouse 40,000 Lease
Florence, Alabama*.............. Door pre-hanging; distribution warehouse; office 60,000 Lease
-----------
TOTAL 2,060,961
-----------
-----------
</TABLE>
- ------------------------
* Leased from affiliates of certain stockholders. See "Certain Relationships
and Related Transactions--Facility Leases."
63
<PAGE>
The Combined Company maintains its corporate headquarters in Dallas, Texas.
The facilities provide approximately 11,000 square feet and are leased for a
seven-year term expiring in 2004.
The Combined Company believes that its manufacturing plants are generally in
good operating condition and are adequate to meet future anticipated
requirements.
BACKLOG AND MATERIAL CUSTOMERS
The Combined Company has no material long-term contracts. Orders are
generally filled within 5 to 7 days of receipt. The Combined Company's backlog
is subject to fluctuation due to various factors, including the size and timing
of orders for the Combined Company's products and is not necessarily indicative
of the level of future revenue.
The Combined Company's sales are concentrated with one of the leading home
center retailers, Home Depot. For the 12 months ended June 30, 1998, Home Depot
accounted for approximately 20.5% of the Combined Company's pro forma
consolidated revenues.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Combined Company is subject to numerous federal and state statutes and
regulations relating to, among other things, air and water quality, the
discharge of materials into the environment, and safety and health issues. The
Combined Company does not expect ongoing compliance with such provisions to have
a material impact on the Combined Company's earnings or competitive position in
the foreseeable future. Additionally, no significant capital expenditures are
anticipated related to ongoing compliance with such provisions. However, the
applicable requirements under the law are subject to amendment, and to the
imposition of new, other, or additional requirements and to changing
interpretations of agencies or courts. No assurance can be given that new, other
or additional requirements would not be imposed or that expenditures, including
material expenditures, would not be required to comply.
The Combined Company is involved in various stages of investigation and
cleanup relative to environmental protection matters, some of which relate to
waste disposal sites. The potential costs related to such matters and the
possible impact thereof on future operations have been assessed, and the
Combined Company believes that it has made adequate provision for these costs
such that they will have no material adverse effect upon the financial condition
or operations of the Combined Company. The Combined Company cannot be certain
that significant capital expenditures will not become necessary for
investigation and cleanup of environmental conditions which are currently
unknown. The Issuer and/or its subsidiaries have been named as a party in
several government enforcement and private actions associated with old waste
disposal sites, some of which are on the U.S. Environmental Protection Agency's
Superfund priority list. These actions seek cleanup costs and in some cases,
damages for personal injury or property damage. Given the uncertain nature of
liability under CERCLA for Superfund sites, and uncertainties regarding factual
circumstances, the remedy to be implemented, and other factors, the Combined
Company cannot determine with certainty the extent of its liability, if any.
However, the Combined Company does not believe, based upon the information
available at this time, that the outcome of the matters discussed above will
result in liability which exceeds the limited amount of its alleged contribution
to the respective sites, and does not believe that there will be any material
adverse effect on the Combined Company's financial condition, results of
operations or liquidity.
LEGAL PROCEEDINGS
The Combined Company is involved from time to time in litigation arising in
the ordinary course of its business, none of which, after giving effect to the
Combined Company's existing insurance coverage, is expected to have a material
adverse effect on the Combined Company.
64
<PAGE>
THE TRANSACTIONS
THE MERGER
On October 2, 1998, Merger Sub was merged with and into Atrium Corp. with
Atrium Corp. as the surviving corporation pursuant to the Merger Agreement.
Merger Sub was a wholly-owned subsidiary of Holdings, whose stockholders include
GEIPPPII and Ardatrium, an affiliate of Ardshiel, Inc. GEIPPPII is a private
equity partnership affiliated with GE Investments, a wholly-owned investment
management subsidiary of General Electric Company. Ardshiel is a private equity
investment firm based in New York which has completed more than 35 transactions
since its inception in 1975. GEIPPPII and Ardshiel and its affiliates have
co-invested in five previous transactions.
Pursuant to the terms of the Merger Agreement, all of the outstanding equity
securities of Atrium Corp. were converted into the right to receive the Merger
Consideration (other than $2.7 million of equity securities of Atrium Corp.
owned by certain members of management of Atrium Corp. which were converted into
comparable equity securities of Holdings). The Merger Consideration was funded
in part with (i) $50.0 million in cash comprising the Merger Sub Contribution
that became an asset of Atrium Corp. in the Merger, (ii) $20.0 million in cash
proceeds from the Discount Debentures Issuance, (iii) approximately $24.0 in
cash proceeds from the Intercompany Loan which was funded by a portion of the
proceeds of a term loan to the Issuer under the Credit Facility (as defined
herein) and (iv) $0.2 million in cash proceeds from the issuance of common stock
of Holdings to certain members of management of Atrium followed by a capital
contribution of such proceeds by Holdings to Atrium Corp. See "Description of
Certain Indebtedness."
THE RECAPITALIZATION
GEIPPPII and Ardatrium formed Holdings, acquiring all of its outstanding
common stock for an aggregate purchase price of $50.0 million. Holdings formed
Merger Sub as a wholly-owned subsidiary and contributed the Merger Sub
Contribution in exchange for all of Merger Sub's outstanding common stock.
Immediately prior to the consummation of the Merger, all of the outstanding
subordinated debt and warrants to purchase common stock of each of WIH and Door
(other than certain warrants to purchase common stock of WIH held by Ardshiel)
were converted into common stock of WIH and Door, respectively. The stockholders
of WIH and Door contributed their common stock in WIH and Door to Holdings in
exchange for common stock of Holdings and warrants to purchase Common Stock of
Holdings were substituted for certain warrants to purchase common stock of WIH
held by Ardshiel. Immediately after the consummation of the Merger, Holdings
contributed all of the common stock of WIH and Door to Atrium Corp., which in
turn contributed the common stock of WIH and Door to Atrium. Houlihan Lokey, an
independent investment banking firm, appraised the aggregate value of the WIH
and Door common stock contributed to Atrium at $52.0 million.
THE CREDIT FACILITY AND THE CONTINGENT CAPITAL CONTRIBUTION
To finance the payment of a portion the Merger Consideration, the Existing
Debt Repayment, a portion of the Change of Control Offer and related fees and
expenses, the Issuer entered into the Credit Facility. Amounts used to finance a
portion of the Merger Consideration were loaned by the Issuer to Atrium Corp.
pursuant to the Intercompany Loan. See "Certain Relationships and Related
Transactions." The Credit Facility is comprised of two term loan facilities in
the amounts of $75.0 million and $100.0 million and a revolving credit facility
and letter of credit sub facility in the amounts of $30.0 million and $5.0
million, respectively. Borrowings under the Credit Facility bear interest at the
Issuer's option at either (a) the greater of (i) the Administrative Agent's
corporate base rate and (ii) the federal funds rate plus 0.5% per annum, plus in
each case, the Applicable Margin or (b) LIBOR plus the Applicable Margin.
65
<PAGE>
Upon the consummation of the Merger, $75.0 million of the $100.0 million
term loan facility was placed in the Escrow to fund a portion of the amounts
payable, if any, in the Change of Control Offer. Any revolving loans the
proceeds of which remain in escrow after the Change of Control Expiration Date
mature on the next succeeding day.
In addition, upon consummation of the Merger, GEIPPPII and Ardatrium
deposited into the Escrow $25.0 million. In the event amounts are payable in the
Change of Control Offer, some or all of such fund will be used to purchase
Discount Debentures from Atrium Corp. The proceeds of such Discount Debentures
will then be advanced by Atrium Corp. to the Issuer in the Contingent Capital
Contribution to pay, together with the other amounts place in escrow described
in the preceding paragraph, amounts payable in the Change of Control Offer.
The balance (which will not exceed $1.0 million, plus accrued and unpaid
interest on the Notes, if any), if any, of amounts payable in excess of $100.0
million in the Change of Control Offer will be paid from available cash or
financed with the proceeds of revolving loans under the Credit Facility.
66
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table provides information concerning the directors and the
executive officers of Holdings and its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Randall S. Fojtasek................................. 35 President, Chief Executive Officer and Director
R.L. Gilmer......................................... 45 Chief Operating Officer and Director
Jeff L. Hull........................................ 32 Chief Financial Officer, Treasurer and Secretary
Louis W. Simi, Jr................................... 58 Executive Vice President, Atrium Companies, Inc.
Michael Quadhamer................................... 34 President, Wing Industries, Inc.
Cliff Darby......................................... 32 President, R.G. Darby Company, Inc. and Total Trim,
Inc.
Sam A. Wing, Jr..................................... 75 Chairman Emeritus and Director
Daniel T. Morley.................................... 46 Chairman of the Board of Directors
James G. Turner..................................... 30 Vice President and Director
Roger A. Knight..................................... 39 Director
Andreas Hildebrand.................................. 31 Director
Donald W. Torey..................................... 41 Director
Nimrod Natan........................................ 35 Director
</TABLE>
Randall S. Fojtasek has served as President and Chief Executive Officer and
Director of Holdings since the closing of the Transactions. Prior to that, Mr.
Fojtasek served as President and Chief Executive Officer of the Issuer from
1993. From 1989 to 1993, he served as Vice President of Operations and General
Manager of Atrium Door & Window Company. Mr. Fojtasek has served as a Director
of the Issuer since 1988.
R.L. Gilmer has served as the Chief Operating Officer and Director of
Holdings since the closing of the Transactions. Mr. Gilmer has also served as
President and Chief Executive Officer of WIH since 1996. Prior to that, he was
Vice President of Wing from July 1993 to October 1996. Mr. Gilmer has served
Wing in various capacities since 1986 including as Controller and Manufacturing
Manager. Prior to joining Wing, Mr. Gilmer was with the accounting firm of
Arthur Andersen & Co. Mr. Gilmer is a certified public accountant.
Jeff L. Hull has served as Chief Financial Officer, Treasurer and Secretary
of Holdings since the closing of the Transactions. Prior to that, Mr. Hull
served as Chief Financial Officer of the Issuer from April 1996 and Secretary
and Treasurer of the Issuer from December 1996. Prior to that, Mr. Hull managed
the asset/liability department of AmVestors Financial Corporation (NYSE:AMV)
from June 1995. From 1990 to 1994, he was an audit manager with the accounting
firm of Deloitte & Touche. Mr. Hull is a certified public accountant.
Louis W. Simi, Jr. has served as Executive Vice President, Atrium Companies,
Inc. since the closing of the Transactions. Mr. Simi served as Executive Vice
President of the Issuer from 1993 to October 1998 and General Manager of Atrium
Aluminum, a division of the Issuer, from 1971 to 1998. Mr. Simi also served as
Director of the Issuer from July 1995 to November 1996. He has served in other
capacities with the Issuer and its subsidiaries since 1966.
67
<PAGE>
Michael Quadhamer has served as President of Wing since the closing of the
Transactions. Prior to that, he served as Vice President and Chief Financial
Officer of WIH from October 1996 until October 1998. Mr. Quadhamer has served
Wing in various capacities since 1991 including as Controller and as Director of
Global Operations. Prior to joining Wing, he worked for the accounting firm of
Arthur Andersen & Co. Mr. Quadhamer is a certified public accountant.
Cliff Darby has served as President of Darby since the closing of the
Transactions. Prior to that, Mr. Darby served as President of Darby from 1993
and has worked for Darby since 1988, performing numerous functions including
overseeing operations in the door plant, installing materials for Total Trim,
Inc., sales, and pricing of jobs.
Sam A. Wing, Jr. has served as Chairman Emeritus and Director since the
closing of the Transactions. Mr. Wing has served Wing in various capacities
since 1946, including as Chairman Emeritus from 1996 until October 1998, as
Chairman and Chief Executive Officer from 1995 until 1996 and as Chairman from
1994 until 1995. Prior to that, Mr. Wing was Chairman and Chief Executive
Officer of Wing from 1969 to 1994, having joined Wing in 1946.
Daniel T. Morley has served as Chairman of the Board of Directors of
Holdings since the closing of the Transactions. Mr. Morley has served as
President of Ardshiel since 1997 and Chairman of WIH since 1996 and Door since
January 1998. Mr. Morley also serves as Chairman of Astro Textiles, Inc. and
Koala Holdings, Inc.
James G. Turner has served as Vice President and Director of Holdings since
the closing of the Transactions. Mr. Turner has served as a Principal of
Ardshiel since June 1997. Mr. Turner has also served as a Director of WIH since
October 1997 and Door since December 1997. From March 1994 until June 1997, Mr.
Turner worked as Associate for Ardshiel. Prior to that, Mr. Turner worked for
Chemical Banking Corp. from 1991.
Roger A. Knight has served as Director of Holdings since the closing of the
Transactions. Mr. Knight has served as a Principal of Ardshiel since May 1998.
Prior to joining Ardshiel, he worked for the accounting firm of
PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.) from 1991. Mr.
Knight is a certified public accountant.
Andreas Hildebrand has served as Director of Holdings since the closing of
the Transactions. Mr. Hildebrand is Vice President--Private Equities of GE
Investments (as defined below). Mr. Hildebrand also served as a Director of WIH
since October 1997 and of Door since January 1998. He has served in other
capacities with GE Investments during the past five years. Mr. Hildebrand is
also a Director of Eagle Family Foods Holdings, Inc.
Donald W. Torey has served as Director of Holdings since the closing of the
Transactions. Mr. Torrey is Executive Vice President of General Electric
Investment Corporation and General Electric Investment Management Incorporated
(collectively, "GE Investments") and Trustee of General Electric Pension Trust.
He has served in other capacities with GE Investments during the past five
years.
Nimrod Natan has served as Director of Holdings since the closing of the
Transactions. Mr. Natan has served as a Principal of Ardshiel since 1997. Mr.
Natan also serves as a director of Wing and Astro Holdings, Inc. Prior to
joining Ardshiel in 1997, Mr. Natan was a management consultant with Gemini
Consulting for four years.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS. The following table provides
certain summary information for the years ended December 31, 1996 and December
31, 1997 concerning compensation paid or accrued by the Combined Company to or
on behalf of the Chief Executive Officer and the four other most
68
<PAGE>
highly compensated persons functioning effectively as executive officers of the
Combined Company whose combined salary and bonus exceeded $100,000 during such
period (the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION COMPENSATION
POSITION(1) YEAR ($) ($) ($)(2) ($)
- ----------------------------------------------- ----------- --------- ---------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Randall S. Fojtasek............................ 1997 350,000 125,000(4) -- 308,928(3)
President and Chief Executive Officer 1996 303,865 3,075,000 -- 221,500(5)
R.L. Gilmer.................................... 1997 138,679 70,000 -- --
Chief Operating Officer 1996 106,113 286,889 -- --
Louis W. Simi, Jr.............................. 1997 125,000 250,690 -- 106,025(3)
Executive Vice President, 1996 125,000 270,681 -- 282,886(5)
Atrium Companies, Inc.
Michael Quadhamer.............................. 1997 118,000 70,000 -- 3,000(6)
President, Wing Industries, Inc. 1996 98,000 73,160 -- 450(6)
Cliff Darby.................................... 1997 150,000 66,000 -- 8,000(7)
President, R.G. Darby 1996 150,000 66,000 -- 8,000(7)
Company, Inc. and Total Trim, Inc.
</TABLE>
- ------------------------
(1) Messrs. Fojtasek's and Simi's compensation was paid by the Issuer, Messrs.
Gilmer's and Quadhamer's compensation was paid by Wing and Mr. Darby's
compensation was paid by Darby.
(2) Perquisites related to automobile allowances are excluded since the
aggregated amounts are the lesser of $50,000 or 10% of the total annual
salary.
(3) Amounts represent fees received in connection with the termination of the
purchase and sale agreement to acquire PlyGem Industries, Inc.
(4) Includes one-time bonus for completion of the Hicks Muse Transaction.
(5) In connection with the Heritage Transaction, certain members of management
were granted options at below fair market prices. Accordingly, compensation
expense is being recognized for financial statement purposes. Upon
completion of the Hicks Muse Transaction and the exercise of these options,
the compensatory portion of the options were reflected in the individual's
wages and in the Issuer's financial statements.
(6) Represents annual contribution to Wing's defined contribution plan.
(7) Represents annual contribution to Darby's profit sharing plan.
OPTION GRANTS DURING 1997. No options were granted to the Named Executive
Officers during the year ended December 31, 1997.
69
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL-YEAR-END OPTION VALUES. The
following table sets forth option exercises by the Named Executive Officers and
the value of the in-the-money unexercised options held at December 31, 1997.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON OPTIONS AT FY-END (#) OPTIONS AT FY-END
EXERCISE VALUE ---------------------------- -----------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek................... -- -- 1,647,391 547,831 $ 2,561,543(1) $ 410,873(1)
R.L. Gilmer........................... -- -- 844 2,957 --(2) --(2)
Louis W. Simi, Jr..................... -- -- 102,247 408,990 145,986(1) 583,942(1)
Michael Quadhamer..................... -- -- 844 2,957 --(2) --(2)
Cliff Darby........................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Represents options held by the named individual to purchase the common stock
of Atrium Corp. Based on the fair market value of the option shares at
fiscal year end ($1.75 per share) less the exercise price per share payable
for such shares.
(2) Represents options held by the named individuals to purchase the common
stock of WIH. Based on the fair market value of the option shares of fiscal
year end ($1.00 per share) less the exercise price per share payable for
such shares.
OPTION PLANS
In connection with the Merger, the Board of Directors and stockholders of
Holdings adopted the D and W Holdings, Inc. 1998 Stock Option Plan (the "Option
Plan") providing for the grant of options to purchase common stock of Holdings
("Holdings Common Stock") to Key Employees and Eligible Non-Employees (as
defined by the Option Plan) of Holdings and its subsidiaries. The Option Plan
provides for the grant of options to purchase up to 11,991,142 shares of
Holdings Common Stock. In conjunction with the Merger, options to purchase
3,582,353 shares of Holdings Common Stock were granted to management of Door and
Wing in exchange for outstanding options to purchase stock of such entities.
Options to purchase an additional 8,153,588 shares of Holdings Common Stock were
granted to management of Holdings and its subsidiaries contemporaneously with
the Merger. After the Merger, 255,201 shares of Holdings Common Stock were
reserved for future grants under the Option Plan. The Option Plan is
administered by the Compensation Committee of the Board of Directors of
Holdings.
The Option Plan provides that options may be granted in the form of
incentive options qualified for favored tax treatment under Section 422 of the
Internal Revenue Code or in the form of non-qualified options, which do not
qualify under Section 422. All options granted in connection with the Merger are
non-qualified options. Unless otherwise provided by the Compensation Committee,
options granted under the Option Plan generally have a term of ten (10) years
from the date of grant and vest in equal installments annually over five years
dependent on continued employment. No option is exercisable until it has vested.
Options granted upon consummation of the Merger in exchange for outstanding
options of Door and Wing continue to vest on the schedule applicable to the
exchanged options. Of such options, options to purchase 371,138 shares of
Holdings Common Stock were fully vested upon grant. Of the options granted in
connection with the Merger, options to purchase 993,115 shares of Holdings
Common Stock will vest only in connection with a Value Event, defined as (i) the
sale of Holdings Common Stock by Holdings in an offering registered with the
Securities and Exchange Commission which constitutes a Qualifying Public
Offering (as defined in the Option Plan) (ii) Holdings merging or consolidating
with another corporation in a merger in which the surviving corporation has
freely tradeable common stock, or (iii) the sale or transfer of substantially
all of the assets of Holdings and its subsidiaries, taken as a whole. The
exercise price of all options was set by the Compensation Committee upon grant,
and with respect to
70
<PAGE>
incentive options is at least equal to the fair market value of the Holdings
Common Stock on the date of grant.
Options are nontransferable other than in accordance with the laws of
descent and distribution. Unvested options will expire, unless otherwise
provided by the Compensation Committee, upon the optionee's death, disability or
termination of employment for any reason. Upon an optionee's death or disability
the optionee or his or her representative or heir will have the right to
exercise the vested portion of any options for 180 days after the date of death
or disability. Upon termination for Cause (as defined by the Option Plan) or
voluntary termination by the optionee without Good Reason (as defined by the
Option Plan) all vested options will automatically expire. Upon termination of
employment for any other reason, including retirement or termination without
cause, the optionee will have the right to exercise the vested portion of any
option for 30 days after the date of termination. Also, upon termination of an
optionee's employment for any reason, Holdings will have the right to purchase
outstanding options and any shares of Holdings Common Stock held by the optionee
as a result of the exercise of an option. If termination occurs with Cause, the
purchase price will be the lesser of the Fair Market Value (as defined by the
Option Plan) of the Holdings Common Stock or the original cost of the shares or
options purchased, minus the exercise price of any options purchased. In all
other cases, the purchase price will be equal to the Fair Market Value of the
Holdings Common Stock, minus the exercise price of any options purchased.
REPLACEMENT STOCK OPTION PLAN
In addition to the Option Plan, the Board of Directors and stockholders of
Holdings adopted the Holdings Replacement Stock Option Plan (the "Replacement
Plan") to govern the terms of certain options to purchase Holdings Common Stock
which were granted in replacement of outstanding options of Atrium Corp. in
connection with the Merger. Under the Replacement Plan, options to purchase in
aggregate of 1,575,000 shares of Holdings Common Stock were granted in exchange
for outstanding options of Atrium Corp. which were not cashed out pursuant to
the Merger Agreement. The options granted pursuant to the Replacement Plan vest
ratably over a period of five years on each anniversary date of the grant. The
replacement options have an exercise price of $0.01 per share.
Upon termination of an optionee's employment, Holdings shall have the right
to repurchase from the optionee all or any portion of their replacement option.
In the event such termination of employment is for cause, as defined by the
Replacement Plan, the price per option repurchased will be equal to the lesser
of $1.00 per underlying share and the Market Value Per Share of Holdings Common
Stock, as defined by the Replacement Plan, in either case, minus $0.01 per
share. If termination occurs for any reason other than cause, the repurchase
price will, (i) for the unvested portion of an option be equal to the lesser of
the Market Value Per Share and $1.00 per share, in each case minus $0.01 per
share, and (ii) for the vested portion of an option, be equal to the greater of
Market Value Per Share or $1.00, in each case minus $0.01 per share. Upon
exercise of any vested portion of a replacement option, Holdings may require the
optionee to execute a buy-sell agreement containing provisions similar to the
repurchase provisions described above, as a condition to such option exercise.
The Replacement Plan provides that all options granted thereunder are in the
form of nonqualified option, which are options that do not qualify for favored
tax treatment under Section 422 of the Internal Revenue Code. The replacement
options have a term of 20 years from the date of grant subject to early
termination in connection with termination of employment. No option is
exercisable until it is vested. Replacement options are not transferable by an
optionee, either voluntary or involuntarily or by operation of law, except that
options may be transferred to an optionee's family members or personal
representative, so long as the transferee agrees to be bound by the provisions
of an option agreement and Replacement Plan.
71
<PAGE>
EMPLOYMENT AGREEMENTS
Upon the consummation of the Merger, Mr. Fojtasek entered into an employment
agreement with Holdings pursuant to which he serves as President and Chief
Executive Officer of Holdings. Mr. Fojtasek also serves as a member of the Board
of Directors of Holdings. Under the terms of Mr. Fojtasek's employment
agreement, he is entitled to receive an annual base salary of $350,000, subject
to increase at the discretion of the Board of Directors. The agreement provides
that Mr. Fojtasek may receive an annual performance bonus in the amount of up to
$150,000 as set by the Board of Directors. Mr. Fojtasek's employment agreement
has a three-year term commencing as of the closing of the Merger. Pursuant to
the agreement, Mr. Fojtasek was granted a warrant to purchase 2,841,221 shares
of common stock of Holdings ("Warrant A"). Warrant A is immediately exercisable
upon grant, at an exercise price of $.01 per share. The term of Warrant A is ten
years. In addition, Mr. Fojtasek was granted a warrant to purchase 1,894,148
shares of Holdings Common Stock ("Warrant B"), which shares may be purchased at
an exercise price of $1.00 per share. Warrant B will become exercisable only
after the date on which the $50,000,000 aggregate investment in Holdings made
contemporaneously with the Merger by GEIPPPII and Ardatrium achieves an internal
rate of return of 8%. The term of Warrant B is also ten years. The agreement
also provides that in the event Mr. Fojtasek is terminated by Holdings without
cause or terminates his employment for good reason, as defined in the agreement,
Holdings will pay to Mr. Fojtasek a payment (i) in a lump sum of his annual base
salary earned or accrued through the termination date, reimbursement of his
reasonable and necessary expenses, any unpaid accrued vacation pay and any
amount arising from his benefits to be received pursuant to Holdings' investment
plans, (ii) in regular installments his then annual base salary (plus an amount
in reimbursement for certain expenses equal to $2,000 per month) for a period
that ends on the later of (A) the last day of his employment term or (B) 18
months from the termination date, and (iii) an annual bonus in an amount equal
to $50,000 for each year in the remainder of his employment term. Pursuant to
the agreement, Mr. Fojtasek agrees not to compete with the Holdings until the
later of (x) the expiration of the term of his employment agreement and (y) 18
months after the termination of his employment under the agreement. In addition,
in exchange for certain warrants to purchase common stock of Atrium Corp., Mr.
Fojtasek received a warrant to purchase 1,000,000 shares of Holdings Common
Stock at a price of $.01 per share with a term of twenty years.
Upon consummation of the Merger, Mr. Hull entered into an employment
agreement with Holdings pursuant to which he serves as Chief Financial Officer
of Holdings. Under the terms of Mr. Hull's employment agreement, he is entitled
to receive an annual base salary of $155,000, subject to increase at the
discretion of the Board of Directors. The agreement provides that Mr. Hull may
receive an annual performance bonus of up to $100,000, (a) 50% of which will be
payable contingent on achievement of Holdings' EBITDA plan, (b) 35% of which
will be payable upon achievement of Board of Director's established targets for
bad debt collections, account receivable days and month end closing and (c) 15%
of which will be payable contingent on achievement of management's objectives
set from time to time by the Board of Directors. Mr. Hull's employment agreement
has a four year term commencing as of the closing of the Merger. Pursuant to the
agreement, Mr. Hull received options to purchase 1,183,842 shares of Holdings
Common Stock pursuant to the Option Plan. The options have an exercise price of
$1.00 per share, subject to adjustment under the Option Plan, and will vest in
equal installments over four years from the date of grant. The agreement also
provides that in the event Mr. Hull is terminated by Holdings without cause, or
terminates his employment for good reason, Holdings will pay to Mr. Hull a
payment (i) in a lump sum of his annual base salary earned or accrued through
the termination date, reimbursement of his reasonable and necessary expenses,
any unpaid accrued vacation pay and any amount arising from his benefits to be
received pursuant to Holdings' investment plans, (ii) of a prorated portion of
his incentive bonus and (iii) of one-twelfth of his annual base salary on the
date of termination together with 80% of his maximum incentive bonus for each
month during a period of twelve months following the date of his termination.
Such payments would also be made if Mr. Hull's employment is terminated by
Holdings in connection with a change of control of Holdings, as defined in the
agreement. Pursuant to the agreement, Mr. Hull agrees not to compete with
Holdings until (i) one year following termination by
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Holdings for cause or due to disability or as a result of termination initiated
by him without good reason, or (ii) the last day of any period he is receiving
severance payments upon termination by Holdings without cause or upon a change
of control, or as a result of termination initiated by him with good reason.
Upon consummation of the Merger, Mr. Gilmer entered into an employment
agreement with Holdings pursuant to which he serves as Chief Operating Officer
of Holdings. Under the terms of Mr. Gilmer's employment agreement, he is
entitled to receive an annual base salary of $215,000, subject to increase at
the discretion of the Board of Directors. The agreement provides that Mr. Gilmer
may receive an annual performance bonus of up to $125,000, (a) 75% of which will
be payable contingent on achievement of Holdings' EBITDA plan, (b) 15% of which
will be payable contingent on achievement of management objectives set from time
to time by the Board of Directors and (c) 10% of which will be payable
contingent on achievement of a target return on equity for Holdings set by the
Board of Directors. Mr. Gilmer's employment agreement has a four year term
commencing as of the closing of the Merger. Pursuant to the agreement, Mr.
Gilmer received options to purchase 1,183,842 shares of Holdings Common Stock
upon the same terms as the options received by Mr. Hull. The agreement also
provides that in the event Mr. Gilmer is terminated by Holdings without cause,
or terminates his employment for good reason, Holdings will pay to Mr. Gilmer a
payment (i) in a lump sum of his annual base salary earned or accrued through
the termination date, reimbursement of his reasonable and necessary expenses,
any unpaid accrued vacation pay and any amount arising from his benefits to be
received pursuant to Holdings' investment plans, (ii) of a prorated portion of
his incentive bonus and (iii) of one-twelfth of his annual base salary on the
date of termination together with 80% of his maximum base incentive bonus for
each month during a period of twelve months following the date of his
termination. Such payments would also be made if Mr. Gilmer's employment is
terminated by Holdings in connection with a change of control of Holdings, as
defined in the agreement. Pursuant to the agreement, Mr. Gilmer agrees not to
compete with Holdings until (i) one year following termination by Holdings for
cause or due to disability or as a result of termination initiated by him
without good reason, or (ii) the last day of any period he is receiving
severance payments upon termination by Holdings without cause or upon a change
of control, or as a result of termination initiated by him with good reason.
Upon consummation of the Merger, Mr. Quadhamer entered into an employment
agreement with Wing pursuant to which he serves as President of Wing. Under the
terms of Mr. Quadhamer's employment agreement, he is entitled to receive an
annual base salary of $155,000, subject to increase at the discretion of the
Board of Directors. The agreement provides that Mr. Quadhamer may receive an
annual performance bonus of up to $100,000, (a) 25% of which will be payable
contingent on achievement of Wing's EBITDA plan, (b) 50% of which will be
payable contingent on achievement of Holdings' EBITDA plan and (c) 25% of which
will be payable upon achievement of Board of Director's established targets for
accounts receivable days, accounts payable days, inventory days, fixed asset
turnovers and workers compensation claims. Mr. Quadhamer's employment agreement
has a four year term commencing as of the closing of the Merger. Pursuant to the
agreement, Mr. Quadhamer received options to purchase 1,183,842 shares of
Holdings Common Stock upon the same terms as the options received by Mr. Hull.
The agreement also provides that in the event Mr. Quadhamer is terminated by
Wing without cause, or terminates his employment for good reason, Wing will pay
to Mr. Quadhamer a payment (i) in a lump sum of his annual base salary earned or
accrued through the termination date, reimbursement of his reasonable and
necessary expenses, any unpaid accrued vacation pay and any amount arising from
his benefits to be received pursuant to the Wing investment plans, (ii) of a
prorated portion of his incentive bonus and (iii) of one-twelfth of his annual
base salary on the date of termination together with 80% of his maximum
incentive bonus for each month during a period of twelve months following the
date of his termination. Such payments would also be made if Mr. Quadhamer's
employment is terminated by Wing in connection with a change of control of Wing,
as defined in the agreement. Pursuant to the agreement, Mr. Quadhamer agrees not
to compete with Wing and its affiliates until (i) one year following termination
by Wing for cause or due to disability or as a result of termination initiated
by him without good reason, or (ii) the last
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day of any period he is receiving severance payments upon termination by Wing
without cause or upon a change of control, or as a result of termination
initiated by him with good reason.
On January 9, 1998, Cliff Darby entered into an employment agreement with
Door for a term commencing on January 9, 1998 through and including December 31,
2001. This agreement continues to be in full force and effect. Under the terms
of Mr. Darby's employment agreement, he is entitled to receive an annual base
salary of $150,000, subject to increase at the discretion of the Board of
Directors of Door. The agreement also provides that in the event Mr. Darby is
terminated by Door without cause, as defined in the agreement, Door will pay to
Mr. Darby a payment (i) in a lump sum of an amount equal to all compensation
accrued and unpaid as of the date of termination; and (ii) in equal semi-monthly
installments in an amount equal to the compensation to which Mr. Darby would
have been entitled under the agreement for a period of one year if the agreement
had not been terminated. Pursuant to the agreement, Mr. Darby has agreed not to
compete with the business of Door for a period of five years from the date of
the agreement, whether the agreement terminates prior to the end of such five
year period; provided that the non-competition covenant shall apply for one year
following termination without cause by Door regardless of the date of
termination.
Upon consummation of the Merger, Mr. Darby received options to purchase
466,101 shares of Holdings Common Stock, with an exercise price of $1.00 per
share. Such options vest over a five year period from the date of grant.
BOARD OF DIRECTORS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Daniel T. Morley, Andreas Hildebrand and Randall S. Fojtasek serve as
members of the Holdings Compensation Committee.
AUDIT COMMITTEE
James G. Turner and Roger A. Knight serve as the Holdings Audit Committee.
NON-EMPLOYEE DIRECTOR COMPENSATION
Any member of the Board of Directors who is not an officer or employee of
the Combined Company does not receive compensation for serving on the Board of
Directors. The Combined Company anticipates compensating non-employee Directors
not affiliated with GEIPPPII or Ardshiel in the future for their service on the
Board.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE DISCOUNT DEBENTURES
To fund a portion of the Merger Consideration, Atrium Corp. issued $20.0
million of the Discount Debentures to GEIPPPII and Ardatrium in the Discount
Debenture Issuance. To the extent any of the Notes are tendered in the Change of
Control Offer, Atrium Corp. will issue additional Discount Debentures to
GEIPPPII and Ardatrium in the Additional Discount Debenture Issuance and
contribute the proceeds to the Issuer as a capital contribution to fund a
portion of the Change of Control Price. To finance its purchase of such
additional Discount Debentures, if any, GEIPPPII and Ardatrium placed in escrow
upon the consummation of the Merger $25.0 million (the "Sponsor Escrowed
Amount"). See "Description of Certain Indebtedness--Discount Debentures."
Holdings has agreed to cause (i) the Issuer to make dividend payments to
Atrium Corp. to enable Atrium Corp. to make interest and principal payments on,
or to repurchase, redeem or prepay (at par plus accreted value and unpaid
interest), the Discount Debentures, to the extent the Issuer has funds legally
available for the payment of such dividends and the Issuer is not prohibited
from making such dividend payments by the terms of any contract to which it is a
party and (ii) Atrium Corp., to the extent Atrium Corp. is not prohibited from
doing so by the terms of any contract to which it or Holdings is a party, to pay
interest and principal on, or to repurchase, redeem or repay, the Discount
Debentures from the proceeds of any such dividend payment. In addition, Holdings
has granted GEIPPPII and Ardatrium the right to require Holdings to register
under the Securities Act any or all such Discount Debentures then held by such
noteholder.
Subject to certain exceptions, Ardatrium has agreed not to sell, transfer or
otherwise dispose of its Discount Debentures. In addition, Ardatrium has certain
rights and is subject to certain obligations in the event of certain transfers
by GEIPPPII of its Discount Debentures and is entitled, under certain
circumstances, to require GEIPPPII to sell or otherwise dispose of its Discount
Debentures and Equity Securities (as defined in the Stockholders Agreement
referred to below) in an arm's length transaction to any person or persons who
are not affiliates of Ardshiel or purchase Ardatrium's Discount Debentures and
Equity Securities. See "--The Stockholders Agreement."
INTERCOMPANY LOAN
To fund a portion of the Merger Consideration, Atrium Corp. issued a
$24,028,694.75 subordinated intercompany note to the Combined Company in the
Intercompany Loan. The Combined Company in turn used a portion of the proceeds
from the term loan to the Combined Company under the Credit Facility to fund the
Intercompany Loan. The Intercompany Loan bears interest at a rate of 5.66% per
annum computed semiannually, is subordinated to the senior indebtedness of
Atrium Corp. (including without limitation indebtedness under Atrium Corp.'s
guarantee of the Credit Facility and the Discount Debentures), and will mature
on April 2011. Interest shall be paid in cash semi-annually to the Combined
Company on each October 15 and April 15, commencing on April 15, 1999; PROVIDED,
HOWEVER, that, at the option of Atrium Corp., any installment of interest may
instead be accrued and be paid on any subsequent interest payment date or on the
maturity date. Pursuant to subordination provisions, no payments on the
Intercompany Loan may be made until after all obligations owing under senior
indebtedness of Atrium Corp. are paid in full.
THE STOCKHOLDERS AGREEMENT
GEIPPPII, Ardatrium and certain of its affiliates, and certain other
stockholders of Holdings have entered into a Stockholders Agreement (the
"Stockholders Agreement"), dated as of October 2, 1998, which affect their
relative rights as Stockholders (as defined in the Stockholders Agreement) of
Holdings.
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Pursuant to the Stockholders Agreement, the Stockholders have agreed that
the authorized number of directors of Holdings shall consist of up to nine
directors. In the event that there are less than seven directors, the directors
shall include one director designated by GEIPPPII, so long as it is a
Stockholder; Randall Fojtasek, as long as he is an employee of Holdings or any
of its subsidiaries and holds equity securities or securities convertible into
equity securities of Holdings; and each other director shall be designated by
Ardshiel and its affiliates so long as any of them are Stockholders. In the
event the Board of Directors consists of seven or more members, GEIPPPII, so
long as it is a Stockholder, shall be entitled to designate two directors; Mr.
Fojtasek, so long as he is an employee of Holdings or any of its subsidiaries
and holds equity securities or securities convertible into equity securities of
Holdings, shall be a director, and Ardshiel and its affiliates shall designate
the remainder of the directors. Notwithstanding the foregoing, in the event
Holdings or any of its subsidiaries, subject to applicable grace periods and
certain exceptions, default in the payment of principal or interest on
indebtedness, the aggregate outstanding principal amount of which is greater
than $15,000,000 or if the final maturity of any such indebtedness is
accelerated, Ardshiel's and its affiliate's rights to designate directors shall
be limited to the designation of two directors and GEIPPPII shall, as long as it
is a Stockholder, shall be entitled to designate the remainder of the directors
which Ardshiel and its affiliates would otherwise have been entitled to elect.
Upon the occurrence of an initial public offering, GEIPPPII's rights to
designate any director and Mr. Fojtasek's right to be a director shall terminate
and Ardshiel's and its affiliates's rights shall be limited to the designation
of two directors, so long as it is a Stockholder.
Subject to certain exceptions, each of the Stockholders other than GEIPPPII
have agreed not to sell, transfer or otherwise dispose of such Stockholder's
Equity Securities (as defined in the Stockholders Agreement) and Ardatrium has
agreed not to sell, transfer or otherwise dispose of its Discount Debentures. In
the event that GEIPPPII intends to transfer its Equity Securities or Discount
Debentures, each of the other Stockholders or holders of Discount Debentures, as
the case may be, will be entitled to require the purchaser of such Equity
Securities or Discount Debentures to purchase a pro rata portion of the Equity
Securities or Discount Debentures held by such Stockholder or holder of Discount
Debentures. In the event GEIPPPII intends to sell all of the Equity Securities
and/or all of their Discount Debentures owned by it at any time following the
fourth anniversary of the Stockholders Agreement, the other Stockholders or
holders of Discount Debentures, as the case may be, upon notice by GEIPPPII,
will be obligated to sell all of their Equity Securities and/or all of their
Discount Debentures to the proposed transferee. Subject to certain conditions,
Ardshiel and its affiliates, may require that GEIPPPII, at its option, (i) sell
or otherwise dispose of its Equity Securities and Discount Debentures, in an
arm's length transaction to any person or persons who are not affiliates of
Ardshiel (the "Proposal") or (ii) purchase all of the other Stockholders Equity
Securities and Discount Debentures for a purchase price equal to the lesser of
the purchase price set forth in the Proposal or a price determined in accordance
with an agreed upon formula. All transfers must be made in compliance with
federal and state securities laws. In addition, subject to certain exceptions,
prior to offering or soliciting any offers, or accepting any unsolicited offers,
with respect to the disposition of Equity Securities, the selling stockholder
shall first offer GEIPPPII and/ or Holdings the opportunity to offer to purchase
such Equity Securities from such Stockholder.
The Stockholders Agreement provides that in the event GEIPPPII or any
Ardshiel Stockholder (as defined in the Stockholders Agreement) or any of their
respective affiliates purchases from Holdings, after the date hereof, equity
securities issued after the date hereof, Mr. Fojtasek and affiliates controlled
by him shall be entitled to participate in such investment on a pro rata basis
(and on the same terms and conditions as shall apply to GEIPPPII and such
Ardshiel Stockholder) based on the then relative fully diluted ownership
interests in equity securities of Mr. Fojtasek and any such purchasing holder of
equity securities. The rights granted to Mr. Fojtasek described above may not be
assigned to any person, other than by will or by the laws of descent and
distribution, without the prior written consent of the parties to the
Stockholders Agreement.
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Pursuant to the terms of the Stockholders Agreement, Holdings has granted
the Stockholders the right to require Holdings, under certain circumstances to
register under the Securities Act of 1933, as amended (the "Securities Act") any
or all shares of Holdings Common Stock then held by such Stockholder (a "Demand
Registration Right") and the right, in the event Holdings or any of its
subsidiaries proposes (including in connection with any Demand Registration
Right exercised by a Stockholder) to file any registration statement under the
Securities Act with respect to any Common Stock (as defined in the Stockholders
Agreement) or Equity Security (other than pursuant to a registration statement
on Form S-4 or S-8 or any successor or similar forms in connection with an
exchange offer or any offering of securities solely to Holdings' then existing
stockholders or employees of Holdings and its subsidiaries), the opportunity to
include in such registration statement for resale by the Stockholders, such
Stockholder's Common Stock.
The Stockholders Agreement provides that Holdings cannot take certain
enumerated actions without obtaining the prior written consent of GEIPPPII.
Until such consent is obtained, Holdings and its subsidiaries may not, among
other things, (i) create any committee of its Board of Directors, or change the
size or agreed composition of its Board of Directors; (ii) declare or pay
dividends or make other distributions; (iii) form any direct or indirect
subsidiaries or a joint venture in which Holdings or one of its subsidiaries is
a party; (iv) modify its certificate of incorporation, by-laws or other
organizational documents in any respect; (v) enter into, or waive or modify (A)
any provision of, any stockholders agreement, registration rights agreement or
management agreement or (B) any executive employment agreement, in each case, in
any material respect; (vi) redeem or repurchase any shares of any class of
capital stock or security of Holdings, or repurchase or repay any indebtedness
prior to its stated maturity; (vii) borrow or lend aggregate amounts in excess
of $2.0 million; (viii) declare bankruptcy, dissolve, voluntarily liquidate or
voluntarily wind-up; (ix) enter into any contract or agreement outside the
ordinary course of business which involves aggregate consideration in excess of
$2.0 million per annum; (x) acquire or dispose of any assets in a single
transaction or series of related transactions for aggregate consideration in
excess of $2.0 million per annum; (xi) effect any merger, amalgamation,
corporate reorganization or business combination; (xii) subject to certain
exceptions, authorize, create, allot, reserve or issue additional shares of any
class of securities; (xiii) register or offer securities for public sale; (xiv)
purchase or acquire, except in the ordinary course of business, any property or
assets or obligations or stock of or interest in, make any capital contribution
to, or otherwise invest directly or indirectly in, or, except for certain
expenses of directors of Holdings and its subsidiaries, make loans or advances
to, any Stockholders or any of their respective affiliates (other than a
subsidiary of Holdings); (xv) subject to certain exceptions, pay or incur any
obligation for the payment of salaries, fees or other remuneration, or change
the rate of compensation or other remuneration, or pay any debts claimed to be
owing, directly or indirectly, to any Stockholder or director of Holdings or any
of its subsidiaries or to any firm or corporation in which they have an
interest; or (xvi) subject to certain exceptions, enter into any transaction
with any Stockholder or any of their respective affiliates unless such
transaction is on terms no less favorable to Holdings than can be obtained from
an unaffiliated third party. In addition, so long as GEIPPPII or any of its
affiliates hold in the aggregate at least 20% of the outstanding shares of
Holdings Common Stock on a fully diluted basis, Holdings may not adopt any
shareholder rights plan in respect of the capital stock of Holdings or any of
its affiliates.
Pursuant to the Stockholders Agreement, GEIPPPII has agreed that it will
not, in its capacity as a stockholder of Holdings, vote in favor of any
amendment to the Certificate of Incorporation or the By-laws of Holdings or any
of its subsidiaries if such amendment would conflict with, or be inconsistent
with, the terms of the Stockholders Agreement (including, without limitation,
any amendment which would modify or add to the actions requiring the prior
written consent of GEIPPPII).
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MANAGEMENT AGREEMENT
Holdings is a party to a Management Agreement (the "Management Agreement")
dated October 2, 1998 with Ardshiel. Pursuant to the Management Agreement,
Ardshiel provides advice to Holdings and its subsidiaries with respect to
business strategy, operations and budgeting and financial controls ("Management
Services") in exchange for an annual fee of $1.3 million plus expenses.
Additionally, the Management Agreement provides that, prior to entering into any
transaction that involves engaging a financial advisor to perform services in
connection with a sale or purchase of a business or entity or any financing,
Holdings or its subsidiary must offer Ardshiel the opportunity to perform such
investment banking services, unless in the reasonable exercise of the business
judgment of the Board of Directors of Holdings such engagement would result in a
conflict of interest or would otherwise be adverse to the interests of Holdings
or such subsidiary. Ardshiel shall receive a fee (a "closing fee") for any such
services rendered by Ardshiel to Holdings or its subsidiaries which fee shall
not be greater than 2% of the total purchase or sale price for such business or
entity and shall be payable upon consummation of such sale or purchase. The
consent of GEIPPPII is required prior to the payment by Holdings or any of its
subsidiaries of any closing fees to Ardshiel where Holdings or any of its
subsidiaries is paying similar fees to other entities for similar services.
Holdings paid a closing fee of approximately $3.4 million upon the consummation
of the Merger and paid Ardshiel's fees and expenses in connection therewith. The
Management Agreement will remain in effect until October 2, 2008 and will be
automatically renewed for one-year periods unless either party gives written
notice to the contrary at least thirty days prior to the expiration of the
initial or any extended term of the agreement; provided that the right of first
refusal stated above shall terminate upon Ardshiel ceasing to be an affiliate of
Holdings, Atrium Corp. and the Issuer and provided, further, that unless
Ardshiel and its affiliates maintain control of the majority of the Board of
Directors of Holdings pursuant to the terms of the Stockholders Agreement, the
right to receive the annual management fee shall terminate and such management
fee shall cease to be payable when GEIPPPII ceases to hold at least 10% of the
voting securities of Holdings (on a fully diluted basis). In addition, the
Management Agreement shall terminate upon (i) the sale by Holdings of Atrium
Corp. and its subsidiaries in their entirety or all of substantially all of the
assets of Atrium Corp. and its subsidiaries, (ii) the termination of the
Investment Agreement for cause or (iii) Ardshiel and its affiliates ceasing to
be stockholders of the Companies. Holdings is also obligated under the
Management Agreement to (i) reimburse Ardshiel for expenses incurred by Ardshiel
in connection with rendering management services and (ii) indemnify Ardshiel for
any losses incurred by Ardshiel in connection with the engagement. Upon
consummation of the Transactions, Atrium Corp. and the Issuer will become
parties to the Management Agreement.
BUY-SELL AGREEMENTS
Holdings entered into buy-sell agreements with certain members of the
Combined Company's management pursuant to which Holdings may, at its option,
repurchase from such manager all or any portion of such manager's shares of
Holdings Common Stock upon the termination of such manager's employment. Each
agreement provides that Holdings shall repurchase such shares at a purchase
price equal to the greater of $1.00 per share or the fair market value of the
shares at the date of termination unless such termination shall have been for
cause, in which case the repurchase price shall be equal to the lesser of the
fair market value per share at the date of termination and $1.00 per share. Each
agreement also provides that such manager may not transfer such manager's shares
except to (i) Holdings in the event the manager disposes or attempts to dispose
of the shares in violation of the agreement or (ii) such manager's parents,
spouse, children, grandchildren, family trust, executor, administrator, trustee,
guardian or other legal representative. Each agreement provides that if GEIPPPII
proposes to transfer in a bona fide arm's length sale all of the common stock,
options, warrants and other common stock equivalents (the "Holdings Securities")
of Holdings owned by GEIPPPII to any non-affiliates of GEIPPPII, GEIPPPII shall
have the right to require such manager to sell to the proposed transferee on the
same terms and conditions as applicable to GEIPPPII all but not less than all of
the Holdings Securities held by such manager.
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In addition to the above, the buy-sell agreements entered into with Messrs.
Gilmer, Quadhamer, Pischke and Darby provide that the manager will have the
right to require Holdings to repurchase his shares if he is terminated for any
reason other than for cause and Holdings does not exercise its right to purchase
such shares.
INDEMNIFICATION AGREEMENTS
Holdings expects to enter into indemnification agreements with each of its
directors and executive officers under which Holdings will indemnify the
director or officer to the fullest extent permitted by law, and to advance
expenses, if the director or officer becomes a party to or witness or other
participant in any threatened, pending or completed action, suit or proceeding
by reason of any occurrence related to the fact that the person is or was a
director, officer, employee, agent or fiduciary of Holdings or a subsidiary of
Holdings or another entity at Holdings' request, unless a reviewing party
(either outside counsel or a director or directors appointed by the Board of
Directors) determines that the person would not be entitled to indemnification
under applicable law.
FACILITY LEASES
On July 3, 1995, Fojtasek Industrial Properties, Ltd., a limited partnership
in which, Randall S. Fojtasek owns an equity interest of approximately 10.2%
executed a lease with the Atrium Wood division of the Issuer with respect to
Atrium Wood's and Atrium Vinyl's facility (the "Atrium Lease") and a lease with
the H-R Windows division of the Issuer with respect to its facility (the "H-R
Windows Lease"). Both leases are absolute net leases. These leases were extended
on October 1, 1997 for a period of ten years, expiring on July 1, 2008. The
amounts paid under these two leases totaled $753,000 and $605,338 in 1997 and
1996, respectively. Additionally, Fojtasek Interests, a Texas corporation, in
which Mr. Fojtasek owns an interest in, subleases approximately 1,500 square
feet of office space at the Combined Company's corporate headquarters. Amounts
paid to the Issuer under this lease in 1997 were $17,955.
Darby is a party to a facilities lease agreement with R.G. Darby, a former
stockholder of Darby and the father of Cliff Darby, President of Darby. Pursuant
to the terms of the lease, Darby pays rent to Mr. Darby of approximately $12,000
per month, adjusted annually for inflation. The term of the lease is 15 years
with three additional five year extension terms. Rent expense paid to Mr. Darby
in 1997 was approximately $144,000.
OTHER
Atrium Corp. and the Issuer were parties to a certain agreement with an
affiliate of Hicks Muse ("Hicks Muse Partners") pursuant to which Hicks Muse
Partners provided oversight and monitoring services to the Issuer in exchange
for a quarterly fee. Such agreement was terminated upon the consummation of the
Transactions.
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BENEFICIAL OWNERSHIP
The Issuer is a wholly-owned subsidiary of Atrium Corp., which in turn is a
wholly-owned subsidiary of Holdings. The following table sets forth certain
information regarding the beneficial ownership of Holdings Common Stock, by each
person who owns beneficially more than 5% of the outstanding common stock of
Holdings Common Stock and by the directors and certain executive officers of
Holdings. Unless otherwise indicated below, to the knowledge of the Combined
Company, all persons listed below have sole voting and investment power with
respect to their shares of common stock of Holdings.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE
- --------------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
GE Investment Private Placement Partners II, a Limited Partnership............... 92,970,561 90.7%
3003 Summer Street
Stamford, CT 06984-7900
Ardshiel, Inc.................................................................... 6,643,600(1) 6.5%
230 Park Avenue, Suite 2527
New York, NY 10169
Randall S. Fojtasek.............................................................. 2,841,221(2) 2.8%
R.L. Gilmer...................................................................... 490,159(3) 0.5%
Louis W. Simi, Jr................................................................ -- --
Jeff L. Hull..................................................................... -- --
Michael Quadhamer................................................................ 489,714(3) 0.5%
Cliff Darby...................................................................... 1,059,153 1.0%
Sam A. Wing, Jr. ................................................................ -- --
Daniel T. Morley................................................................. 6,643,600(4) 6.5%
James G. Turner.................................................................. -- --
Roger A. Knight.................................................................. -- --
Andreas Hildebrand............................................................... -- --
Donald W. Torey.................................................................. -- --
Nimrod Natan..................................................................... -- --
All directors and executive officers as a group
(13 persons):.................................................................. 11,523,847 11.2%
</TABLE>
- ------------------------
(1) Includes (i) 1,040,748 shares of Holdings Common Stock issuable upon
exercise of warrants that are currently exercisable; (ii) 1,767,487 shares
of Holdings' common stock held by Arddoor L.L.C. ("Arddoor"), Wing Partners,
L.P. ("Wing L.P.") and Ardatrium, which are under common control with
Ardshiel, and (iii) 3,783,819 shares of Holdings Common Stock held by
certain other stockholders of Holdings who have granted proxies to Ardshiel
or its affiliates to vote their shares.
(2) Includes 2,841,221 shares of Holdings Common Stock issuable upon exercise of
Warrant A that is exercisable upon grant.
(3) Includes 154,273 and 153,908 shares of Holdings Common Stock issuable upon
exercise of options granted to Messrs. Gilmer and Quadhamer, respectively,
under the Option Plan. Such options are exercisable within 60 days.
(4) Represents shares beneficially owned by Ardshiel and its affiliates. Mr.
Morley is the President and a stockholder of Ardshiel and a managing member
of Arddoor, Ardatrium and Ardwing L.L.C., the general partner of Wing L.P.
Accordingly, Mr. Morley may be deemed to be the beneficial owner of these
shares. Mr. Morley disclaims beneficial ownership of these shares.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
The following is a description of the general terms of the credit facility
(the "Credit Facility") that are included in the Credit Agreement (the "Credit
Agreement"), dated as of October 2, 1998 among Bank Boston, as administrative
agent (the "Administrative Agent"), Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as lead arranger, syndication agent and
documentation agent, the lenders from time to time party thereto and the Issuer.
The following description does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Credit Agreement and the other
documents entered into in connection therewith.
The Credit Agreement provides for three separate facilities (the
"Facilities") consisting of two term loans (referred to individually as "Term
Loan B" and "Term Loan C", and collectively as the "Term Loans") and a revolving
credit facility with a letter of credit sub-facility (the "Revolving Facility",
together with the Term Loans, the "Loans"). Term Loan B and Term Loan C are in
the amount of $75.0 million and $100.0 million and have maturity dates of June
30, 2005 and June 30, 2006, respectively; PROVIDED, HOWEVER, that the portion of
Term Loan C which funded the Term Loan C Escrowed Amount (as hereinafter
defined) matures on the next succeeding business day after the consummation of
the Change of Control Offer with respect to any amounts remaining in escrow on
such date (the "Remaining Amount"). The Issuer used or will use, as the case may
be, the Term Loans to finance the Merger, the Change of Control Offer and the
Existing Debt Repayment and to pay related fees and expenses; PROVIDED, HOWEVER,
that $75.0 million of the Term Loan C (the "Term Loan C Escrowed Amount") was
funded into escrow on the date of consummation of the Merger. Amounts used to
finance the Merger were loaned by the Issuer to Atrium Corp. See "Certain
Relationships and Related Transactions". Except for release to repay the
Remaining Amount as described above, the Term Loan C Escrowed Amount will not be
released other than to the Trustee under the Indenture for the Notes on the next
succeeding business day after consummation of the Change of Control Offer to the
extent necessary to fund, together with the Sponsor Escrowed Amount and, if
necessary, borrowings under the Revolving Facility, the purchase price for any
Notes that are tendered to the Issuer for repurchase in the Change of Control
Offer. Principal payments of the Term Loans amortize on a quarterly basis,
beginning in December 1998, in the amounts set forth in the Credit Agreement.
The Revolving Facility is in the amount of $30.0 million, of which $5.0 million
is available under a letter of credit sub-facility. The Revolving Facility has a
maturity date of June 30, 2004. The Issuer will use the Revolving Facility to
finance permitted acquisitions by the Issuer and its wholly owned subsidiaries
in the same line of business as the Issuer and such subsidiaries on the closing
date of the Facilities ("the Facility Closing Date") or any business reasonably
related thereto and for working capital and general corporate purposes,
including, if necessary, to fund a portion of the purchase price for any Notes
tendered in the Change of Control Offer as described above; PROVIDED, that no
more than $20.0 million of the Revolving Facility may be used to consummate
permitted acquisitions. As of October 2, 1998, no amounts were borrowed under
the Revolving Facility with respect to the purposes described above.
The Loans bear interest at the Issuer's option at either (a) the greater of
(i) the corporate base rate of interest announced by the Administrative Agent
from time to time and (ii) the federal funds rate plus 0.5% per annum, plus, in
each case, a percentage (the "Applicable Margin") that is determined in
accordance with the terms of the Credit Agreement or (b) LIBOR (as defined in
the Credit Agreement), plus the Applicable Margin.
All amounts outstanding under the Credit Agreement are secured by (i) a
pledge of all of the capital stock and intercompany notes of the Issuer and its
direct and indirect subsidiaries existing on the Facility Closing Date or
thereafter created or acquired, except that (a) to the extent that the pledge of
capital stock would have caused adverse tax consequences, such pledge with
respect to foreign subsidiaries was and will not be required and (b) to the
extent the pledge of intercompany notes held by foreign subsidiaries would
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cause adverse tax consequences, such pledge was and will not be required, (ii) a
pledge of the Term Loan C Escrowed Amount, and (iii) a security interest in
substantially all of the tangible and intangible properties and assets
(including substantially all contract rights, certain real property interests,
trademarks, tradenames, equipment and proceeds of the foregoing) of Atrium
Corp., the Issuer and their respective direct and indirect domestic subsidiaries
existing on the Facility Closing Date or thereafter created or acquired (the
"Domestic Subsidiaries"). Atrium Corp. and each of the Domestic Subsidiaries
have unconditionally guaranteed, on a joint and several basis, all obligations
of the Issuer under the Credit Agreement.
The Issuer is required to make a mandatory prepayment of the Loans in an
amount equal to 75% of annual Excess Cash Flow (as defined in the Credit
Agreement); provided, that such percentage will be reduced to 50% with respect
to the Excess Cash Flow for any year if the ratio of total debt (or, subject to
certain conditions, total senior debt) to trailing four-quarter EBITDA (as
defined in the Credit Agreement) is less than 2.75:1.0 at the end of such year.
In addition, the Issuer is required to make a mandatory prepayment of the Loans
in an amount equal to (i) 100% of the net proceeds of asset sales and other
asset dispositions (including insurance proceeds) subject to certain exceptions
set forth in the Credit Agreement, (ii) 100% of the net proceeds of the issuance
or incurrence of debt or of any sale and leaseback for proceeds in excess of a
certain threshold described in the Credit Agreement, and (iii) 50% of the net
proceeds from any issuance of equity securities in any public offering or
private placement or from any capital contribution; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, up to $40.0 million in the aggregate of the net
proceeds from the issuance of equity securities may be used to redeem
outstanding Investor Debt Securities (as defined in the Credit Agreement) and to
make permitted acquisitions so long as no default or event of default has
occurred or is continuing or would result therefrom under the Credit Agreement;
PROVIDED, FURTHER, that no more that $20.0 million of such proceeds may be used
for either such redemptions or permitted acquisitions. The Issuer is also
required to make a mandatory prepayment of outstanding amounts under the
Revolving Facility at any time that such amounts exceed the commitment for the
Revolving Facility in an amount equal to such excess. The Issuer is permitted to
make voluntary prepayments of all or any portion of the Loans in a minimum
principal amount and in multiples and otherwise in accordance with the terms of
the Credit Agreement, without penalty or premium (except, in the case of LIBOR
Loans, breakage costs). In addition, the Issuer may reduce the unutilized
portion of the commitments under the Revolving Facility in accordance with the
terms of the Credit Agreement, without penalty or premium.
The Issuer is required to pay certain commitment fees in connection with the
Credit Agreement based upon the average daily unused portion of the Revolving
Facility, certain fees assessed in connection with the issuance of letters of
credit as well as other fees specified in the Credit Agreement and other
documents related thereto.
The Credit Agreement requires the Issuer to comply with certain covenants
which, among other things, include limitations on indebtedness, liens and
further negative pledges, investments, contingent obligations, dividends,
redemptions and repurchases of equity interests, mergers, acquisitions and asset
sales, capital expenditures, sale leaseback transactions, transactions with
affiliates, dividend and other payment restrictions affecting subsidiaries,
changes in business conducted, amendment of documents relating to other
indebtedness and other material documents, creation of subsidiaries, designation
of Designated Senior Indebtedness in respect of the Notes, and prepayment or
repurchase of other indebtedness. The Credit Agreement requires the Issuer to
meet certain financial tests pertaining to, interest coverage, fixed charge
coverage and leverage. In addition, subject to applicable law, rule or
regulation, the Credit Agreement requires the Issuer to consummate the Change of
Control Offer not later than the 30th day after the commencement thereof.
The Credit Agreement contains customary events of default, including,
without limitation, payment defaults, covenant defaults, breaches of
representations and warranties, bankruptcy and insolvency, judgments, change of
control and cross-default with certain other indebtedness.
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DISCOUNT DEBENTURES
To fund a portion of the Merger Consideration, Atrium Corp. issued $20.0
million of the Discount Debentures to GEIPPPII and Ardatrium in the Discount
Notes Issuance representing $20.0 million in proceeds to Atrium Corp. The Change
of Control Offer will be financed in part by the Contingent Capital Contribution
from Atrium Corp. The Contingent Capital Contribution will be financed by Atrium
Corp. through the issuance of additional Discount Debentures representing up to
an additional $25.0 million in proceeds to Atrium Corp. The following is a
summary of the principal terms of the Discount Debentures.
The Discount Debentures are to be issued under an indenture, dated as of
October 2, 1998 (the "Discount Debenture Indenture"), between Atrium Corp. and
United States Trust Company of New York, as Trustee (the "Discount Debenture
Trustee").
TERMS OF THE DISCOUNT DEBENTURES. The Discount Debentures will be issued at
an original issue discount and will be unsecured senior obligations of Atrium
Corp., limited to approximately $80.6 million aggregate principal amount at
maturity. The Discount Debentures will mature on October 1, 2010. No cash
interest will accrue on the Discount Debentures prior to October 1, 2003, and
thereafter cash interest will accrue on the Discount Debentures at a rate of 12%
per annum, payable semiannually on April 1 and October 1 of each year,
commencing April 1, 2004. Notwithstanding the foregoing, at any time prior to
October 1, 2003, Atrium Corp. may elect on any interest payment date to commence
the accrual of cash interest from and after such date, in which case the
principal amount at maturity on such date will be reduced to the Accreted Value
(as defined in the Discount Debenture Indenture) of the Discount Debentures on
such date, and cash interest will thereafter accrue and be payable. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
REDEMPTION. The Discount Debentures will not be redeemable at the option of
Atrium Corp. prior to October 1, 2003. Thereafter, the Discount Debentures will
be redeemable, at Atrium Corp.'s option, in whole or in part, at 106% of the
Accreted Value (as defined in the Discount Debenture Indenture), of the Notes so
redeemed, declining ratably to par on October 1, 2006 in each case, together
with accrued and unpaid interest, if any, to the redemption date. In addition,
on or after the closing of the Change of Control Offer but before October 1,
2001, Atrium Corp. may redeem all, but not less than all, of the Discount
Debentures at 112% of Accreted Value plus accrued and unpaid interest, if any,
to the redemption date, with the net proceeds of one or more Equity Offerings
following which there is a Public Market (each as defined in the Discount
Debenture Indenture).
RANKING. The indebtedness evidenced by the Discount Debentures will be
senior unsecured obligations of Atrium Corp., which will rank PARI PASSU in
right of payment with other senior unsecured indebtedness of Atrium Corp. and
senior to any subordinated obligations of Atrium Corp. As of October 2, 1998,
after giving effect to the Transactions, Atrium Corp. does not have any
outstanding indebtedness other than the Discount Debentures, the Intercompany
Loan and Atrium Corp.'s guarantee of the Issuer's obligation under the Credit
Facility.
CHANGE OF CONTROL. Upon the occurrence of a Change of Control (as defined
in the Indenture), each holder of the Discount Debentures shall have the right
to require that Atrium Corp. repurchase such holder's Discount Debentures at a
purchase price in cash equal to 101% of the Accreted Value thereof on the date
of repurchase plus accrued and unpaid interest, if any, to the date of
repurchase. Prior to such repurchase, the Company is required to offer to repay
in full the Credit Facility or obtain the requisite consents under the Credit
Facility to permit the repurchase. In addition, at any time prior to October 2,
2003, Atrium Corp. may redeem the Discount Debentures as a whole within 90 days
following a change of control at a redemption price equal to 100% of the
Accreted Value thereof plus the Applicable Premium as of, and accrued and unpaid
interest, if any, to the redemption date. "Applicable Premium" means, with
respect to a Discount Debenture at any redemption date, the greater of (i) 1.0%
of the Accreted Value of such Discount Debenture on such redemption date and
(ii) the excess of (A) the present value at such time
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of (i) 106% of the Accreted Value of such Discount Debenture on October 1, 2003
plus (2) all required interest payments due on such Discount Debenture through
October 1, 2003, computed using a discount rate equal to the Treasury Rate (as
defined in the Discount Debenture Indenture) plus 100 basis points, over (B) the
Accreted Value of such Discount Debenture on such redemption date.
COVENANTS. Covenants include, among others, the following: (i) limitations
on indebtedness; (ii) limitation on restricted payments; (iii) limitation on
affiliate transactions; (iv) limitation on liens; (v) limitations on sales of
assets and subsidiary stock; (vi) limitation on guarantees by restricted
subsidiaries; (vii) limitation on restrictions on distributions from restricted
subsidiaries; (viii) limitation on mergers, consolidations or sale of
substantially all assets; (ix) requirement of owning 100% of the capital stock
of the Issuer; and (x) provision of financial statements.
EVENTS OF DEFAULT. An Event of Default is defined in the Discount
Debentures Indenture as: (i) default in the payment of any interest on the
Discount Debentures when it becomes due and payable, and continuance of such
default for a period of 30 days; (ii) default in the payment of the principal on
the Discount Debentures when due, (iii) default of merger covenant; (iv) default
or breach of other covenants and the continuance of such default for a period of
30 days after notice; (v) failure to comply with other agreements of Atrium
Corp. in the Discount Debentures Indenture and continuance of such failure for
60 days after notice; (vi) failure to pay at maturity or any acceleration of the
maturity of any indebtedness of Atrium Corp. or any Restricted Subsidiary which
is outstanding in a principal amount over $10.0 million in the aggregate; (vii)
final judgments or orders rendered against the Company or any material
Restricted Subsidiary in an amount exceeding $10.0 million in the aggregate and
such final judgments or orders remain unsatisfied or unpaid beyond a period of
60 days; and (viii) certain events of bankruptcy, insolvency or reorganization.
MODIFICATION OF INDENTURE. The Discount Debentures Indenture may be amended
with the consent of holders of a majority of the Accreted Value of the Discount
Debentures then outstanding. Modifications to certain ranking, monetary and
maturity terms require consent of each holder affected by such modifications.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated United States
federal income tax consequences of the acceptance of the Change of Control Offer
to Registered Holders of Notes. This discussion is general in nature, and does
not discuss all aspects of U.S. federal income taxation that may be relevant to
a particular Registered Holder in light of the Registered Holder's particular
circumstances, to a Registered Holder who tenders some, but not all, of its
Notes, or to certain types of Registered Holders subject to special treatment
under U.S. federal income tax laws (such as insurance companies, tax-exempt
organizations, financial institutions, brokers, dealers in securities,
Registered Holders who hold a Note as part of a position in a "straddle" or as
part of a "hedging" or "conversion" transaction for U.S. federal income tax
purposes or that have a functional currency other than the U.S. dollar, and
Registered Holders that are neither citizens nor residents of the United States,
or that are foreign corporations, foreign partnerships or foreign estates or
trusts as to the United States). In addition, the discussion does not consider
the effect of any foreign, state, local, or other tax laws or any U.S. tax
considerations (E.G., estate or gift tax) other than U.S. federal income tax
considerations that may be applicable to particular Registered Holders. Further,
this summary assumes that Registered Holders hold their Notes as "capital
assets" (generally, property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This summary
is based on the Code and applicable Treasury Regulations, rulings,
administrative pronouncements and decisions as of the date hereof, all of which
are subject to change or differing interpretations at any time with possible
retroactive effect.
EACH REGISTERED HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES TO IT OF THE
ACCEPTANCE OF THE CHANGE OF CONTROL OFFER.
TAX CONSIDERATIONS FOR TENDERING REGISTERED HOLDERS
The receipt of the Change of Control Price by a Registered Holder who
tenders its Notes pursuant to the Change of Control Offer will be a taxable
transaction to such Registered Holder for U.S. federal income tax purposes.
Accordingly, a Registered Holder generally will recognize capital gain or loss
(subject to the market discount rules discussed below) on the sale of a Note in
an amount equal to the difference between (i) the amount of cash treated as
being received in exchange for such Note, other than the portion of such amount
that is properly allocable to accrued interest, which if not yet included in
income will be taxed as ordinary income, and (ii) the Registered Holder's
"adjusted tax basis" for such Note at the time of sale. Such capital gain or
loss will be long-term if the Registered Holder held the Note for more than one
year at the time of such sale. Generally, a Registered Holder's adjusted tax
basis for a Note will be equal to the cost of the Note to such Registered
Holder, less payments (other than interest payments) received on the Note. If
applicable, a Registered Holder's tax basis in a Note also would be increased by
any market discount previously included in income by such Registered Holder
pursuant to an election to include market discount in gross income currently as
it accrues, and would be reduced by the accrual of amortizable bond premium
which the Registered Holder has previously elected to deduct from gross income
on an annual basis.
An exception to the capital gain treatment described above may apply to a
Registered Holder who purchased a Note at a "market discount." Subject to a
statutory DE MINIMIS exception, market discount is the excess of the stated
redemption price at maturity of such Note over the Registered Holder's tax basis
in such Note immediately after its acquisition by such Registered Holder. In
general, unless the Registered Holder has elected to include market discount in
income currently as it accrues, any gain realized by a Registered Holder on the
sale of a Note having market discount in excess of a DE MINIMIS amount will be
treated as ordinary income to the extent of the market discount that has accrued
(on a straight line basis or, at the election of the Registered Holder, on a
constant interest basis) while such Note was held by the Registered Holder.
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REPORTING AND BACKUP WITHHOLDING
Payments made to a Registered Holder with respect to Notes purchased
pursuant to the Change of Control Offer generally will constitute reportable
payments for U.S. federal income tax purposes.
A Registered Holder who tenders its Notes may be subject to backup
withholding at the rate of 31% with respect to payments made with respect to
such Notes such payment unless such Registered Holder (i) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A Substitute Form W-9
included in the Letter of Transmittal should be completed in order to provide
the information and certification necessary to avoid backup withholding. Any
amount withheld under the backup withholding rules will be credited against the
Registered Holder's U.S. federal income tax liability. A Registered Holder who
does not provide its correct taxpayer identification number may be subject to
penalties imposed by the IRS.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO PARTICULAR REGISTERED HOLDERS OF NOTES IN LIGHT
OF THEIR PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATIONS. REGISTERED HOLDERS
OF NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES
TO THEM OF THE CHANGE OF CONTROL OFFER, INCLUDING THE EFFECT OF ANY FEDERAL,
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
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MISCELLANEOUS
The Issuer is not aware of any jurisdiction in which the making of the
Change of Control Offer is not in compliance with the laws of such jurisdiction.
If the Issuer becomes aware of any jurisdiction where the making of the Change
of Control Offer would not be in compliance with such laws, the Issuer will make
a good faith effort to comply with any such laws or may seek to have such laws
declared inapplicable to the Change of Control Offer. If, after such good faith
effort, the Issuer cannot comply with any such applicable laws, the Change of
Control Offer will not be made to (nor will tenders be accepted from or on
behalf of) the Registered Holders of Notes residing in each such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Issuer that is not contained in this Offer to
Purchase or in the related Letter of Transmittal, and, if given or made, such
information or representation should not be relied upon.
INCORPORATION BY REFERENCE
All documents filed by the Issuer pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Offer to Purchase and prior to
the termination of the Change of Control Offer shall be deemed to be
incorporated in and made a part of this Offer to Purchase by reference from the
date of filing such documents.
Any statement contained herein or contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Offer to Purchase to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Offer to
Purchase.
ADDITIONAL INFORMATION
The Issuer currently is subject to certain of the informational requirements
of the Exchange Act, and in accordance therewith, files reports and other
information with the Commission. Such reports and other information may be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, as well as the Regional Offices of
the Commission at: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, New York, New York 10048 and may be accessed at the
Commission's site on the world wide web at http://www.sec.gov.
Copies of the materials referred to in the preceding paragraph, as well as
copies of any current amendment or supplement to this Offer to Purchase, may
also be obtained from the Depositary at the address set forth on the back cover
of this Offer to Purchase.
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THE DEPOSITARY FOR THE CHANGE OF CONTROL OFFER IS:
United States Trust Company of New York
Facsimile Transmission Number:
(212) 780-0592
CONFIRM BY TELEPHONE:
(800) 548-6565
BY REGISTERED OR CERTIFIED MAIL:
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, New York 10276-0844
BY HAND:
United States Trust Company of New York
111 Broadway, Lower Level
Corporation Trust Window
New York, New York 10006
BY OVERNIGHT COURIER:
United States Trust Company of New York
770 Broadway
New York, New York 10003
Attn: Corporate Trust, 13th Floor
<PAGE>
ATRIUM COMPANIES, INC.
1341 WEST MOCKINGBIRD LANE
SUITE 1200 W
DALLAS, TX 75247
(214) 630-5757
October 19, 1998
To: Holders of Atrium Companies, Inc.'s
10 1/2% Senior Subordinated Notes
due November 15, 2006, Series B
Brokers, Dealers, Commercial Banks,
Trust Companies, Other Nominees and
their Clients
On October 9, 1998 (the "Commencement Date"), Atrium Companies, Inc.
(the "Issuer") commenced an offer (the "Change of Control Offer"), pursuant to
Section 4.8 of the Indenture (as amended and supplemented through the date
hereof, the "Indenture"), dated as of November 27, 1996, between the Issuer,
the Subsidiary Guarantors (as defined in the Indenture) and United States
Trust Company of New York, as trustee (the "Trustee"), to purchase any and
all of its outstanding 10 1/2% Senior Subordinated Notes due November 15,
2006, Series B (the "Notes") at a purchase price in cash equal to 101% of the
principal amount thereof ($1,010 per $1,000 principal amount of Notes) (the
"Change of Control Price"), plus accrued and unpaid interest, if any, to the
date of payment for, or deposit with the United States Trust Company of New
York, as depositary (the "Depositary"), of an amount sufficient to pay for,
Notes accepted for purchase in the Change of Control Offer.
The terms and conditions of the Change of Control Offer are set forth
in the Notice of Change of Control and Offer to Purchase (the "Offer to
Purchase") and in the Letter of Transmittal (the "Letter of Transmittal")
mailed to you on the Commencement Date. The following amendments to the Offer
to Purchase are hereby incorporated into the Offer to Purchase (amended terms
are set forth below in boldface type):
1) The title of the security defined as the "Discount Debentures" in
the fourth and fifth lines of the third paragraph on the cover
page of the Offer to Purchase is amended to read "Senior Discount
Debentures due 2010."
----
2) The Change of Control Expiration Date set forth in "Summary--The
Change of Control Offer" on page 7 of the Offer to Purchase is
amended to read "November 6, 1998 at 5:00 p.m. New York City time."
--
<PAGE>
To: Holders of Atrium Companies, Inc.'s
10 1/2% Senior Subordinated Notes due 2006
Brokers, Dealers, Commercial Banks,
Trust Companies, Other Nominees and
their Clients
Page 2
October 19, 1998
To the extent any other provision of the Offer to Purchase, the
Letter of Transmittal or any other materials distributed to you in connection
with the Change of Control Offer conflict with the amendments set forth
above, such amendments shall govern and control the terms of the Change of
Control Offer.
If you have questions regarding the terms of the Change of Control
Offer or require additional materials, please contact the Depositary at
(800) 548-6565.
Very truly yours,
ATRIUM COMPANIES, INC.
<PAGE>
- -------------------------------------------------------------------------------
ATRIUM COMPANIES, INC.,
as Borrower,
D AND W HOLDINGS, INC.,
as Parent,
and
THE GUARANTORS PARTY HERETO
-----------------
$205,000,000
CREDIT AGREEMENT
Dated as of October 2, 1998
-----------------
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
as Lead Arranger, Syndication Agent and Documentation Agent,
and
BANKBOSTON, N.A.,
as Administrative Agent,
and
THE LENDERS PARTY HERETO
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. DEFINITIONS, ACCOUNTING MATTERS AND RULES OF CONSTRUCTION 1
1.01. Certain Defined Terms 1
1.02. ACCOUNTING TERMS AND DETERMINATIONS 36
1.03. CLASSES AND TYPES OF LOANS 36
1.04. RULES OF CONSTRUCTION 36
Section 2. Commitments, Letters of Credit, Fees, Register, PREPAYMENTS
AND REPLACEMENT OF LENDERS 37
2.01. LOANS 37
2.02. BORROWINGS 40
2.03. LETTERS OF CREDIT 40
2.04. TERMINATION AND REDUCTIONS OF COMMITMENTS 45
2.05. FEES 46
2.06. LENDING OFFICES 46
2.07. SEVERAL OBLIGATIONS OF LENDERS 46
2.08. Notes; Register 46
2.09. OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS 47
2.10. MANDATORY PREPAYMENTS 48
2.11. REPLACEMENT OF LENDERS 50
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST 51
3.01. REPAYMENT OF LOANS 51
3.02. INTEREST 52
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. 53
4.01. PAYMENTS 53
4.02. PRO RATA TREATMENT 53
4.03. COMPUTATIONS 54
4.04. MINIMUM AMOUNTS 54
4.05. CERTAIN NOTICES 54
4.06. NON-RECEIPT OF FUNDS BY ADMINISTRATIVE AGENT 55
4.07. RIGHT OF SETOFF; SHARING OF PAYMENTS; ETC. 56
Section 5. YIELD PROTECTION, ETC. 57
5.01. ADDITIONAL COSTS 57
5.02. LIMITATION ON TYPES OF LOANS 59
5.03. ILLEGALITY 60
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5.04. TREATMENT OF AFFECTED LOANS 60
5.05. COMPENSATION 60
5.06. NET PAYMENTS 61
Section 6. GUARANTEE 64
6.01. THE GUARANTEE 64
6.02. OBLIGATIONS UNCONDITIONAL 64
6.03. REINSTATEMENT 66
6.04. SUBROGATION; SUBORDINATION 66
6.05. REMEDIES 66
6.06. INSTRUMENT FOR THE PAYMENT OF MONEY 67
6.07. CONTINUING GUARANTEE 67
6.08. GENERAL LIMITATION ON GUARANTEE OBLIGATIONS 67
Section 7. CONDITIONS PRECEDENT 67
7.01. EFFECTIVENESS AND INITIAL EXTENSION OF CREDIT 67
7.02. INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT 74
7.03. PERMITTED ACQUISITIONS 74
Section 8. REPRESENTATIONS AND WARRANTIES 75
8.01. CORPORATE EXISTENCE 75
8.02. FINANCIAL CONDITION; ETC. 75
8.03. LITIGATION 76
8.04. NO BREACH; NO DEFAULT 76
8.05. ACTION 77
8.06. APPROVALS 77
8.07. REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT. 77
8.08. ERISA 77
8.09. TAXES 78
8.10. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT;
OTHER RESTRICTIONS 78
8.11. ENVIRONMENTAL MATTERS 79
8.12. ENVIRONMENTAL INVESTIGATIONS 79
8.13. USE OF PROCEEDS 80
8.14. SUBSIDIARIES 80
8.15. PROPERTIES 80
8.16. SECURITY INTEREST; ABSENCE OF FINANCING STATEMENTS; ETC. 81
8.17. LICENSES AND PERMITS; COMPLIANCE WITH LAWS 81
8.18. TRUE AND COMPLETE DISCLOSURE 81
8.19. SOLVENCY; ETC. 82
8.20. CONTRACTS 82
8.21. LABOR MATTERS 82
8.22. YEAR 2000 82
8.23. CHANGE OF CONTROL OFFER DOCUMENTS 82
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Section 9. COVENANTS 83
9.01. FINANCIAL STATEMENTS, ETC. 83
9.02. LITIGATION, ETC. 87
9.03. EXISTENCE; COMPLIANCE WITH LAW; PAYMENT OF TAXES; INSPECTION
RIGHTS; PERFORMANCE OF OBLIGATIONS; ETC. 87
9.04. INSURANCE 87
9.05. LIMITATION ON LINES OF BUSINESS 89
9.06. LIMITATION ON FUNDAMENTAL CHANGES, ACQUISITIONS OR DISPOSITIONS 89
9.07. Limitation on LIENS AND RELATED MATTERS 92
9.08. PROHIBITION ON DISQUALIFIED CAPITAL STOCK; LIMITATION ON
INDEBTEDNESS AND CONTINGENT OBLIGATIONS 95
9.09. LIMITATION ON INVESTMENTS; LIMITATION ON CREATION OF
SUBSIDIARIES 97
9.10. Limitation on DIVIDEND PAYMENTS 99
9.11. FINANCIAL COVENANTS 100
9.12. PLEDGE OR MORTGAGE OF ADDITIONAL COLLATERAL 103
9.13. SECURITY INTERESTS; FURTHER ASSURANCES 104
9.14. COMPLIANCE WITH ENVIRONMENTAL LAWS 105
9.15. Limitation on TRANSACTIONS WITH AFFILIATES 106
9.16. LIMITATION ON ACCOUNTING CHANGES; LIMITATION ON INVESTMENT
COMPANY STATUS 106
9.17. Limitation on MODIFICATIONS OF CERTAIN DOCUMENTS, ETC. 107
9.18. INTEREST RATE PROTECTION AGREEMENTS 107
9.19. LIMITATION ON CERTAIN RESTRICTIONS AFFECTING SUBSIDIARIES 107
9.20. ADDITIONAL OBLIGORS 107
9.21. LIMITATION ON DESIGNATION OF DESIGNATED SENIOR INDEBTEDNESS 108
9.22. FOREIGN SUBSIDIARIES' SECURITY 108
9.23. LIMITATION ON ACTIVITIES OF PARENT AND ATRIUM HOLDINGS 109
9.24. LIMITATION ON ISSUANCE OR DISPOSITIONS OF EQUITY INTERESTS
OF COMPANIES 109
9.25. LIMITATION ON PAYMENTS OR PREPAYMENTS OF INDEBTEDNESS OR
MODIFICATION OF DEBT DOCUMENTS 109
9.26. CASUALTY AND CONDEMNATION 111
9.27. TAX SHARING ARRANGEMENTS 111
9.29. CHANGE OF CONTROL OFFER 111
Section 10. EVENTS OF DEFAULT 111
Section 11. The AGENTS 115
11.01. General Provisions 115
11.02. INDEMNIFICATION 117
11.03. CONSENTS UNDER OTHER CREDIT DOCUMENTS 118
11.04. COLLATERAL SUB-AGENTS. 118
Section 12. MISCELLANEOUS 118
12.01. WAIVER 118
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12.02. NOTICES 119
12.03. EXPENSES, INDEMNIFICATION, ETC. 119
12.04. AMENDMENTS, ETC. 121
12.05. SUCCESSORS AND ASSIGNS 124
12.06. ASSIGNMENTS AND PARTICIPATIONS 124
12.07. SURVIVAL 126
12.08. CAPTIONS 126
12.09. COUNTERPARTS; INTERPRETATION; EFFECTIVENESS 126
12.10. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVERS; ETC. 127
12.11. CONFIDENTIALITY 127
12.12. INDEPENDENCE OF REPRESENTATIONS, WARRANTIES AND COVENANTS 128
12.13. SEVERABILITY 128
12.14. Acknowledgments 128
Signatures S-1
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ANNEX A - Commitments
SCHEDULE 1.01(a) - Applicable Margins Before Reset Date
SCHEDULE 1.01(b) - Applicable Margins After Reset Date
SCHEDULE 1.01(c) - Applicable Revolving Credit Fee Percentage
SCHEDULE 1.01(d) - Guarantors
SCHEDULE 1.01(e) - Schedule of Refinanced Debt
SCHEDULE 3.01(b) - Amortization Schedule
SCHEDULE 7.01(xx) - Mortgaged Real Property at Closing Date
SCHEDULE 8.03 - Litigation
SCHEDULE 8.11 - Environmental Matters
SCHEDULE 8.14 - Subsidiaries of Borrower
SCHEDULE 8.20 - Certain Contracts
SCHEDULE 8.21 - Labor Matters
SCHEDULE 9.06 - Certain Dispositions
SCHEDULE 9.07 - Certain Existing Liens
SCHEDULE 9.08 - Certain Indebtedness to Remain Outstanding
SCHEDULE 9.09 - Investments
SCHEDULE 9.15 - Existing Affiliate Agreements
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Tranche B Term Loan Note
EXHIBIT A-3 - Form of Tranche C Term Loan Note
EXHIBIT A-4 - Form of Swing Loan Note
EXHIBIT B - Form of Intercompany Note
EXHIBIT C - Form of Interest Rate Certificate
EXHIBIT D - Form of Mortgage
EXHIBIT E - Form of Security Agreement
EXHIBIT F-1 - Form of Credit Facility Escrow Agreement
EXHIBIT F-2 - Form of Investor Escrow Agreement
EXHIBIT G - Form of Opinion of Counsel to the Obligors
EXHIBIT H - Form of Notice of Assignment
EXHIBIT I - Form of Notice of Borrowing
EXHIBIT J - Form of Notice of Conversion/Continuation
EXHIBIT K - Form of Joinder Agreement
EXHIBIT L - Form of Section 5.06 Certificate for Lenders
EXHIBIT M - Form of Solvency Certificate
EXHIBIT N - Form of Assignment Agreement
EXHIBIT O - Form of Tax Sharing Agreement
EXHIBIT P - Form of Perfection Certificate
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CREDIT AGREEMENT dated as of October 2, 1998, among ATRIUM COMPANIES,
INC., a Delaware corporation, as Borrower; the Guarantors party hereto; D AND
W HOLDINGS, INC., a Delaware corporation, as Parent (with respect to Sections
9.23 and 9.27 and the representations and warranties made by it in Article
8), each of the lenders that is a signatory hereto identified under the
caption "LENDERS" on the signature pages hereto or that, pursuant to Section
12.06(b), shall become a "Lender" hereunder (individually, a "LENDER" and,
collectively, the "LENDERS"); MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED, as lead arranger, syndication agent and
documentation agent (collectively in such capacities, the "LEAD ARRANGER");
and BANKBOSTON, N.A., as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT").
The parties hereto agree as follows:
Section 1. DEFINITIONS, ACCOUNTING MATTERS AND RULES OF CONSTRUCTION.
1.01. CERTAIN DEFINED TERMS. As used herein, the following terms shall
have the following meanings:
"ABR LOANS" shall mean Loans that bear interest at rates based upon the
Alternate Base Rate.
"ACQUISITION" shall mean, with respect to any Person, any transaction or
series of related transactions for the direct or indirect (a) acquisition of
all or substantially all of the Property of any other Person, or of any
business or division of any other Person, (b) acquisition of in excess of 50%
of the Equity Interests of any other Person, or otherwise causing any other
Person to become a Subsidiary of such Person, or (c) merger or consolidation
or any other combination with any other Person.
"ACQUISITION CONSIDERATION" shall mean the purchase consideration for
any Acquisition and all other payments made and Indebtedness assumed by any
Company in exchange for, or as part of, or in connection with, any
Acquisition, whether paid in cash or by exchange of Equity Interests or of
assets or otherwise and whether payable at or prior to the consummation of
such Acquisition or deferred for payment at any future time, whether or not
any such future payment is subject to the occurrence of any contingency, and
includes any and all payments and liabilities representing the purchase price
and the amount of any Indebtedness assumed, "earn-outs" and other similar
agreements in an amount reasonably determined in good faith by Borrower at
the time of consummation of such Acquisition equal to the net present value
of the payment provided for in such "earn-out" or other similar agreement,
consulting agreements and service agreements and non-competition agreements.
"ADDITIONAL COLLATERAL" see Section 9.12.
"ADDITIONAL OBLIGORS" see Section 9.20.
"ADJUSTED NET INCOME" shall mean, for any period, the consolidated net
income (loss) for such period, of Borrower and its Consolidated Subsidiaries
calculated on a consolidated basis in
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accordance with GAAP, adjusted by excluding (to the extent taken into account
in the calculation of such consolidated net income (loss)) the effect of (a)
gains or losses for such period from Dispositions not in the ordinary course
of business and Excluded Dispositions not in the ordinary course of business,
and the tax consequences thereof, (b) any non-recurring or extraordinary
items of income or expense for such period and the tax consequences thereof
(including expenses related to the Transactions), (c) the portion of net
income (loss) of any Person (other than a Subsidiary) in which Borrower or
any Subsidiary has an ownership interest, except to the extent of the amount
of cash dividends or other cash distributions actually paid to Borrower or
(subject to clause (e) below) any Subsidiary during such period to the extent
not in excess of Borrower's or such Subsidiary's proportionate interest in
such Person's consolidated net income for such period, (d) the net income
(loss) of any Person combined with Borrower or any Subsidiary on a "pooling
of interests" basis attributable to any period prior to the date of
combination, and (e) the net income of any Subsidiary to the extent that the
declaration or payment of dividends or similar distribution by such
Subsidiary was not for the relevant period permitted (without giving effect
to any non-permanent waiver), 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 such Subsidiary or its
stockholders.
"ADMINISTRATIVE AGENT" see the introduction hereto.
"ADMINISTRATIVE AGENT'S FEE LETTER" shall mean the Fee Letter dated as
of October 1, 1998 between BankBoston, N.A. and Borrower.
"ADVANCE DATE" see Section 4.06.
"AFFILIATE" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, or is under common control
with, or is controlled by, such Person. As used in this definition,
"CONTROL" (including, with its correlative meanings, "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH") shall mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests,
by contract or otherwise). Notwithstanding the foregoing, solely for purposes
of Section 9.15, no Company shall be deemed an Affiliate of any other Company.
"AFFILIATE TRANSACTION" see Section 9.15.
"AGENT" means either of the Lead Arranger or the Administrative Agent.
"AGREEMENT" shall mean this Credit Agreement, as amended from time to
time.
"ALTERNATE BASE RATE" shall mean for any day, a rate per annum that is
equal to the higher of (i) the Federal Funds Rate, PLUS 0.50%, or (ii) the
Prime Rate.
"AMORTIZATION PAYMENT" shall mean each scheduled installment of
principal payments on the Term Loans as set forth in Section 3.01(b).
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"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each
Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such type of Loan on the signature pages hereof or
such other office of such Lender (or of an Affiliate of such Lender) as such
Lender may from time to time specify in writing to the Administrative Agent
and Borrower as the office by which its Loans of such Type are to be made and
maintained.
"APPLICABLE MARGIN" shall be, for any Loan, (x) from the Closing Date to
the date (the "RESET DATE") Borrower shall have delivered to the Lenders the
financial statements and Interest Rate Certificates required by Sections
9.01(a) and (e) for the first fiscal quarter of Borrower ending on or
immediately after six months after the Closing Date and an Officers'
Certificate demonstrating the then applicable Total Leverage Ratio, the
percentage PER ANNUM set forth on SCHEDULE 1.01(a) for such Loan (PROVIDED,
HOWEVER, that each of such percentages shall be increased effective as of the
date of consummation of the Change of Control Offer (x) by 0.125% if $70.0
million or more in aggregate principal amount of the Existing Notes are
purchased by Borrower in the Change of Control Offer (as specified in the
Officers' Certificate required to be delivered pursuant to Section 9.01(o)),
or (y) by 0.250% if $95.0 million in aggregate principal amount of the
Existing Notes are purchased by Borrower in the Change of Control Offer (as
specified in such Officers' Certificate or if no such Officers' Certificate
is so delivered)), and (y) on and after the Reset Date, when the Total
Leverage Ratio at the end of the most recently ended fiscal quarter is as set
forth in SCHEDULE 1.01(b), the percentage per annum set forth opposite such
Total Leverage Ratio in SCHEDULE 1.01(b) for such Loan (PROVIDED, HOWEVER,
that each of such percentages shall be increased effective as of the date of
consummation of the Change of Control Offer (x) by 0.375% if more than $70.0
million in aggregate principal amount of the Existing Notes are purchased by
Borrower in the Change of Control Offer (as specified in the Officers'
Certificate required to be delivered pursuant to Section 9.01(o)), or (y) by
0.50% if more than $95.0 million in aggregate principal amount of the
Existing Notes are purchased by Borrower in the Change of Control Offer (as
specified in such Officers' Certificate or if no such Officers' Certificate
is so delivered)). Any change in the Total Leverage Ratio shall be effective
to adjust the Applicable Margin as of the date of receipt by the
Administrative Agent of the Interest Rate Certificate most recently delivered
pursuant to Section 9.01(e). If Borrower fails to deliver the Interest Rate
Certificates and financial statements within the times specified in Sections
9.01(a), (b) and (e), the Total Leverage Ratio shall be deemed to be that in
Tier I of SCHEDULE 1.01(b) until Borrower delivers such Interest Rate
Certificates and financial statements.
"APPLICABLE REVOLVING CREDIT FEE PERCENTAGE" shall mean 0.5000% per
annum; PROVIDED, HOWEVER, that on and after the Reset Date, when the Total
Leverage Ratio at the end of the most recently ended fiscal quarter is as set
forth in SCHEDULE 1.01(c), the Applicable Revolving Credit Fee Percentage
shall be the percentage PER ANNUM set forth opposite such Total Leverage
Ratio in SCHEDULE 1.01(c). Any change in the Total Leverage Ratio shall be
effective to adjust the Applicable Revolving Credit Fee Percentage as of the
date of receipt by the Administrative Agent of the Interest Rate Certificate
most recently delivered pursuant to Section 9.01(e). If Borrower fails to
deliver the Interest Rate Certificates and financial statements within the
times specified in Sections 9.01(a), (b) and (e), such ratio shall be deemed
to be that in Tier I of SCHEDULE 1.01(c) until Borrower delivers such
Interest Rate Certificates and financial statements.
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"APPROVED FUND" shall mean, with respect to any Lender that is a fund or
commingled investment vehicle that invests in commercial loans, any other
fund that invests in commercial loans and is managed or advised by the same
investment advisor as such Lender or by an Affiliate of such investment
advisor.
"ARDSHIEL" see the definition of Investors.
"ARDATRIUM" shall mean Ardatrium L.L.C., a Delaware limited liability
company.
"ATRIUM HOLDINGS" means Atrium Corporation, a Delaware corporation and
the direct parent of Borrower on the Closing Date.
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978.
"BORROWER" see the introduction to this Agreement.
"BORROWER PORTION OF EXCESS CASH FLOW" shall mean, at any time, the
excess of that portion of Excess Cash Flow for the fiscal year immediately
prior to such time which is not required to be applied to the Loans and
Commitments pursuant to Section 2.10 (a)(v) OVER the sum of (i) all Dividends
after the end of such prior fiscal year and prior to such time PLUS (ii) all
Restricted Debt Payments made after the end of such prior fiscal year and
prior to such time pursuant to Section 9.25(a)(2)(y).
"BUSINESS DAY" shall mean any day (a) on which commercial banks are not
authorized or required to close in New York City or Dallas, Texas and (b) if
such day relates to a borrowing of, a payment or prepayment of principal of
or interest on, a Continuation or Conversion of or into, or an Interest
Period for, a LIBOR Loan or a notice by Borrower with respect to any such
borrowing, payment, prepayment, Continuation, Conversion or Interest Period,
that is also a day on which dealings in Dollar deposits are carried out in
the London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, any direct or
indirect expenditures of Borrower and the Subsidiaries which should be
capitalized on the consolidated balance sheet of Borrower and the
Subsidiaries in accordance with GAAP in respect of the purchase or other
acquisition of fixed or capital assets (including, without limitation,
securities), excluding (i) normal replacement and maintenance programs
properly charged to current operations, (ii) any expenditure made with the
Net Available Proceeds of any Disposition to the extent such Net Available
Proceeds are not required to be applied to the prepayment of the Loans in
accordance with Section 2.10(a)(iv), (iii) any expenditure made with the
proceeds of any Excluded Disposition, (iv) expenditures in an amount not to
exceed the sum of (x) the Net Available Proceeds of any Casualty Event to the
extent such Net Available Proceeds are not required to be applied to the
prepayment of the Loans in accordance with Section 2.10(a)(i) and (y) the
amount of any applicable insurance deductibles with respect to such Casualty
Event to the extent such amount is applied as set forth in clause (x) of
Section 2.10(a)(i) within the period specified therein, (v) expenditures to
effect Permitted Acquisitions, and (vi) the purchase price of equipment to
the extent that the consideration therefor consists of used or surplus
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equipment being traded in at such time or the proceeds of a concurrent sale
of such used or surplus equipment, in each case in the ordinary course of
business.
"CAPITAL LEASE," as applied to any Person, shall mean any lease of any
Property by that Person as lessee which, in conformity with GAAP, is required
to be classified and accounted for as a capital lease on the balance sheet of
that Person.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations
of such Person to pay rent or other amounts under a Capital Lease, and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"CASUALTY EVENT" shall mean, with respect to any Property (including
Real Property) of any Person, any loss of title with respect to Real Property
or any loss of or damage to or destruction of, or any condemnation or other
taking (including by any Governmental Authority) of, such Property (including
Real Property) for which such Person or any of its Subsidiaries receives
insurance proceeds or proceeds of a condemnation award or other compensation;
PROVIDED, HOWEVER, no such event shall constitute a Casualty Event if (x)
such proceeds or other compensation in respect thereof is less than $1.0
million and (y) all such proceeds and other compensation in respect of all
such events since the Closing Date are less than $5.0 million. "CASUALTY
EVENT" shall include but not be limited to any taking of any Mortgaged Real
Property or Real Property of any Company or any part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any law, general
or special, or by reason of the requisition (other than for temporary
purposes) of the use or occupancy of any Mortgaged Real Property or Real
Property of any Company or any part thereof, by any Governmental Authority,
civil or military.
"CERCLA" see Section 8.11.
"CHANGE OF CONTROL" shall mean any transaction or event (including,
without limitation, an issuance, sale or exchange of Equity Interests, a
merger or consolidation, or a dissolution or liquidation) occurring on or
after the date hereof (whether or not approved by the board of directors of
Parent) as a direct or indirect result of which (a) if such transaction or
event occurs prior to the consummation of an Initial Public Offering, the
Permitted Holders fail to collectively beneficially own, directly or
indirectly, Equity Interests of Borrower representing at least a majority (on
a fully diluted basis) of the aggregate voting power of the Equity Interests
of Borrower at the time outstanding or fail to have the ability to appoint a
majority of the board of directors of Borrower; (b) if such transaction or
event is an Initial Public Offering or occurs after the consummation of an
Initial Public Offering, (i) any Person or any group (other than the
Permitted Holders) shall (A) (directly or indirectly) beneficially own in the
aggregate Equity Interests of Borrower representing 35% or more (on a fully
diluted basis) of the aggregate voting power of the Equity Interests of
Borrower at the time outstanding; or (B) have the right or power to appoint,
directly or indirectly, a majority of the board of directors of Borrower or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of Borrower
(together with any new directors whose election by the shareholders of
Borrower was approved by a vote of at least a majority of the directors of
Borrower then still in office who were either directors at the beginning of
such period or whose election
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or nomination for election was previously so approved) cease for any reason
to constitute a majority of the board of directors of Borrower then in
office; or (c) if such transaction or event occurs at any time, whether
before or after the consummation of an Initial Public Offering, any event or
circumstance constituting a "change of control" or other similar occurrence
under the Existing Notes Indenture (other than any "change of control"
resulting from consummation of the Merger) or the Investor Debt Securities
Documents shall occur which results in an obligation of any Company to
prepay, purchase, offer to purchase, redeem or defease all or a portion of
such Indebtedness. For purposes of this definition, (x) the terms
"BENEFICIALLY OWN" and "GROUP" shall have the respective meanings ascribed to
them pursuant to Section 13(d) of the United States Securities Exchange Act
of 1934, except that a Person or group shall be deemed to "beneficially own"
all securities that such Person or group has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, and
(y) any Person or group shall be deemed to beneficially own any Equity
Interests beneficially owned by any other Person (the "PARENT ENTITY") so
long as such Person or group beneficially owns, directly or indirectly, a
majority of the voting power of the then outstanding Equity Interests of the
parent entity and no other Person or group has the right to designate or
appoint a majority of the directors of such parent entity.
"CHANGE OF CONTROL OFFER" shall mean the change of control offer that
Borrower is required to make for the Existing Notes pursuant to the Existing
Notes Indenture as a result of the consummation of the Merger.
"CHANGE OF CONTROL OFFER DOCUMENTS" shall mean the offer to purchase and
such other related documents to be utilized by Borrower in connection with
the Change of Control Offer.
"CLASS" see Section 1.03.
"CLOSING DATE" shall mean the date on which the initial extensions of
credit are made hereunder.
"CODE" shall mean the United States Internal Revenue Code of 1986, as
amended, and the U.S. Treasury Regulations promulgated thereunder.
"COLLATERAL" shall mean all of the Pledged Collateral and Mortgaged Real
Property.
"COLLATERAL ACCOUNT" see Section 4.01 of the Security Agreement.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMITMENT LETTER" shall mean the Credit Facilities Commitment Letter
among Merrill Lynch Capital Corporation and the Investors dated August 3,
1998 together with Exhibit A thereto and incorporated therein.
"COMMITMENTS" shall mean the Revolving Credit Commitments and the Term
Loan Commitments.
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"COMPANIES" shall mean the Obligors and their respective Subsidiaries;
and "COMPANY" shall mean any of them.
"CONSOLIDATED EBITDA" shall mean, for any Measurement Period, the sum
(without duplication) of the amounts for such period of (i) Adjusted Net
Income, (ii) income tax expense to the extent deducted in determining
Adjusted Net Income for such period, (iii) all interest expense to the extent
deducted in determining Adjusted Net Income for such period, (iv)
depreciation expenses and amortization expense to the extent deducted in
determining Adjusted Net Income for such period, and (v) the non-cash
component of any item of expense to the extent deducted in determining
Adjusted Net Income for such period, other than to the extent requiring an
accrual or reserve for future cash expenses, all as determined on a
consolidated basis for Borrower and its Consolidated Subsidiaries in
accordance with GAAP, and MINUS cash dividends and other distributions paid
by Borrower pursuant to Sections 9.10(c)(i). Prior to the first anniversary
of the Closing Date, Consolidated EBITDA shall be calculated on a pro forma
basis as if the Transactions had occurred on the first day of the relevant
Measurement Period (including giving effect to $3.7 million of pro forma
expense and cost reductions relating to the Merger and the Contributions;
PROVIDED, HOWEVER, that the amount of such pro forma expense and cost
reductions shall be (i) $2.775 million if the Measurement Period ends on
March 31, 1999, (ii) $1.850 million if the Measurement Period ends on June
30, 1999, (iii) $0.925 million if the Measurement Period ends on September
30, 1999, and (iv) $0 if the Measurement Period ends on December 31, 1999).
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any Measurement Period,
all cash interest expense (including commitment fees, letter of credit fees
and the interest component of Capital Leases) of Borrower and its
Consolidated Subsidiaries for such Measurement Period including the net
amounts payable under all Interest Rate Protection Agreements.
"CONSOLIDATED SUBSIDIARY" shall mean, for any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated
with the financial statements of such Person in accordance with GAAP.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any direct or
indirect liability of such Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "PRIMARY OBLIGATIONS") of another Person (the
"PRIMARY OBLIGOR"), including any obligation of such Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge of
any such primary obligation, or to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (iv)
other wise to assure or hold harmless the holder of any such primary
obligation against loss in respect thereof (each of (i)-(iv), a "GUARANTY
OBLIGATION"); (b) with respect to any Surety Instrument (other than any
Letter of Credit) issued for the account of such Person or as to which such
Person is otherwise liable for reimbursement
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of drawings or payments; (c) to purchase any materials, supplies or other
property from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment for
such materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract; PROVIDED, HOWEVER, that the
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection or standard contractual indemnities entered into, in
each case in the ordinary course of business. The amount of any Contingent
Obligation shall (x) in the case of a Guaranty Obligation, be deemed equal to
the stated or determinable amount of the primary obligation in respect of
which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect
thereof, and (y) in the case of other Contingent Obligations, be equal to the
maximum reasonably anticipated liability in respect thereof.
"CONTINUE," "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.09 of a LIBOR Loan from one Interest
Period to the next Interest Period.
"CONTRACTUAL OBLIGATION" shall mean as to any Person, any provision of
any security issued by such Person or of any mortgage, security agreement,
pledge agreement, indenture, credit agreement, securities purchase agreement,
debt instrument, contract, agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its Property is bound
or subject.
"CONTRIBUTED BUSINESSES" shall mean Wing Industries Holdings, Inc., a
Delaware corporation and the owner of all of the outstanding capital stock of
Wing Industries, Inc., a Texas corporation (together, "WING"), and Door
Holdings, Inc., a Delaware corporation and the owner of all of the
outstanding capital stock of R.G. Darby Company, an Alabama corporation, and
Total Trim, Inc., an Alabama corporation (collectively, "DARBY").
"CONTRIBUTION AGREEMENTS" shall mean collectively the (i) Contribution
and Subscription Agreement, dated as of October 2, 1998, by and among Door
Holdings, Inc., GEIPPP II and Arddoor L.L.C. (ii) Contribution and
Subscription Agreement, dated as of October 2, 1998, by and among Parent Wing
Industries Holdings, Inc., GEIPPP II, Ardshiel and Ardwing LLC; (iii)
Contribution and Subscription Agreement, dated as of October 2, 1998, by and
among Parent and the stockholders signatory thereto; (iv) Subscription
Agreement, dated as of October 2, 1998, by and among Parent and the
stockholders signatory thereto; (v) Contribution Agreement, dated as of
October 2, 1998, by and between Parent and D and W Acquisition Corp.; (vi)
Contribution Agreement, dated as of October 2, 1998, by and between Parent
and Atrium Holdings; and (vii) Contribution Agreement, dated as of October 2,
1998, by and between Atrium Holdings and Borrower, as such may be amended and
in effect from time to time in accordance with its terms and this Agreement.
"CONTRIBUTIONS" shall mean (i) the conversion on the Closing Date of all
outstanding subordinated indebtedness and warrants of the Contributed
Businesses into common equity of the Contributed Businesses and (ii) the
contribution on the Closing Date of all the outstanding capital stock of the
Contributed Businesses by the owners thereof to Borrower through a series of
transactions, in each case pursuant to and in accordance with the terms of
the Contribution Agreements.
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"CONVERT," "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.09 of one Type of Loan into another Type of Loan, which
may be accompanied by the transfer by a Lender (at its sole discretion) of a
Loan from one Applicable Lending Office to another.
"COVERED TAXES" see Section 5.06(a).
"CREDIT DOCUMENTS" shall mean this Agreement, the Notes, the Letter of
Credit Documents and the Security Documents.
"CREDIT FACILITY ESCROW AGREEMENT" shall mean the Credit Facility Escrow
Agreement substantially in the form of EXHIBIT F-1 among Borrower, the
Administrative Agent and State Street Bank & Trust Company, N.A., as escrow
agent, as such may be amended and in effect from time to time in accordance
with its terms and this Agreement.
"CREDIT FACILITY ESCROWED AMOUNT" shall mean $75.0 million of the
aggregate amount of Tranche C Term Loans.
"CREDIT FACILITY UTILIZED AMOUNT" shall mean that portion of the Credit
Facility Escrowed Amount released to the trustee under the Existing Notes
Indenture pursuant to the terms of the Credit Facility Escrow Agreement to
fund in part the purchase price for the Existing Notes that are put to
Borrower in the Change of Control Offer.
"CREDITOR" shall mean (i) any Agent, (ii) the Issuing Lender, (iii) any
Lender, and (iv) any party to a Swap Contract relating to the Loans if at the
date of entering into such Swap Contract such party was a Lender or an
Affiliate of a Lender.
"DARBY" see the definition of Contributed Businesses.
"DEBT ISSUANCE" shall mean the incurrence by any Obligor of any
Indebtedness after the Closing Date (other than as permitted by Section 9.08).
"DEFAULT" shall mean any event or condition that constitutes an Event of
Default or that would become, with notice or lapse of time or both, an Event
of Default.
"DESIGNATED EQUITY ISSUANCE PROCEEDS" shall mean at any time the excess
of (A) any net cash proceeds of any issuance of Equity Interests by Parent
(to the extent the net proceeds therefrom are contemporaneously contributed
in cash to Atrium Holdings and, if used pursuant to Section 9.06(i), by
Atrium Holdings to Borrower) or issuance of Qualified Capital Stock by Atrium
Holdings designated in writing by Borrower to the Administrative Agent
pursuant to an Officers' Certificate as being "Designated Equity Issuance
Proceeds" to the extent that the aggregate amount of such net cash proceeds
so designated since the Closing Date does not exceed $40.0 million OVER (B)
the aggregate sum total of all amounts applied in reliance on such Designated
Equity Issuance Proceeds since the Closing Date and on or prior to such time
pursuant to Section 9.06(i) and Section 9.25(a)(4)(y).
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"DISPOSITION" shall mean (i) any conveyance, sale, lease, assignment,
transfer or other disposition (including by way of merger or consolidation
and including any sale-leaseback transaction) of any Property (including
receivables and Equity Interests of any Person owned by any Company other
than Borrower) (whether now owned or hereafter acquired) by any Company to
any Person other than Borrower or any Qualified Subsidiary, (ii) any issuance
or sale by any Subsidiary of its Equity Interests to any Person other than
Borrower or any Subsidiary, and (iii) any liquidating or other non-ordinary
course dividend or distribution or return of Investment received by any
Company in respect of any joint venture or similar enterprise, excluding,
however, in each case any Excluded Disposition.
"DISPOSITION EVENT" shall mean the receipt by any Company of cash
proceeds or cash distributions of any kind from Property received in
consideration for a Disposition.
"DISQUALIFIED CAPITAL STOCK" shall mean, with respect to any Person, any
Equity Interest of such Person 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 (excluding any maturity as the
result of an optional redemption by the issuer thereof) or is mandatorily
redeemable (other than solely for Qualified Capital Stock), pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof (other than solely for Qualified Capital Stock) or
exchangeable or convertible into debt securities of the issuer thereof at the
sole option of the holder thereof, in whole or in part, on or prior to the
date which is 90 days after the Final Maturity Date.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any Equity
Interests or Equity Rights of any Company, but excluding dividends paid
through the issuance of additional shares of Qualified Capital Stock and any
redemption or exchange of any Qualified Capital Stock of such Company through
the issuance of Qualified Capital Stock of such Company.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"ELIGIBLE PERSON" shall mean (i) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100.0 million; (ii) a commercial bank
organized under the laws of any other country that is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital and
surplus in a dollar equivalent amount of at least $100.0 million; PROVIDED,
HOWEVER, that such bank is acting through a branch or agency located in the
country in which it is organized or another country that is also a member of
the OECD; (iii) an insurance company, mutual fund or other entity which is
regularly engaged in making, purchasing or investing in loans or securities
or other financial institution organized under the laws of the United States,
any state thereof, any other country that is a member of the OECD or a
political subdivision of any such country with assets, or assets under
management, in a dollar equivalent amount of at least $100.0 million; (iv)
any Affiliate of a Lender or an Approved Fund of a Lender; and (v) any other
entity (other than a natural person) which is an "accredited investor" (as
defined in Regulation D under
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the United States Securities Act of 1933, as amended) which extends credit or
buys loans as one of its businesses including, but not limited to, insurance
companies, mutual funds and investment funds. With respect to any Lender,
any Approved Fund in respect thereof shall be treated as a single Eligible
Person.
"EMPLOYEE BENEFIT PLAN" shall mean an employee benefit plan (as defined
in Section 3(3) of ERISA) that is maintained or contributed to by any ERISA
Entity or with respect to which Borrower or a Subsidiary could incur
liability.
"ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any
written notice, claim, demand or other communication (collectively, a
"CLAIM") by any other Person alleging such Person's liability for any costs,
cleanup costs, response, corrective action or other costs, damages to natural
resources or other Property, personal injuries, fines or penalties arising
out of or resulting from (i) the presence, Release or threatened Release into
the environment, of any Hazardous Material at any location, whether or not
owned by such Person, or (ii) any violation of any Environmental Law. The
term "ENVIRONMENTAL CLAIM" shall include, without limitation, any claim by
any Person seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence of Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment.
"ENVIRONMENTAL LAWS" shall mean any and all present and future
applicable laws, rules or regulations of any Governmental Authority, any
orders, decrees, judgments or injunctions and the common law in each case as
now or hereafter in effect, relating to pollution or protection of human
health, safety or the environment, including without limitation, ambient air,
indoor air, soil, surface water, ground water, land or subsurface strata and
natural resources such as wetlands, flora and fauna, including, without
limitation, those relating to Releases or threatened Releases of Hazardous
Materials into the environment, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"EQUITY CONTRIBUTIONS" shall mean cash capital contributions by the
Investors of at least $50.0 million to Parent on the Closing Date which will
in turn be contributed to Merger Sub by Parent and then by Merger Sub to
Atrium Holdings as a common equity contribution on the Closing Date in
connection with the Merger.
"EQUITY INTERESTS" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents, including membership
interests (however designated, whether voting or non-voting), of capital of
such Person, including, if such Person is a partnership, partnership
interests (whether general or limited) and 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, such partnership,
whether outstanding on the date hereof or issued after the Closing Date.
"EQUITY ISSUANCE" shall mean any of (a) any issuance or sale after the
Closing Date by Borrower, Atrium Holdings, Parent or any other direct or
indirect parent of Borrower of (x) any Equity Interests (including any Equity
Interests issued upon exercise of any Equity Rights) or any Equity
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Rights, or (y) any other security or instrument representing an Equity
Interest (or the right to obtain any Equity Interest) in the issuing or
selling Person, or (b) the receipt by Parent or any Company after the Closing
Date of any capital contribution (whether or not evidenced by any Equity
Interest issued by the recipient of such contribution) other than from any
other Company or Parent, excluding in each case (i) any issuance of Equity
Interests of Parent to the seller or sellers in consideration for a Permitted
Acquisition, (ii) any issuance or sale of Equity Interests of any Person
(other than Borrower) owned by any Company (which, for the avoidance of
doubt, is treated as a Disposition), (iii) any issuance or sale by Parent of
Equity Interests of Parent to employees, directors, officers or consultants
in the ordinary course of business in an amount not to exceed 10% of the
outstanding Equity Interests of Parent at any time, and (iv) any issuance of
Equity Interests of Parent to the extent that the proceeds thereof are used
for a substantially contemporaneous purchase or redemption of Equity
Interests of Parent pursuant to Section 9.10(c)(ii).
"EQUITY RIGHTS" shall mean, with respect to any Person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or outstanding
securities convertible into, any additional Equity Interests of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the United States Employee Retirement Income Security
Act of 1974, as amended.
"ERISA ENTITY" shall mean any member of an ERISA Group.
"ERISA EVENT" shall mean (a) any "reportable event," as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or
not waived, the failure to make by its due date a required installment under
Section 412(m) of the Code with respect to any Plan or the failure to make
any required contribution to a Multiemployer Plan; (c) the filing pursuant to
Section 412(d) of the Code or Section 303(d) of ERISA of an application for a
waiver of the minimum funding standard with respect to any Plan; (d) the
incurrence by any ERISA Entity of any liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by any ERISA Entity
from the PBGC of any notice relating to an intention of the PBGC to terminate
any Plan or Plans or to appoint a trustee to administer any Plan, or the
occurrence of any event or condition which is reasonably likely to constitute
grounds under ERISA for the PBGC to terminate or appoint a trustee to
administer any Plan; (f) the incurrence by any ERISA Entity of any liability
with respect to the withdrawal or partial withdrawal from any Multiemployer
Plan; (g) the receipt by an ERISA Entity of any notice, or the receipt by any
Multiemployer Plan from any Company of any notice, concerning the imposition
of Withdrawal Liability or a determination that a Multiemployer Plan is, or
is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA; (h) the making of any amendment to any Plan which could
result in the imposition of a lien or the posting of a bond or other
security; or (i) the occurrence of a nonexempt prohibited transaction (within
the
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meaning of Section 4975 of the Code or Section 406 of ERISA) which is
reasonably likely to result in liability to any Company.
"ERISA GROUP" shall mean any Company and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with Parent or any
Subsidiary are treated as a Single employer under Section 414 of the Code.
"EVENT OF DEFAULT" see Section 10.
"EXCESS CASH FLOW" shall mean, for any period, (A) the sum of (i)
Consolidated EBITDA for such period (calculated for this definition by adding
back the cash portion of all extraordinary or non-recurring items of income
(other than from Dispositions and Excluded Dispositions) to the extent
excluded in the calculation of Adjusted Net Income and by deducting the cash
portion of all extraordinary or non-recurring items of expense to the extent
excluded in the calculation of Adjusted Net Income), (ii) any net decrease in
Working Capital during such period (except to the extent attributable to
assets or Persons subject to a Disposition during such period), and (iii)
cash received from the proceeds of any life insurance or "key man" policy
during such period, MINUS (B) the sum of (i) cash interest expense
(including, without duplication, Capital Lease expense and commitment fees)
of Borrower and its Consolidated Subsidiaries for such period to the extent
deducted in calculating Adjusted Net Income, (ii) the sum of all scheduled
principal payments (other than pursuant to Section 2.10(a)(v)) on any
Indebtedness (including Capital Leases and Term Loans pursuant to Section
3.01(b)) of Borrower and its Consolidated Subsidiaries made during such
period from internally generated funds and all prepayments of Revolving
Credit Loans made from internally generated funds and to the extent
accompanied by a permanent reduction in Revolving Credit Commitments, (iii)
Capital Expenditures made during such period by Borrower and the
Subsidiaries, (iv) all income taxes actually paid in cash by Borrower or any
Subsidiary during such period or within a normal payment period thereafter
(PROVIDED, HOWEVER, that any amount deducted pursuant to this clause (iv)
which was not actually paid during such period shall not again be deducted
for determining Excess Cash Flow for another period), (v) cash dividends paid
during such period by Borrower pursuant to Section 9.10(c)(ii) to the extent
made with internally generated funds, (vi) cash paid during such period for
any Permitted Acquisition to the extent funded from internally generated
funds, and (vii) any net increases in Working Capital during such period
(except to the extent attributable to assets or Persons subject to an
Acquisition during such period).
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended.
"EXCLUDED DISPOSITIONS" shall mean (i) Dispositions for fair market
value resulting in no more than $1.0 million in aggregate proceeds in any
fiscal year; (ii) an exchange of equipment or inventory for other equipment
or inventory, provided that the Company effecting such exchange receives at
least substantially equivalent value in such exchange for the Property
disposed of; (iii) any transaction permitted by Section 9.06 (other than
clause (g) and (h) thereof), any Lien permitted by Section 9.07 and any
Investment permitted by Section 9.09; (iv) any issuance of Equity Interests
by
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any Subsidiary to directors or nominees if required by applicable law if
resulting in DE MINIMIS proceeds; and (v) the sale of inventory in the
ordinary course of business.
"EXCLUDED EQUITY ISSUANCE" shall mean any issuance of Equity Interests
of Parent excluded from the definition of Equity Issuance by virtue of clause
(iv) thereof.
"EXCLUDED TAXES" see Section 5.06(a).
"EXEMPT LENDER" see Section 5.06(b).
"EXISTING AFFILIATE AGREEMENTS" see Section 9.15.
"EXISTING DEBT REPAYMENT" shall mean the repayment of all Indebtedness
and cancellation of all commitments to make extensions of credit under the
Refinanced Debt.
"EXISTING NOTES" shall mean the 10-1/2% Senior Subordinated Notes due 2006,
Series B of Borrower issued pursuant to the Existing Notes Indenture.
"EXISTING NOTES INDENTURE" shall mean the Indenture among Borrower, as
issuer, Atrium Door and Window Company -- West Coast (f/k/a H-R Window
Supply, Inc.), Atrium Door and Window Company of the Northeast (f/k/a Bishop
Manufacturing Company, Incorporated, and successor by merger to Vinyl
Building Specialties of Connecticut, Inc.), Atrium Door and Window Company of
New York (f/k/a Bishop Manufacturing Company of New York), Atrium Door and
Window Company of New England, Inc. (f/k/a Bishop Manufacturing Co. of New
England) and Atrium Door and Window Company of Arizona, as subsidiary
guarantors, and United States Trust Company of New York, as trustee, dated as
of November 27, 1996, as such may be amended and in effect from time to time
in accordance with its terms and this Agreement.
"FAIR MARKET VALUE" shall mean, with respect to any asset, a price
(after taking into account any liabilities relating to such assets), as
determined by Borrower in good faith, that is within a reasonable range of
prices which could be negotiated in an arm's-length free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on
such day, as published by the Federal Reserve Bank of New York on the
Business Day next succeeding such day; PROVIDED, HOWEVER, that (a) if the day
for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day
and (b) if such rate is not so published for any Business Day, the Federal
Funds Rate for such Business Day shall be the average rate quoted to the
Administrative Agent on such Business Day on such transactions by three
federal funds brokers of recognized standing, as determined by the
Administrative Agent.
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"FEE LETTER" shall mean the Credit Facilities Fee Letter dated as of
August 3, 1998 by and among Merrill Lynch Capital Corporation and the
Investors.
"FINAL MATURITY DATE" shall mean June 30, 2006.
"FINANCIAL MAINTENANCE COVENANTS" shall mean the covenants set forth
in Section 9.11(a) through (d).
"FIXED CHARGE COVERAGE RATIO" shall mean, for any Test Date, the
ratio of (x) Consolidated EBITDA for the Measurement Period ending on or
immediately prior to such Test Date to (y) Fixed Charges for the Measurement
Period ending on or immediately prior to such Test Date; PROVIDED, HOWEVER,
that prior to the first anniversary of the Closing Date, Consolidated Interest
Expense included in Fixed Charges shall be the product of (x) Consolidated
Interest Expense for the period since the Closing Date multiplied by (y) a
fraction, the numerator of which is 365 and the denominator of which is the
number of days in such period since the Closing Date.
"FIXED CHARGES" shall mean, for any Measurement Period, the sum of
(i) Consolidated Interest Expense for such period, (ii) the sum of all
scheduled principal payments on any Indebtedness of Borrower and its
Consolidated Subsidiaries (including, without duplication, any lease payments
in respect of Capital Leases attributable to the principal component thereof
for such period), and (iii) Capital Expenditures during such period.
"FOREIGN PLAN" shall mean any employee benefit plan, program, policy,
arrangement or agreement maintained or contributed to by, or entered into with,
Borrower or any Subsidiary with respect to employees employed outside the
United States.
"FOREIGN SUBSIDIARY" shall mean any direct or indirect Subsidiary
organized outside of the United States as defined in Section 7701(a)(9) of the
Code (or any successor provision).
"FUNDING DATE" shall mean the date of the making of any extension of
credit hereunder (including the Closing Date).
"GAAP" shall mean generally accepted accounting principles set forth
as of the relevant date 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
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of
the date of determination.
"GEIPPP II" see the definition of Investors.
"GOVERNMENTAL AUTHORITY" shall mean any government or political
subdivision of the United States or any other country or any agency, authority,
board, bureau, central bank, commission, department or instrumentality thereof
or therein, including, without limitation, any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive,
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legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
"GROSS-UP AMOUNT" see Section 5.06(a).
"GUARANTEE" shall mean the guarantee of each Guarantor pursuant to
Section 6.
"GUARANTEED OBLIGATIONS" see Section 6.01.
"GUARANTORS" shall mean Atrium Holdings, each Subsidiary listed on
SCHEDULE 1.01(d) and each direct and indirect Wholly Owned Subsidiary (other
than a Foreign Subsidiary) that guarantees the payment of the Obligations of
Borrower under the Credit Documents pursuant to Section 9.20.
"GUARANTY OBLIGATION" see the definition of Contingent Obligation.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, toxic,
hazardous or extremely hazardous substance, constituent or waste, or any other
constituent, waste, material, compound or substance subject to regulation under
any Environmental Law including, without limitation, petroleum or any petroleum
product, including crude oil or any fraction thereof, polychlorinated
biphenyls, urea-formaldehyde insulation and asbestos.
"IN THE ORDINARY COURSE OF BUSINESS" shall mean in the ordinary
course of business of Borrower and the Subsidiaries and on ordinary business
terms.
"INCUR" shall mean, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (including by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "INCURRENCE," "INCURRED" and "INCURRING"
shall have meanings correlative to the foregoing). Indebtedness of any Person
or any of its Subsidiaries existing at the time such Person becomes a Company
(or is merged into or consolidates with any Company), whether or not such
Indebtedness was incurred in connection with, or in contemplation of, such
Person becoming a Company (or being merged into or consolidated with any
Company), shall be deemed incurred at the time any such Person becomes a
Company or merges into or consolidates with any Company. Neither the accrual
of interest, nor the accretion of accreted value or amortization of financing
fees, shall be deemed to be an incurrence.
"INDEBTEDNESS" shall mean, for any Person, without duplication, (a)
all indebtedness for borrowed money of such Person; (b) all obligations issued,
undertaken or assumed by such Person as the deferred purchase price of Property
or services (other than trade payables and accrued expenses paid on customary
terms and not more than 60 days past due and incurred in the ordinary course of
business on ordinary terms); (c) all non-contingent reimbursement or payment
obligations of such Person with respect to Surety Instruments (such as, for
example, unpaid reimbursement obligations in respect of a drawing under a
letter of credit); (d) all obligations of such Person evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection
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with the acquisition of Property or businesses; (e) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to Property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such Property), the amount of such indebtedness to be
deemed the fair market value of such Property; (f) all Capital Lease
Obligations of such Person; (g) all net obligations of such Person with
respect to Swap Contracts (such obligations to be equal at anytime to the
aggregate net amount that would have been payable by such Person at the most
recent fiscal quarter end in connection with the termination of such Swap
Contracts at such fiscal quarter end); (h) all amounts required to be paid by
such Person as a guaranteed payment to partners, including any mandatory
redemption of shares or interests; (i) all indebtedness of other Persons
referred to in clauses (a) through (h) above secured by (or for which the
holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in Property (including accounts and
contracts rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness, the amount of
such indebtedness to be deemed to be the fair market value of such Property;
and (j) all Guaranty Obligations of such Person in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) through (h)
above. Indebtedness shall not include accounts extended by suppliers in the
ordinary course of business on normal trade terms in connection with the
purchase of goods and services. The Indebtedness of any Person shall include
any Indebtedness of any partnership in which such Person is the general
partner.
"INDEMNITEE" see Section 12.03.
"INITIAL PUBLIC OFFERING" shall mean a primary underwritten public
offering of the common stock of Parent or Atrium Holdings or any other direct
or indirect holding company thereof, other than any public offering or sale
pursuant to a registration statement on Form S-8 or a comparable form.
"INSOLVENCY PROCEEDING" shall mean, with respect to any Person,
(a) any case, action or proceeding with respect to such Person before any court
or by or before any other Governmental Authority relating to bankruptcy,
insolvency, reorganization, liquidation, receivership, dissolution,
sequestration, conservatorship, winding-up or relief of debtors (or the passing
of a resolution for or with a view to any of the foregoing), or (b) any
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other similar arrangement in respect of such Person's creditors
generally or any substantial portion of its creditors.
"INTERCOMPANY NOTE" shall mean a promissory note substantially in the
form of EXHIBIT B.
"INTEREST COVERAGE RATIO" shall mean, for any Test Date, the ratio of
(x) Consolidated EBITDA for the Measurement Period ending on or immediately
prior to such Test Date to (y) (1) prior to the first anniversary of the
Closing Date, the product of (i) Consolidated Interest Expense for the period
since the Closing Date multiplied by (ii) a fraction, the numerator of which is
365 and the denominator of which is the number of days in such period since the
Closing Date and (2) on and after
<PAGE>
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the first anniversary of the Closing Date, Consolidated Interest Expense for
the Measurement period ending on or immediately prior to such Test Date.
"INTEREST PERIOD" shall mean, with respect to any LIBOR Loan, each
period commencing on the date such LIBOR Loan is made or Converted from an ABR
Loan or the last day of the next preceding Interest Period for such LIBOR Loan
and (subject to the requirements of Sections 2.01(a), 2.01(b), 2.01(c) and
2.09) ending on the numerically corresponding day in the first, second, third
or sixth calendar month or, if available to each Lender, the ninth or twelfth
calendar month thereafter or, in the case of a seven-day LIBOR Loan, the
seventh day thereafter, as Borrower may select as provided in Section 4.05,
except that each Interest Period that commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month. Notwithstanding the
foregoing: (i) if any Interest Period for any Revolving Credit Loan would
otherwise end after the Revolving Credit Commitment Termination Date, such
Interest Period shall end on the Revolving Credit Commitment Termination Date;
(ii) no Interest Period for any Term Loan may commence before and end after any
Principal Payment Date, unless, after giving effect thereto, the aggregate
principal amount of the Term Loans having Interest Periods that end after such
Principal Payment Date shall be equal to or less than the aggregate principal
amount of the Term Loans scheduled to be outstanding after giving effect to the
payments of principal required to be made on such Principal Payment Date;
(iii) each Interest Period that would otherwise end on a day that is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the
next preceding Business Day); and (iv) notwithstanding clauses (i) and (ii)
above, no Interest Period shall have a duration of less than one month and, if
the Interest Period for any LIBOR Loan would otherwise be a shorter period,
such Loan shall not be available hereunder as a LIBOR Loan for such period;
PROVIDED, HOWEVER, that the foregoing shall not prohibit an Interest Period of
seven days pursuant to and in accordance with Section 4.05.
"INTEREST RATE CERTIFICATE" shall mean an Officers' Certificate
substantially in the form of EXHIBIT C, delivered pursuant to Section 9.01(e),
demonstrating in reasonable detail the calculation of the Total Leverage Ratio
as of the last day of the Measurement Period then last ended on or immediately
prior to the date such certificate is required to be delivered.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"INTERNALLY GENERATED FUNDS" shall mean funds not generated from the
proceeds of any Loan, Debt Issuance, Equity Issuance, Disposition, insurance
recovery or Indebtedness (in each case without regard to the exclusions from
the definition thereof) (other than sales of inventory in the ordinary course
of business).
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"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of Equity
Interests, bonds, notes, debentures or other securities of any other Person;
(b) the making of any deposit with, or advance, loan or other extension of
credit to, any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such Person); (c) any capital contribution to (by means
of any transfer of cash or other Property to others or any payment for Property
or services for the account or use of others) any other Person; (d) the
entering into, or direct or indirect incurrence, of any Guaranty Obligation
with respect to Indebtedness or other liability of any other Person; (e) the
entering into of any Swap Contract; or (f) any agreement to make any Investment
(including any "short sale" or any sale of any securities at a time when such
securities are not owned by the Person entering in to such sale).
"INVESTOR DEBT SECURITIES" shall mean the 12% Senior Discount Notes
due 2010 of Atrium Holdings issued pursuant to the Investor Debt Securities
Documents.
"INVESTOR DEBT SECURITIES DOCUMENTS" shall mean the Investor Debt
Securities, the Investor Debt Securities Indenture, the Investor Escrow
Agreement, the purchase agreement among GEIPPP II, Ardatrium and Atrium
Holdings dated as of the Closing Date and any subsequent purchase agreement
relating to the further issuance upon consummation of the Change of Control
Offer of Investor Debt Securities generating gross proceeds equal to the
Investor Utilized Amount, any registration rights agreement relating thereto
and all other documents relating thereto, as any such documents may be amended
and in effect from time to time in accordance with their terms and this
Agreement.
"INVESTOR DEBT SECURITIES FINANCING" shall mean the issuance and sale
of the Investor Debt Securities to GEIPPP II on the Closing Date resulting in
gross proceeds to Atrium Holdings of $20.0 million.
"INVESTOR DEBT SECURITIES INDENTURE" shall mean the Indenture among
Atrium Holdings, as issuer, and United States Trust Company of New York, as
trustee, dated as of the Closing Date, as such may be amended and in effect
from time to time in accordance with its terms and this Agreement.
"INVESTOR ESCROW AGREEMENT" shall mean the Investor Escrow Agreement
substantially in the form of EXHIBIT F-2 among Borrower, Atrium Holdings,
Ardatrium, GEIPPP II, the Administrative Agent and State Street Bank and Trust
Company, N.A., as escrow agent, as such may be amended and in effect from time
to time in accordance with its terms and this Agreement.
"INVESTOR ESCROWED AMOUNT" shall mean $25.0 million in cash.
"INVESTOR ESCROW FUNDING" shall mean the funding of the Investor
Escrowed Amount by GEIPPP II and Ardatrium into escrow pursuant to the Investor
Escrow Agreement on the Closing Date.
"INVESTOR UTILIZED AMOUNT" shall mean that portion of the Investor
Escrowed Amount released to the trustee under the Existing Notes Indenture
pursuant to the terms of the Investor Escrow
<PAGE>
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Agreement to fund in part the purchase price for the Existing Notes that are
put to Borrower in the Change of Control Offer.
"INVESTORS" shall mean Ardshiel, Inc. ("ARDSHIEL") and GE Investment
Private Placement Partners II, Limited Partnership ("GEIPPP II").
"ISSUING LENDER" shall mean BankBoston, N.A. or any of its
Affiliates, or such other Lender or Lenders selected by Borrower reasonably
satisfactory to the Administrative Agent, as the issuer of Letters of Credit
under Section 2.03, together with its successors and assigns in such capacity.
"JOINDER AGREEMENT" shall mean a Joinder Agreement substantially in
the form of EXHIBIT K.
"LEAD ARRANGER" see the introduction to this Agreement.
"LEASE" shall mean any lease, sublease, franchise agreement, license,
occupancy or concession agreement.
"LENDER" and "LENDERS" see the introduction to this Agreement.
"LETTER OF CREDIT" see Section 2.03.
"LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any Letter
of Credit, collectively, any other agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such Letter of
Credit) governing or providing for (a) the rights and obligations of the
parties concerned or at risk with respect to such Letter of Credit or (b) any
collateral security for any of such obligations, each as the same may be
modified and supplemented and in effect from time to time.
"LETTER OF CREDIT INTEREST" shall mean, for each Revolving Credit
Lender, such Lender's participation interest (or, in the case of the Issuing
Lender, the Issuing Lender's retained interest) in the Issuing Lender's
liability under Letters of Credit and such Lender's rights and interests in
Reimbursement Obligations and fees, interest and other amounts payable in
connection with Letters of Credit and Reimbursement Obligations.
"LETTER OF CREDIT LIABILITY" shall mean, without duplication, at any
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit, PLUS (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of Borrower at such time due and payable in
respect of all drawings made under such Letter of Credit.
"LIBOR BASE RATE" shall mean, with respect to any LIBOR Loan for any
Interest Period therefor, the rate PER ANNUM determined by the Administrative
Agent to be the arithmetic mean (rounded to the nearest 1/100th of 1%) of the
offered rates for deposits in Dollars with a term comparable to such Interest
Period that appears on the Dow Jones Page 3750 (as defined below) at
approxi-
<PAGE>
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mately 11:00 a.m., London, England time, on the second full Business Day
preceding the first day of such Interest Period; PROVIDED, HOWEVER, that (i)
if no comparable term for an Interest Period is available, the LIBOR Base
Rate shall be determined using the weighted average of the offered rates for
the two terms most nearly corresponding to such Interest Period and (ii) if
there shall at any time no longer exist a Telerate British Bankers Assoc.
Interest Settlement Rates Page, "LIBOR BASE RATE" shall mean, with respect to
each day during each Interest Period pertaining to LIBOR Loans comprising
part of the same Borrowing, the rate PER ANNUM equal to the rate at which the
Administrative Agent is offered deposits in Dollars at approximately 11:00
a.m., London, England time, two Business Days prior to the first day of such
Interest Period in the London interbank market for delivery on the first day
of such Interest Period for the number of days comprised therein and in an
amount comparable to its portion of the amount of such LIBOR Loan to be
outstanding during such Interest Period. "DOW JONES PAGE 3750" shall mean
the display designated as Page 3750 on the Dow Jones (or such other page as
may replace such page on such service for the purpose of displaying the rates
at which Dollar deposits are offered by leading banks in the London interbank
deposit market).
"LIBOR LOANS" shall mean Loans that bear interest at rates based on
rates referred to in the definition of LIBOR Base Rate in this Section 1.01.
"LIBOR RATE" shall mean, for any LIBOR Loan for any Interest Period
therefor, a rate PER ANNUM (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by the Administrative Agent to be equal to the LIBOR Base
Rate for such Loan for such Interest Period divided by 1 minus the Reserve
Requirement (if any) for such Loan for such Interest Period.
"LIEN" shall mean, with respect to any Property, any mortgage, lien,
pledge, claim, charge, security interest or encumbrance of any kind, any other
type of preferential arrangement in respect of such Property having the effect
of a security interest or any filing consented to by any Company of any
financing statement under the UCC or any other similar notice of Lien under any
similar notice or recording statute of any Governmental Authority consented to
by any Company, including any easement, right-of-way or other encumbrance on
title to Real Property, and any agreement to give any of the foregoing. For
purposes of the Credit Documents, a Person shall be deemed to own subject to a
Lien any Property that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement (other than an operating lease) relating to such
Property.
"LOANS" shall mean the Revolving Credit Loans and the Term Loans.
"LOSSES" of any Person shall mean the losses, liabilities, claims
(including those based upon negligence, strict or absolute liability and
liability in tort), damages, reasonable expenses, obligations, penalties,
actions, judgments, encumbrances, liens, penalties, fines, suits, reasonable
and documented costs or disbursements of any kind or nature whatsoever
(including reasonable fees and expenses of counsel in connection with any
Proceeding commenced or threatened in writing, whether or not such Person shall
be designated a party thereto) at any time (including following the payment of
the Obligations) incurred by, imposed on or asserted against such Person.
<PAGE>
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"MAJORITY LENDERS" shall mean (i) at any time prior to the Closing
Date, Lenders holding at least a majority of the aggregate amount of the
Commitments, and (ii) at any time after the Closing Date, Lenders holding at
least a majority of the sum of (without duplication) (a) the aggregate
principal amount of outstanding Loans (other than Swing Loans), PLUS (b) the
aggregate amount of all Letter of Credit Liabilities, PLUS (c) the aggregate
Unutilized Revolving Credit Commitments then in effect, PLUS (d) in the case of
the Swing Loan Lender only, the aggregate amount of Swing Loans then
outstanding.
"MAJORITY REVOLVING CREDIT LENDERS" shall mean (i) at any time prior
to the Closing Date, Lenders holding at least a majority of the aggregate
amount of the Revolving Credit Commitments and (ii) at any time after the
Closing Date, Lenders holding at least a majority of the sum of (without
duplication) (a) the aggregate principal amount of outstanding Revolving Credit
Loans, PLUS (b) the aggregate amount of all Letter of Credit Liabilities, PLUS
(c) the aggregate Unutilized Revolving Credit Commitments then in effect, PLUS
(d) in the case of the Swing Loan Lender only, the aggregate amount of Swing
Loans then outstanding.
"MAJORITY TRANCHE B TERM LOAN LENDERS" shall mean (i) at any time
prior to the Closing Date, Lenders holding at least a majority of the Tranche B
Term Loan Commitments and (ii) at any time after the Closing Date, Lenders
holding at least a majority of the aggregate principal amount of outstanding
Tranche B Term Loans.
"MAJORITY TRANCHE C TERM LOAN LENDERS" shall mean (i) at any time
prior to the Closing Date, Lenders holding at least a majority of the Tranche C
Term Loan Commitments and (ii) at any time after the Closing Date, Lenders
holding at least a majority of the aggregate principal amount of outstanding
Tranche C Term Loans.
"MANAGEMENT AGREEMENT" shall mean the management agreement dated as
of October 2, 1998 among Ardshiel, Parent, Atrium Holdings and Borrower, as
such agreement may be amended and in effect from time to time in accordance
with its terms and this Agreement.
"MARGIN STOCK" shall mean margin stock within the meaning of
Regulations T, U and X.
"MATERIAL ADVERSE CHANGE" shall mean, with respect to any Person, a
material adverse change, or any condition or event that has resulted or could
reasonably be expected to result in a material adverse change, in the business,
operations, financial condition or results of operations of such Person,
together with the Subsidiaries taken as a whole. Unless otherwise indicated,
Material Adverse Change refers to Borrower and the Subsidiaries taken as a
whole.
"MATERIAL ADVERSE EFFECT" shall mean, any of (a) a material adverse
effect, or any condition or event that has resulted or could reasonably be
expected to result in a material adverse effect, on the business, operations,
financial condition or results of operations of Borrower, together with the
Subsidiaries taken as a whole, (b) a material adverse effect on the ability of
the Obligors to consummate in a timely manner the Transactions or to perform
any of their material obligations under any Credit Document or (c) an adverse
effect on the legality, binding effect or enforceability of any
<PAGE>
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material provision of any Credit Document or any of the material rights and
remedies of the Lenders, the Issuing Lender or Lead Arrangers thereunder. In
determining whether the occurrence of any individual event or the existence
of any individual condition would, or the failure of any individual event to
occur or any individual condition to exist would, have a Material Adverse
Effect, notwithstanding that the occurrence of such individual event or the
existence of such individual condition does not, or the failure to occur of
such individual event or such individual condition to exist does not, of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event or condition or failure of
event or condition and all other then existing events or conditions and
failures or events or conditions would have a Material Adverse Effect.
"MEASUREMENT PERIOD" shall mean the most recent trailing four fiscal
quarters of Borrower for which financial statements have been, or should have
been, provided pursuant to Section 9.01(a) or (b); PROVIDED, HOWEVER, that for
purposes of Section 7.01(xviii), the Measurement Period shall be the four
fiscal quarters ended June 30, 1998.
"MERGER" shall mean the merger on the Closing Date of Atrium Holdings
with and into Merger Sub, with Atrium Holdings as the survivor, pursuant to and
in accordance with the terms of the Merger Agreement.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger dated
as of August 3, 1998 among Parent, Merger Sub and Atrium Holdings, as such may
be amended and in effect from time to time in accordance with its terms and
this Agreement.
"MERGER SUB" shall mean D and W Acquisition Corp., a Delaware
corporation and a Wholly Owned Subsidiary of Parent.
"MORTGAGE" shall mean an agreement, including, but not limited to, a
mortgage, deed of trust or any other document, creating and evidencing a Lien
on a Mortgaged Real Property, which shall be substantially in the form of
EXHIBIT D, with such schedules and including such provisions as shall be
necessary to conform such document to applicable or local law or as shall be
customary under local law, as the same may at any time be amended in accordance
with the terms thereof and hereof.
"MORTGAGED REAL PROPERTY" shall mean each Real Property set forth on
SCHEDULE 7.01(xx) which shall be subject to a Mortgage delivered on the Closing
Date or thereafter (if any) pursuant to Sections 7.01(xx) and 9.12.
"MULTIEMPLOYER PLAN" shall mean at any time a multiemployer plan
within the meaning of Section 4001(a)(3) of ERISA (i) to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
while a member of the ERISA Group, (ii) to which any member of the ERISA Group
has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period, or (iii) with respect to which any Company is reasonably
likely to incur liability.
"NAIC" shall mean the National Association of Insurance
Commissioners.
<PAGE>
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"NET AVAILABLE PROCEEDS" shall mean:
(i) in the case of any Disposition Event, the amount of Net Cash
Payments received by any Company in connection with such Disposition Event
less deductions for amounts applied to (x) Indebtedness (other than
Indebtedness hereunder) secured by Liens permitted hereunder on the assets
sold, (y) taxes and (z) costs of sale;
(ii) in the case of any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received
by any Company in respect of such Casualty Event net of (A) fees and
expenses incurred by such Company in connection with recovery thereof,
(B) repayments of Indebtedness (other than Indebtedness hereunder) to the
extent secured by a Lien on such Property that is permitted hereunder, and
(C) any taxes (including income, transfer, stamp, duty, customs,
withholding and any other taxes) paid or payable by any Company in respect
of the amount so recovered (after application of all credits and other
offsets); and
(iii) in the case of any Equity Issuance or any Debt Issuance, the
aggregate amount of all cash received by any Company in respect thereof
net of all investment banking fees, discounts and commissions, legal fees,
consulting fees, accountants' fees, underwriting discounts and commissions
and other customary fees and expenses, actually incurred and
satisfactorily documented in connection therewith.
"NET CASH PAYMENTS" shall mean, with respect to any Disposition
Event, the aggregate amount of all cash payments (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or purchase price adjustment receivable or otherwise,
but only as and when received) received by any Company directly or indirectly
in connection with such Disposition Event; PROVIDED, HOWEVER, that Net Cash
Payments shall be net (without duplication) of (i) the amount of all fees and
expenses paid by any Company in connection with such Disposition Event (the
"RELEVANT DISPOSITION"); (ii) any taxes (including income, transfer, stamp,
duty, customs, withholding and any other taxes) paid or estimated to be payable
by any Company as a result of the Relevant Disposition (after application of
all credits and other offsets); (iii) any repayments by any Company of
Indebtedness other than Indebtedness hereunder to the extent that (a) such
Indebtedness is secured by a Lien on the Property that is the subject of the
Relevant Disposition that is permitted hereunder and (b) the transferee of (or
holder of a Lien on) such Property requires that such Indebtedness be repaid as
a condition to the purchase or sale of such Property; and (iv) amounts required
to be paid to any Person (other than any Company) owning a beneficial interest
in the assets subject to such Relevant Disposition.
"NEW WITHHOLDING REGULATIONS" see Section 5.06(b).
"NON-U.S. LENDER" see Section 5.06(b).
"NOTES" shall mean the Revolving Credit Notes, Term Loan Notes and
the Swing Loan Note.
<PAGE>
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"NOTICE OF ASSIGNMENT" shall mean a notice of assignment pursuant to
Section 12.06 substantially in the form of EXHIBIT H.
"NOTICE OF BORROWING" shall mean a notice of borrowing substantially
in the form of EXHIBIT I.
"OBLIGATIONS" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
any Creditor or any of its Related Parties or their respective permitted
successors, transferees or assignees pursuant to the terms of any Credit
Document or any Swap Contract or secured by any of the Security Documents,
whether or not the right of such Person to payment in respect of such
obligations and liabilities is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured and whether or not such claim is discharged, stayed or
otherwise affected by any bankruptcy case or insolvency or liquidation
proceeding.
"OBLIGORS" shall mean Borrower and the Guarantors.
"OFFICERS' CERTIFICATE" shall mean, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its Chief Executive Officer or its Chief Financial Officer
or its President or one of its Vice Presidents (or an equivalent officer) and
by its Chief Financial Officer (if not already a signatory), Vice President-
Finance or its Treasurer (or an equivalent officer) or any Assistant Treasurer
in their official (and not individual) capacities; PROVIDED, HOWEVER, that
every Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Loan or the taking of any other action hereunder
shall include (i) a statement that the officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, and (ii) a statement as to
whether, in the opinion of the signers, such condition has been complied with.
"ORIGINAL LENDERS" shall mean the Lenders named on the signature
pages hereof who were Lenders at the Closing Date.
"ORGANIC DOCUMENT" shall mean, relative to any Person, its
certificate of incorporation, its by-laws, its partnership agreement, its
memorandum and articles of association, share designations or similar
organization documents and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of Equity
Interests.
"OTHER TAXES" see Section 5.06(c).
"PARENT" see the introduction to this Agreement.
"PARTICIPANT" see Section 12.06(c).
"PAYMENT DATE" shall mean any Principal Payment Date and each date on
which interest is due and payable on any Loan.
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"PAYOR" see Section 4.06.
"PBGC" shall mean the United States Pension Benefit Guaranty
Corporation or any successor thereto.
"PERMITS" see Section 8.17.
"PERMITTED ACQUISITION" shall mean any Acquisition effected in
compliance with Section 9.06(i) or (m).
"PERMITTED HOLDERS" means each of the Investors and any Affiliates
thereof.
"PERMITTED INVESTMENTS" shall mean, for any Person: (a) direct
obligations of the United States of America, or of any agency thereof, or
obligations guaranteed as to principal and interest by the United States of
America, or by any agency thereof, in either case maturing not more than one
year from the date of acquisition thereof by such Person; (b) time deposits,
certificates of deposit or bankers' acceptances (including eurodollar deposits)
issued by any bank or trust company organized under the laws of the United
States of America or any state thereof and having capital, surplus and
undivided profits of at least $500.0 million and a deposit rating of investment
grade; (c) commercial paper rated A-1 or better by Standard & Poor's
Corporation or P-1 or better by Moody's Investors Service, Inc., respectively,
maturing not more than 180 days from the date of acquisition thereof by such
Person; (d) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) above entered into
with a bank meeting the qualifications described in clause (b) above; (e)
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least A by Standard & Poor's Corporation or A by Moody's
Investors Service, Inc.; or (f) money market mutual funds that invest primarily
in the foregoing items.
"PERMITTED LIENS" see Section 9.07.
"PERMITTED REFINANCING" shall mean, with respect to any Indebtedness
or Contingent Obligation, any refinancing thereof, PROVIDED, HOWEVER, that (w)
no Event of Default shall have occurred and be continuing or would arise
therefrom, (x) any such refinancing Indebtedness shall (I) not be on financial
and other terms that are taken as a whole materially more onerous (as
determined by Borrower and the Lead Arranger) to any Company or Creditor than
the Indebtedness or Contingent Obligation being refinanced and shall not have
defaults, rights or remedies more burdensome (as determined by Borrower and the
Lead Arranger) to any Company or Creditor than the Indebtedness being
refinanced, (II) not have a stated maturity or weighted average life that is
shorter than the Indebtedness or Contingent Obligation being refinanced, (III)
if the Indebtedness or Contingent Obligation being refinanced is subordinated
by its terms or by the terms of any agreement or instrument relating to such
Indebtedness or Contingent Obligation, be at least as subordinate to the
Obligations as the Indebtedness or Contingent Obligation being refinanced (and
unsecured if the refinanced Indebtedness is unsecured), and (IV) be in
principal amount that does not exceed the principal amount so refinanced, plus
the lesser of (1) the stated amount of any premium or other payment required to
be paid
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in connection with such refinancing pursuant to the terms of the Indebtedness
or Contingent Obligation being refinanced and (2) the amount of premium or
other payment actually paid at such time to refinance the Indebtedness, PLUS,
in either case, the amount of fees and reasonable expenses of any Company
incurred in connection with such refinancing, (y) the sole obligor on such
refinancing Indebtedness or Contingent Obligation shall be the original
obligor on such Indebtedness or Contingent Obligation being refinanced;
PROVIDED, HOWEVER, that any guarantor of the Indebtedness or Contingent
Obligation being refinanced shall be permitted to guarantee the refinancing
Indebtedness, and (z) any refinancing of the Investor Debt Securities (or any
refinancing thereof) shall provide for non-cash interest through September
30, 2003 on terms and conditions reasonably satisfactory to the Lead Arranger.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, limited liability company, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"PLAN" shall mean at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code or Section 302 of
ERISA and is maintained or contributed to by any member of the ERISA Group or
with respect to which any Company could incur liability.
"PLEDGED COLLATERAL" shall have the meaning set forth in the Security
Agreement.
"PRIME RATE" shall mean for any day, a rate PER ANNUM that is equal
to the corporate base rate of interest established by the Administrative Agent
from time to time, changing when and as said corporate base rate changes. The
corporate base rate is not necessarily the lowest rate charged by the
Administrative Agent to its customers.
"PRINCIPAL OFFICE" shall mean the principal office of the
Administrative Agent, located on the date hereof at BankBoston, N.A.,
100 Federal Street, Mail Stop 01-08-05, Boston, Massachusetts 02110, or such
other office as may be designated by the Administrative Agent.
"PRINCIPAL PAYMENT DATE" shall mean, with respect to any Term Loan,
each Quarterly Date or other date set forth on Schedule 3.01(b) on which a
payment of principal is due with respect to such Term Loan.
"PRIOR LIENS" shall mean Liens which, pursuant to the provisions of
any Security Document, are or may be superior to the Lien of such Security
Document.
"PROCEEDING" shall mean any claim, counterclaim, action, judgment,
suit, hearing, governmental investigation, arbitration or proceeding, including
by or before any Governmental Authority and whether judicial or administrative.
"PRO FORMA BALANCE SHEETS" see Section 8.02(d).
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"PROPERTY" shall mean any right, title or interest in or to
property or assets of any kind whatsoever, whether real, personal or mixed
and whether tangible or intangible and including Equity Interests or other
ownership interests of any Person.
"QUALIFIED CAPITAL STOCK" shall mean with respect to any Person any
Equity Interests of such Person that is not Disqualified Capital Stock.
"QUALIFIED SUBSIDIARY" shall mean any Wholly Owned Subsidiary that
is an Obligor.
"QUARTER" shall mean each three month period ending on March 31,
June 30, September 30 and December 31.
"QUARTERLY DATES" shall mean the last Business Day of March, June,
September and December in each year, commencing with the last Business Day of
December, 1998.
"REAL PROPERTY" shall mean all right, title and interest of any
Company (including, without limitation, any leasehold estate) in and to a
parcel of real property owned or operated by any Company, whether by lease,
license or other use agreement, together with, in each case, all improvements
and appurtenant fixtures, equipment, personal property, easements and other
property and rights incidental to the ownership, lease or operation thereof
or thereon.
"REDEEM" shall mean redeem, repurchase, repay, defease or otherwise
acquire or retire for value; and "REDEMPTION" and "REDEEMED" have correlative
meanings.
"REFINANCE" shall mean refinance, renew, extend, replace, defease
or refund, in whole or in part, including successively; and "REFINANCING" and
"REFINANCED" have correlative meanings.
"REFINANCED DEBT" shall mean the Indebtedness of and the
commitments to make extensions of credit to any Company under the existing
Indebtedness listed on SCHEDULE 1.01(e).
"REGISTER" see Section 2.08.
"REGULATION D" shall mean Regulation D (12 C.F.R. Part 204) of the
Board of Governors of the United States Federal Reserve System.
"REGULATIONS T, U AND X" shall mean, respectively, Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) and Regulation X (12
C.F.R. Part 224) of the Board of Governors of the United States Federal
Reserve System (or any successor), as the same may be modified and
supplemented and in effect from time to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender, any
change after the date hereof in United States Federal, state or foreign law
or regulations (including Regulation D) or the adoption or making after such
date of any interpretation, directive or request applying to a class of banks
or other financial institutions including such Lender of or under any
Federal, state or foreign law or regulations (whether or not having the force
of law and whether or not failure to comply there-
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with would be unlawful) by any court or governmental or monetary authority or
any other regulatory agency with proper authority, including non-governmental
agencies or bodies, charged with the interpretation or administration thereof
or by the NAIC.
"REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the
obligations of Borrower then outstanding, or that may thereafter arise in
respect of all Letters of Credit then outstanding, to reimburse amounts paid
by the Issuing Lender in respect of any drawings under a Letter of Credit.
"RELATED PARTIES" see Section 11.01.
"RELEASE" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the environment.
"REPLACED LENDER" see Section 2.11.
"REPLACEMENT LENDER" see Section 2.11.
"REQUIRED PAYMENT" see Section 4.06.
"REQUIREMENT OF LAW" shall mean as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination of
an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
LIBOR Loan, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the United
States Federal Reserve System in New York City with deposits exceeding one
billion Dollars against "Eurocurrency liabilities" (as such term is used in
Regulation D).
"RESET DATE" see the definition of Applicable Margin.
"RESTRICTED DEBT PAYMENT" see Section 9.25.
"RESPONSIBLE OFFICER" shall mean the chief executive officer of
Borrower and the president of Borrower (if not the chief executive officer)
and, with respect to financial matters, the chief financial officer of
Borrower, any vice-president-finance or treasurer (or an equivalent officer).
"REVOLVING CREDIT COMMITMENT" shall mean, for each Revolving Credit
Lender, the obligation of such Lender to make Revolving Credit Loans in an
aggregate principal amount at any one time outstanding up to but not
exceeding the amount set opposite the name of such Lender on ANNEX A under
the caption "Revolving Credit Commitment" (as the same may be reduced from
time to time pursuant to Section 2.04 or changed pursuant to Section
12.06(b)). The initial aggregate principal amount of the Revolving Credit
Commitments is $30.0 million.
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"REVOLVING CREDIT COMMITMENT PERCENTAGE" shall mean, with respect
to any Revolving Credit Lender, the ratio of (a) the amount of the Revolving
Credit Commitment of such Lender to (b) the aggregate amount of the Revolving
Credit Commitments of all of the Lenders.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean June 30,
2004.
"REVOLVING CREDIT COMMITMENTS" shall mean the aggregate sum of the
Revolving Credit Commitments of all of the Revolving Credit Lenders.
"REVOLVING CREDIT FACILITY" shall mean the credit facility
comprising the Revolving Credit Commitment of all of the Revolving Credit
Lenders.
"REVOLVING CREDIT LENDERS" shall mean (a) on the date hereof, the
Lenders having Revolving Credit Commitments on the signature pages hereof and
(b) thereafter, the Lenders from time to time holding Revolving Credit Loans
and Revolving Credit Commitments after giving effect to any assignments
thereof permitted by Section 12.06(b).
"REVOLVING CREDIT LOANS" see Section 2.01(a).
"REVOLVING CREDIT NOTES" shall mean the promissory notes provided
for by Section 2.08(a) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"SECURITY AGREEMENT" shall mean a Security Agreement substantially
in the form of EXHIBIT E among the Obligors and the Administrative Agent, as
the same may be amended in accordance with the terms thereof and hereof or
such other agreements reasonably acceptable to the Administrative Agent as
shall be necessary to comply with applicable Requirements of Law and
effective to grant to the Administrative Agent a perfected first priority
security interest (subject to Prior Liens, if any) in the Pledged Collateral
covered thereby.
"SECURITY DOCUMENTS" shall mean the Security Agreement, the
Mortgages, the Credit Facility Escrow Agreement and each other security
document or pledge agreement required by applicable local law to grant a
valid, perfected security interest in any property or asset acquired or
developed pursuant to a Permitted Acquisition, and all UCC or other financing
statements or instruments of perfection required by this Agreement, the
Security Agreement, any Mortgage or the Credit Facility Escrow Agreement to
be filed with respect to the security interests in Property and fixtures
created pursuant to the Security Agreement, any Mortgage or the Credit
Facility Escrow Agreement and any other document or instrument utilized to
pledge as collateral for the Obligations any Property of whatever kind or
nature.
"SENIOR DEBT" shall mean, at any date, Total Debt, LESS
Subordinated Debt of Borrower and the Subsidiaries on a consolidated basis.
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"SENIOR LEVERAGE RATIO" shall mean, for any Test Date, the ratio of
(x) Senior Debt at such Test Date to (y) Consolidated EBITDA for the
Measurement Period ended on or immediately prior to such Test Date.
"SOLVENT" and "SOLVENCY" shall mean, for any Person on a particular
date, that on such date (a) the fair value of the Property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts and liabilities beyond such Person's
ability to pay as such debts and liabilities mature, (d) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person's Property would constitute
an unreasonably small capital and (e) such Person is able to pay its debts as
they become due and payable.
"STATE AND LOCAL REAL PROPERTY DISCLOSURE REQUIREMENTS" shall mean
any state or local laws requiring notification of the buyer of real property,
or notification, registration, or filing to or with any state or local
agency, prior to the sale of any Real Property or transfer of control of an
establishment, of the actual or threatened presence or release into the
environment, or the use, disposal, or handling of Hazardous Materials on, at,
under, or near the Real Property to be sold or the establishment for which
control is to be transferred.
"SUBORDINATED DEBT" shall mean the Existing Notes and any other
Indebtedness of any Company that is subordinated to any other Indebtedness of
such Company.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more Subsidiaries of such Person or by such Person
and one or more Subsidiaries of such Person. Unless the context clearly
requires otherwise, all references to any Subsidiary shall mean a Subsidiary
of Borrower. All references to any Subsidiary of Borrower shall include all
those Persons which become Subsidiaries of Borrower upon consummation of the
Merger and the Contributions.
"SUPERMAJORITY LENDERS" shall mean (i) at any time prior to the
Closing Date, Lenders holding at least two-thirds of the aggregate amount of
the Commitments and (ii) at any time after the Closing Date, Lenders holding
at least two-thirds of the sum of (without duplication) (a) the aggregate
principal amount of outstanding Loans (other than Swing Loans), PLUS (b) the
aggregate amount of all Letter of Credit Liabilities, PLUS (c) the aggregate
unused amount of Revolving Credit Commitments then in effect, plus (d) in the
case of the Swing Loan Lender only, the aggregate amount of Swing Loans then
outstanding.
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"SUPERMAJORITY LENDERS OF THE AFFECTED CLASS" shall mean (i) at any
time prior to the Closing Date, Lenders holding at least two-thirds of the
aggregate amount of the Commitments of the applicable tranche of Term Loan
Commitments which would be affected by any modification, supplement or waiver
contemplated by clause (f) to the proviso to Section 12.04(i), and (ii) at
any time after the Closing Date, Lenders holding at least two-thirds of the
sum of the aggregate amount of the outstanding Loans of the applicable
tranche of Term Loans which would be affected by any modification, supplement
or waiver contemplated by clause (f) to the proviso to Section 12.04(i).
"SURETY INSTRUMENTS" shall mean all letters of credit (including
standby and commercial), bankers' acceptances, bank guarantees, surety bonds
and similar instruments.
"SURVEY" shall mean a survey of any Mortgaged Real Property (and
all improvements thereon): (i) prepared by a surveyor or engineer licensed
to perform surveys in the state, province or country where such Mortgaged
Real Property is located, (ii) dated (or redated) not earlier than six months
prior to the date of delivery thereof unless there shall have occurred after
the date of such survey any exterior construction on the site of such
Mortgaged Real Property, in which event such survey shall be dated (or
redated) after the completion of such construction or, if such construction
shall not have been completed as of such date of delivery, not earlier than
20 days prior to such date of delivery, (iii) certified by the surveyor (in a
manner reasonably acceptable to the Administrative Agent) to the
Administrative Agent and (iv) complying in all material respects with
Requirements of Law.
"SWAP CONTRACT" shall mean any agreement entered into in the
ordinary course of business (as a BONA FIDE hedge and not for speculative
purposes) (including any master agreement and any agreement, whether or not
in writing, relating to any single transaction) that is an interest rate swap
agreement, basis swap, forward rate agreement, commodity swap, commodity
option, forward commodity purchase agreement, equity or equity index swap or
option, bond option, interest rate option, foreign exchange agreement, rate
cap, collar or floor agreement, currency swap agreement, cross-currency rate
swap agreement, swaption, currency option or any other similar agreement
(including any option to enter into any of the foregoing) and is designed to
protect the Obligors against fluctuations in interest rates, currency
exchange rates, or similar risks (including any Interest Rate Protection
Agreement entered into pursuant to Section 9.18).
"SWING LOAN COMMITMENT" shall mean the obligation of the Swing Loan
Lender to make or continue Swing Loans hereunder in an aggregate principal
amount up to but not exceeding $5.0 million, as the same may be reduced or
terminated pursuant to Section 2.04 or Section 10, it being understood that
the Swing Loan Commitment is part of the Revolving Credit Commitment of the
Swing Loan Lender, rather than a separate, independent commitment.
"SWING LOAN LENDER" shall mean BankBoston, N.A. and its successors
and assigns in such capacity.
"SWING LOAN MATURITY DATE" shall mean the Revolving Credit
Commitment Termination Date.
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"SWING LOAN NOTE" shall mean the promissory note made by Borrower
evidencing the Swing Loans, in the form of EXHIBIT A-4.
"SWING LOANS" see Section 2.01(e).
"TAX RETURNS" see Section 8.09.
"TAX SHARING AGREEMENT" shall mean the Tax Sharing Agreement
substantially in the form of EXHIBIT O among Parent and each of the
Companies, as such may be amended and in effect from time to time in
accordance with its terms and this Agreement.
"TAXES" shall mean any and all taxes, imposts, duties, charges,
fees, levies or other charges or assessments of whatever nature, including
income, gross receipts, excise, real or personal property, sales,
withholding, social security, retirement, unemployment, occupation, use,
service, license, net worth, payroll, franchise, and transfer and recording,
imposed by the Internal Revenue Service or any taxing authority (whether
domestic or foreign, including any federal, state, U.S. possession, county,
local or foreign government or any subdivision or taxing agency thereof),
whether computed on a separate, consolidated, unitary, combined or any other
basis, including interest, fines, penalties or additions to tax attributable
to or imposed on or with respect to any such taxes, charges, fees, levies or
other assessments.
"TERM LOAN COMMITMENTS" shall mean the Tranche B Term Loan
Commitments and the Tranche C Term Loan Commitments, collectively.
"TERM LOAN FACILITIES" shall mean the credit facilities comprising
the Term Loan Commitments.
"TERM LOAN LENDERS" shall mean the Tranche B Term Loan Lenders and
the Tranche C Term Loan Lenders, collectively.
"TERM LOAN NOTES" shall mean the Tranche B Term Loan Notes and the
Tranche C Term Loan Notes, collectively.
"TERM LOAN TRANCHES" shall mean the Term Loans outstanding under
the Tranche B Term Loans and the Tranche C Term Loans, collectively, and
"TERM LOAN TRANCHE" shall mean either of them.
"TERM LOANS" shall mean the Tranche B Term Loans and the Tranche C
Term Loans, collectively.
"TEST DATE" shall mean, for any Financial Maintenance Covenant,
the last day of each fiscal quarter included within any period set forth in
the table for such Financial Maintenance Covenant. Compliance with the
Financial Maintenance Covenants shall be tested, as of each Test Date, on the
date on which financial statements pursuant to Section 9.01(a) or (b) have
been, or should have been, delivered for the applicable fiscal period.
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"TITLE COMPANY" shall mean First American Title Insurance Company
or such other title insurance or abstract company as shall be designated by
the Lead Arranger.
"TOTAL DEBT" shall mean, at any date, the aggregate amount of
Indebtedness of Borrower and its Consolidated Subsidiaries as of such date
determined on a consolidated basis in accordance with GAAP.
"TOTAL LEVERAGE RATIO" shall mean, for any Test Date, the ratio of
(x) Total Debt at such Test Date to (y) Consolidated EBITDA for the
Measurement Period ended on or immediately prior to such Test Date.
"TRANCHE B TERM LOAN COMMITMENT" shall mean, for each Tranche B
Term Loan Lender, the obligation of such Lender to make a Tranche B Term Loan
in an amount up to but not exceeding the amount set opposite the name of such
Lender on ANNEX A under the caption "Tranche B Term Loan Commitment" (as the
same may be changed pursuant to Section 12.06(b)). The initial aggregate
principal amount of the Tranche B Term Loan Commitments is $75.0 million.
"TRANCHE B TERM LOAN COMMITMENTS" shall mean the aggregate sum of
the Tranche B Term Loan Commitment of all the Lenders.
"TRANCHE B TERM LOAN LENDERS" shall mean (a) on the date hereof,
the Lenders having Tranche B Term Loan Commitments on the signature pages
hereof, and (b) thereafter, the Lenders from time to time holding Tranche B
Term Loans and Tranche B Term Loan Commitments after giving effect to any
assignments thereof permitted by Section 12.06(b).
"TRANCHE B TERM LOAN NOTES" shall mean the promissory notes
provided for by Section 2.08(a)(ii) and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.
"TRANCHE B TERM LOANS" shall mean the loans provided for by Section
2.01(b), which may be ABR Loans and/or LIBOR Loans.
"TRANCHE C TERM LOAN COMMITMENT" shall mean, for each Tranche C
Term Loan Lender, the obligation of such Lender to make a Tranche C Term Loan
in an amount up to but not exceeding the amount set opposite the name of such
Lender on ANNEX A under the caption "Tranche C Term Loan Commitment" (as the
same may be changed pursuant to Section 12.06(b)). The initial aggregate
principal amount of the Tranche C Term Loan Commitments is $100.0 million.
"TRANCHE C TERM LOAN COMMITMENT PERCENTAGE" shall mean, with
respect to any Tranche C Term Loan Lender, the ratio of (a) the amount of the
Tranche C Term Loan Commitment of such Lender to (b) the Tranche C Term Loan
Commitments.
"TRANCHE C TERM LOAN COMMITMENTS" shall mean the aggregate sum of
the Tranche C Term Loan Commitment of all the Lenders.
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"TRANCHE C TERM LOAN ESCROW MATURITY DATE" shall mean the earlier
of (x) the Business Day next succeeding the date of consummation of the
Change of Control Offer and (y) the 45th day after the Closing Date.
"TRANCHE C TERM LOAN ESCROW REPAYMENT AMOUNT" shall mean, at any
date, the Credit Facility Escrowed Amount LESS the Credit Facility Utilized
Amount.
"TRANCHE C TERM LOAN LENDERS" shall mean (a) on the date hereof,
the Lenders having Tranche C Term Loan Commitments on the signature pages
hereof, and (b) thereafter, the Lenders from time to time holding Tranche C
Term Loans and Tranche C Term Loan Commitments after giving effect to any
assignments thereof permitted by Section 12.06(b).
"TRANCHE C TERM LOAN NOTES" shall mean the promissory notes
provided for by Section 2.08(a)(iii) and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.
"TRANCHE C TERM LOANS" shall mean the loans provided for by Section
2.01(c), which may be ABR Loans and/or LIBOR Loans.
"TRANSACTION DOCUMENTS" shall mean the Merger Agreement, the
Contribution Agreements, the Investor Debt Securities Documents, the Investor
Escrow Agreement, the Change of Control Offer Documents, the Tax Sharing
Agreement and all documents related thereto and all exhibits, appendices,
schedules and annexes to any thereof.
"TRANSACTIONS" shall mean the Merger, the Contributions, the
Investor Debt Securities Financing, the Equity Contributions, the Investor
Escrow Funding, the Change of Control Offer, the Existing Debt Repayment and
the borrowings hereunder on the Closing Date.
"TYPE" see Section 1.03.
"UCC" shall mean the Uniform Commercial Code as in effect in the
applicable state or jurisdiction.
"UNUTILIZED REVOLVING CREDIT COMMITMENT" shall mean, for any
Revolving Credit Lender, at any time, the excess of such Lender's Revolving
Credit Commitment at such time over the sum of (i) the aggregate outstanding
principal amount of Revolving Credit Loans made by such Lender, (ii) such
Lender's Revolving Credit Commitment Percentage of the aggregate amount of
Letter of Credit Liabilities at such time and (iii) with respect to the Swing
Loan Lender only, the aggregate principal amount of Swing Loans then
outstanding.
"U.S. LENDER" see Section 5.06(b).
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person,
any corporation, partnership or other entity of which all of the Equity
Interests (other than, in the case of a corporation, directors' qualifying
shares or nominee shares required under applicable law) are directly or
indirectly
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owned or controlled by such Person or one or more Wholly Owned Subsidiaries
of such Person or by such Person and one or more Wholly Owned Subsidiaries of
such Person. Unless the context clearly requires otherwise, all references
to any Wholly Owned Subsidiary shall mean a Wholly Owned Subsidiary of
Borrower.
"WING" see the definition of Contributed Businesses.
"WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part 1 of Subtitle E of Title IV of ERISA.
"WORKING CAPITAL" shall mean an amount determined for Borrower and
the Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP) equal to the sum of all current assets (other than
cash) less the sum of all current liabilities (other than the current portion
of long-term Indebtedness and non-cash deferred tax assets).
1.02. ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise
provided in this Agreement, all computations and determinations as to
accounting or financial matters (including financial covenants) shall be made
in accordance with GAAP consistently applied for all applicable periods, and
all accounting or financial terms shall have the meanings ascribed to such
terms by GAAP. All financial statements to be delivered pursuant to this
Agreement shall be prepared in accordance with GAAP. All financial covenants
are to be calculated in accordance with GAAP as in effect on the date hereof
unless such modifications are agreed to by the parties hereto.
1.03. CLASSES AND TYPES OF LOANS. Loans hereunder are
distinguished by "Class" and by "Type". The "CLASS" of a Loan (or of a
Commitment to make a Loan) refers to whether such Loan is a Revolving Credit
Loan, Tranche B Term Loan or Tranche C Term Loan, each of which constitutes a
Class. The "TYPE" of a Loan refers to whether such Loan is an ABR Loan or a
LIBOR Loan, each of which constitutes a Type. Loans may be identified by
both Class and Type.
1.04. RULES OF CONSTRUCTION. (a) In this Agreement and each
other Credit Document, unless the context clearly requires otherwise (or such
other Credit Document clearly provides otherwise), references to (i) the
plural include the singular, the singular the plural and the part the whole;
(ii) Persons include their respective permitted successors and assigns or, in
the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; (iii) agreements (including this Agreement),
promissory notes and other contractual instruments include subsequent
amendments, assignments, and other modifications thereto, but only to the
extent such amendments, assignments or other modifications thereto are not
prohibited by their terms or the terms of any Credit Document; (iv) statutes
and related regulations include any amendments of same and any successor
statutes and regulations; and (v) time shall be a reference to New York City
time. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such
Person.
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(b) In this Agreement and each other Credit Document, unless the
context clearly requires otherwise (or such other Credit Document clearly
provides otherwise), (i) "AMEND" shall mean "amend, restate, amend and
restate, supplement or modify"; and "AMENDED," "AMENDING," and "AMENDMENT"
shall have meanings correlative to the foregoing; (ii) in the computation of
periods of time from a specified date to a later specified date, "FROM" shall
mean "from and including"; "TO" and "UNTIL" shall mean "to but excluding";
and "THROUGH" shall mean "to and including"; (iii) "HEREOF," "HEREIN" and
"HEREUNDER" (and similar terms) in this Agreement or any other Credit
Document refer to this Agreement or such other Credit Document, as the case
may be, as a whole and not to any particular provision of this Agreement or
such other Credit Document; (iv) "INCLUDING" (and similar terms) shall mean
"including without limitation" (and similarly for similar terms); (v) "OR"
has the inclusive meaning represented by the phrase "and/or"; (vi)
"SATISFACTORY TO" any Creditor shall mean in form, scope and substance and on
terms and conditions reasonably satisfactory to such Creditor; (vii)
references to "THE DATE HEREOF" shall mean the date first set forth above;
and (viii) "ASSET" and "PROPERTY" shall have the same meaning and effect and
refer to all tangible and intangible assets and property, whether real,
personal or mixed and of every type and description.
(c) In this Agreement unless the context clearly requires
otherwise, any reference to (i) an Annex, Exhibit or Schedule is to an Annex,
Exhibit or Schedule, as the case may be, attached to this Agreement and
constituting a part hereof, and (ii) a Section or other subdivision is to a
Section or such other subdivision of this Agreement.
(d) No doctrine of construction of ambiguities in agreements or
instruments against the interests of the party controlling the drafting
thereof shall apply to any Credit Document.
Section 2. COMMITMENTS, LETTERS OF CREDIT, FEES, REGISTER,
PREPAYMENTS AND REPLACEMENT OF LENDERS.
2.01. LOANS.
(a) REVOLVING CREDIT LOANS. Each Revolving Credit Lender
severally agrees, on the terms and conditions of this Agreement, to make
revolving credit loans (the "REVOLVING CREDIT LOANS") to Borrower in Dollars
during the period from and including the Closing Date to but not including
the Revolving Credit Commitment Termination Date in an aggregate principal
amount at any one time outstanding not exceeding the amount of the Revolving
Credit Commitment of such Lender as in effect from time to time; PROVIDED,
HOWEVER, that in no event shall the sum of the aggregate principal amount of
(without duplication) all Revolving Credit Loans then outstanding, PLUS the
aggregate principal amount of Swing Loans then outstanding, PLUS the
aggregate amount of all Letter of Credit Liabilities at any time exceed the
aggregate amount of the Revolving Credit Commitments as in effect at such
time. Subject to the terms and conditions of this Agreement, during such
period Borrower may borrow, repay and reborrow the amount of the Revolving
Credit Commitments by means of ABR Loans and LIBOR Loans and may Convert
Revolving Credit Loans of one Type into Revolving Credit Loans of another
Type (as provided in Section 2.09) or Continue Revolving Credit Loans of one
Type as Revolving Credit Loans of the same Type (as provided in Section 2.09).
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(b) TRANCHE B TERM LOANS. Each Tranche B Term Loan Lender
severally agrees, on the terms and conditions of this Agreement, to make a
single term loan to Borrower in Dollars on the Closing Date in an aggregate
principal amount equal to the Tranche B Term Loan Commitment of such Lender,
such loan to be used to finance the Transactions and to pay related fees and
expenses. Subject to the terms and conditions of this Agreement, thereafter
Borrower may Convert Tranche B Term Loans of one Type into Tranche B Term
Loans of another Type (as provided in Section 2.09) or Continue Tranche B
Term Loans of one Type as Tranche B Term Loans of the same Type (as provided
in Section 2.09).
Tranche B Term Loans that are repaid or prepaid may not be
reborrowed.
(c) TRANCHE C TERM LOANS. Each Tranche C Term Loan Lender
severally agrees, on the terms and conditions of this Agreement, to make a
single term loan to Borrower in Dollars on the Closing Date in an aggregate
principal amount equal to the Tranche C Term Loan Commitment of such Lender,
such loan to be used to finance the Transactions and to pay related fees and
expenses. Subject to the terms and conditions of this Agreement, thereafter
Borrower may Convert Tranche C Term Loans of one Type into Tranche C Term
Loans of another Type (as provided in Section 2.09) or Continue Tranche C
Term Loans of one Type as Tranche C Term Loans of the same Type (as provided
in Section 2.09).
Tranche C Term Loans that are repaid or prepaid may not be
reborrowed.
(d) LIMIT ON LIBOR LOANS. No more than five separate Interest
Periods in respect of LIBOR Loans of each Class may be outstanding at any one
time. Unless consented to by the Lead Arranger in its sole discretion, no
LIBOR Loans (other than 7-day LIBOR Loans) may be made prior to the earlier
of (x) completion of the primary syndication of the Commitments and Loans, as
determined by the Lead Arranger, and (y) 30 days after the Closing Date.
(e) SWING LOANS. Subject to the terms and conditions of this
Agreement, upon request of Borrower, the Swing Loan Lender agrees to make one
or more swing loans to Borrower from time to time from and including the
Closing Date to but excluding the Swing Loan Maturity Date, up to but not
exceeding the amount of the Swing Loan Lender's Swing Loan Commitment as then
in effect. (Such swing loans referred to in this Section 2.01(e) now or
hereafter made by the Swing Loan Lender to Borrower from and including the
Closing Date to but excluding the Swing Loan Maturity Date are hereinafter
collectively called the "SWING LOANS.") Prior to the Swing Loan Maturity
Date, Borrower may borrow, repay and reborrow Swing Loans up to the Swing
Loan Commitment in accordance with the terms of this Agreement. The Swing
Loan Lender shall not make any Swing Loans on or after the Swing Loan
Maturity Date. Notwithstanding anything to the contrary contained in this
Section 2.01(e) or elsewhere in this Agreement, the Swing Loan Lender shall
not be obligated, pursuant to this Section 2.01(e) or otherwise, to make any
Swing Loan to or for the account of Borrower, and Borrower shall not be
entitled to borrow, pursuant to this Section 2.01(e), if, after giving full
effect to the requested Swing Loan, the aggregate outstanding amount of
Revolving Credit Loans, PLUS the aggregate outstanding amount of Swing Loans,
PLUS the aggregate outstanding Letter of Credit Liabilities would exceed the
aggregate amount of the Revolving Credit Commitments as in effect at such
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time. Notwithstanding anything herein or elsewhere to the contrary, the
Swing Loans will be made and maintained only as ABR Loans. The Swing Loan
Lender shall not make any Swing Loan after receiving a written notice from
Borrower or the Majority Revolving Credit Lenders stating that a Default
exists and is continuing until such time as the Swing Loan Lender shall have
received written notice of (i) rescission of all such notices from the party
or parties originally delivering such notice, (ii) the waiver of such Default
by the Majority Lenders, or (iii) the Administrative Agent's good faith
determination that such Default has ceased to exist. Swing Loans shall be
made in minimum amounts of $500,000 and integral multiples of $500,000 above
such amount.
Upon the occurrence of a Default, each Revolving Credit Lender
shall be deemed to have purchased (and each Revolving Credit Lender hereby
irrevocably agrees to purchase on a PRO RATA basis (based upon each Revolving
Credit Lender's Revolving Credit Commitment)) an irrevocable participation in
all outstanding Swing Loans, together with all accrued interest thereon,
without any further action by or on behalf of the Swing Loan Lender, any
other Lender, Borrower or any other Person. Upon one Business Day's notice
from the Swing Loan Lender, each other Revolving Credit Lender shall deliver
to the Swing Loan Lender an amount equal to its respective participation in
such Swing Loan (as determined pursuant to the immediately preceding
sentence) in cash. In order to evidence such participation, each Revolving
Credit Lender agrees to enter into a participation agreement at the request
of the Swing Loan Lender in form and substance satisfactory to the Swing Loan
Lender and the Revolving Credit Lender. If any Revolving Credit Lender fails
to make available to the Swing Loan Lender the amount of such Revolving
Credit Lender's participation as provided in this paragraph, the Swing Loan
Lender shall be entitled to recover such amount on demand from such Revolving
Credit Lender, together with interest thereon at the Federal Funds Rate until
such amount is paid in full in cash. In the event the Swing Loan Lender
receives a payment from Borrower or any other Obligor of any amount in which
the Revolving Credit Lenders have purchased participations as provided in
this paragraph, the Swing Loan Lender shall promptly distribute to each
Revolving Credit Lender its PRO RATA share of such payment. Anything
contained in this Agreement or otherwise to the contrary notwithstanding, (A)
each Revolving Credit Lender's obligation to purchase a participation in each
unpaid Swing Loan shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, (1) any setoff,
counterclaim, recoupment, defense or other right which such Revolving Credit
Lender may now or hereafter have against the Swing Loan Lender, Borrower or
any other Person for any reason whatsoever, (2) the occurrence or
continuation of a Default or an Event of Default, (3) any material adverse
change in the condition of Borrower or any Subsidiary, (4) any breach or
default of this Agreement or any of the Security Documents by any Person, or
(5) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing, and (B) the Swing Loan Lender shall not have
any obligation to make any Swing Loans if (1) Borrower fails for whatever
reason to satisfy any of the conditions precedent set forth in Section 7.02
or (2) any Revolving Credit Lender fails for whatever reason to comply with
its obligations under this Section 2.01(e).
2.02. BORROWINGS. Borrower shall give the Administrative Agent
notice of each borrowing hereunder as provided in Section 4.05. The form of
such notice of borrowing shall be substantially in the form of EXHIBIT I.
Not later than 12:00 noon New York time on the date specified for each
borrowing hereunder, each Lender shall make available the amount of the Loan
or Loans to be
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made by it on such date to the Administrative Agent, at an account specified
by the Administrative Agent maintained at the Principal Office, in
immediately available funds, for the account of Borrower; PROVIDED, HOWEVER,
that a portion of the Tranche C Term Loan made by each Tranche C Term Loan
Lender in amount equal to the product of (i) the Tranche C Term Loan
Commitment Percentage of such Tranche C Term Loan Lender and (ii) the Credit
Facility Escrowed Amount shall be made available to the Administrative Agent
on the date and by the time specified in this sentence and shall be funded by
the Administrative Agent on the Closing Date to an account specified by the
escrow agent under the Credit Facilities Escrow Agreement pursuant to and in
accordance with the terms of the Credit Facilities Escrow Agreement. Each
borrowing of Revolving Credit Loans shall be made by each Revolving Credit
Lender PRO RATA based on such Lender's Revolving Credit Commitment
Percentage. The amounts so received by the Administrative Agent shall,
subject to the terms and conditions of this Agreement, be made available to
Borrower by depositing the same, in immediately available funds, in an
account of Borrower maintained with the Administrative Agent at the Principal
Office designated by Borrower.
2.03. LETTERS OF CREDIT. Subject to the terms and conditions
hereof, the Revolving Credit Commitments may be utilized, upon the request of
Borrower, in addition to the Revolving Credit Loans provided for by Section
2.01(a), for standby and commercial documentary letters of credit (herein
collectively called "LETTERS OF CREDIT") issued by the Issuing Lender for the
account of Borrower or any Subsidiary which is an Obligor (PROVIDED, that
Borrower shall be a co-applicant (and jointly and severally liable) with
respect to each Letter of Credit issued for the account of any such
Subsidiary); PROVIDED, HOWEVER, that in no event shall (i) the aggregate
amount of all Letter of Credit Liabilities, PLUS the aggregate principal
amount of the Revolving Credit Loans then outstanding, PLUS the aggregate
principal amount of Swing Loans then outstanding exceed at any time the
Revolving Credit Commitments as in effect at such time, (ii) the sum of the
aggregate principal amount of Revolving Credit Loans then outstanding made by
any Revolving Credit Lender, PLUS such Lender's PRO RATA share (based on the
Revolving Credit Commitments) of the aggregate principal amount of Swing
Loans then outstanding), PLUS such Lender's PRO RATA share (based on the
Revolving Credit Commitments) of the aggregate amount of all Letter of Credit
Liabilities exceed such Lender's Revolving Credit Commitment as in effect at
such time, (iii) the outstanding aggregate amount of all Letter of Credit
Liabilities exceed $5.0 million, (iv) the face amount of any Letter of Credit
be less than $10,000, (v) the expiration date of any Letter of Credit extend
beyond the earlier of (x) the fifth Business Day preceding the Revolving
Credit Commitment Termination Date and (y) the date twelve months following
the date of such issuance for standby Letters of Credit or 180 days after the
date of such issuance for commercial documentary Letters of Credit, unless
the Majority Revolving Credit Lenders have approved such expiry date in
writing (but never beyond the fifth Business Day prior to the Revolving
Credit Commitment Termination Date); PROVIDED, HOWEVER, that any standby
Letter of Credit may be automatically extendible for periods of up to one
year (but never beyond the fifth Business Day preceding the Revolving Credit
Commitment Termination Date) so long as such Letter of Credit provides that
the Issuing Lender retains an option satisfactory to the Issuing Lender to
terminate such Letter of Credit prior to each extension date, unless the
Majority Revolving Credit Lenders have approved such expiry date in writing,
or (vi) the Issuing Lender issue any Letter of Credit after it has received
notice from Borrower or the Majority Revolving Credit Lenders stating that a
Default exists until such time as the Issuing Lender shall have received
written notice of (x) rescission of such
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notice from the Majority Revolving Credit Lenders, (y) waiver of such Default
in accordance with this Agreement or (z) the Administrative Agent's good
faith determination that such Default has ceased to exist. The following
additional provisions shall apply to Letters of Credit:
(a) Borrower shall give the Administrative Agent at least three
Business Days' irrevocable prior notice (effective upon receipt)
specifying the date (which shall be no later than thirty days preceding
the Revolving Credit Termination Date) each Letter of Credit is to be
issued and describing in reasonable detail the proposed terms of such
Letter of Credit (including the beneficiary thereof) (including whether
such Letter of Credit is to be a commercial Letter of Credit or a standby
Letter of Credit). Upon receipt of any such notice, the Administrative
Agent shall advise the Issuing Lender of the contents thereof. Each
Lender hereby authorizes the Issuing Lender to issue, and perform its
obligations under, Letters of Credit. Letters of Credit shall be issued
in accordance with the customary procedures of the Issuing Lender, which
may include an application for Letters of Credit. The Issuing Lender may
refuse to issue any Letter of Credit the contents of which are not
reasonably satisfactory to it. If there is any conflict between the
procedures required by the Issuing Lender and this Agreement, this
Agreement shall govern.
(b) On each day during the period commencing with the issuance by
the Issuing Lender of any Letter of Credit and until such Letter of Credit
shall have expired or been terminated, the Revolving Credit Commitment of
each Revolving Credit Lender shall be deemed to be utilized for all
purposes hereof in an amount equal to such Lender's Revolving Credit
Commitment Percentage of the then undrawn face amount of such Letter of
Credit. Each Revolving Credit Lender (other than the Issuing Lender)
agrees that, upon the issuance of any Letter of Credit hereunder, it shall
automatically acquire a participation in the Issuing Lender's liability
under such Letter of Credit in an amount equal to such Lender's Revolving
Credit Commitment Percentage of such liability, and each Revolving Credit
Lender (other than the Issuing Lender) thereby shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not as
surety, and shall be unconditionally obligated to the Issuing Lender to
pay and discharge when due, its Revolving Credit Commitment Percentage of
the Issuing Lender's liability under such Letter of Credit. The Issuing
Lender shall be deemed to hold a Letter of Credit Liability in an amount
equal to its retained interest in the related Letter of Credit after
giving effect to such acquisition by the Revolving Credit Lenders other
than the Issuing Lender of their participation interests.
(c) Upon the making of any payment to the beneficiary of any Letter
of Credit, the Issuing Lender shall promptly notify Borrower (through the
Administrative Agent) of the amount paid by the Issuing Lender and the
date on which payment was made to such beneficiary. Borrower hereby
unconditionally agrees to pay and reimburse the Issuing Lender for the
amount of payment under such Letter of Credit, together with interest
thereon at the Alternate Base Rate plus the Applicable Margin applicable
to Revolving Credit Loans from the date payment was made to such
beneficiary to the date on which payment is due, not later than the next
Business Day after the date on which Borrower receives such notice from
the Issuing
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Lender. Any such payment due from Borrower and not paid on
the required date shall bear interest at rates specified in Section
3.02(b).
(d) Forthwith upon its receipt of a notice referred to in
clause (c) of this Section 2.03, Borrower shall advise the Issuing Lender
whether or not Borrower intends to borrow hereunder to finance its
obligation to reimburse the Issuing Lender for the amount of the related
demand for payment and, if it does, submit a notice of such borrowing as
provided in Section 4.05. In the event that Borrower fails to so advise
the Administrative Agent, or if Borrower fails to reimburse the Issuing
Lender for a demand for payment under a Letter of Credit by the next
Business Day after the date of such notice, the Administrative Agent shall
give each Revolving Credit Lender prompt notice of the amount of the
demand for payment, specifying such Lender's Revolving Credit Commitment
Percentage of the amount of the related demand for payment.
(e) Each Revolving Credit Lender (other than the Issuing Lender)
shall pay to the Administrative Agent for account of the Issuing Lender at
the Principal Office in Dollars and in immediately available funds, the
amount of such Lender's Revolving Credit Commitment Percentage of any
payment under a Letter of Credit upon not less than one Business Day's
notice by the Issuing Lender (through the Administrative Agent) to such
Revolving Credit Lender requesting such payment and specifying such
amount. Each such Revolving Credit Lender's obligation to make such
payments to the Administrative Agent for account of the Issuing Lender
under this clause (e), and the Issuing Lender's right to receive the same,
shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including (i) the failure of any other Revolving
Credit Lender to make its payment under this clause (e), (ii) the
financial condition of Borrower or the existence of any Default or (iii)
the termination of the Commitments. Each such payment to the Issuing
Lender shall be made without any offset, abatement, withholding or
reduction whatsoever.
(f) Upon the making of each payment by a Revolving Credit Lender to
the Issuing Lender pursuant to clause (e) above in respect of any Letter
of Credit, such Lender shall, automatically and without any further action
on the part of the Administrative Agent, the Issuing Lender or such
Lender, acquire (i) a participation in an amount equal to such payment in
the Reimbursement Obligation owing to the Issuing Lender by Borrower
hereunder and under the Letter of Credit Documents relating to such Letter
of Credit and (ii) a participation in a percentage equal to such Lender's
Revolving Credit Commitment Percentage in any interest or other amounts
payable by Borrower hereunder and under such Letter of Credit Documents in
respect of such Reimbursement Obligation. Upon receipt by the Issuing
Lender from or for the account of Borrower of any payment in respect of
any Reimbursement Obligation or any such interest or other amounts
(including by way of setoff or application of proceeds of any collateral
security) the Issuing Lender shall promptly pay to the Administrative
Agent for account of each Revolving Credit Lender which has satisfied its
obligations under clause (e) above, such Revolving Credit Lender's
Revolving Credit Commitment Percentage of such payment, each such payment
by the Issuing Lender to be made in the same money and funds in which
received by the Issuing Lender. In the event any payment received by the
Issuing
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Lender and so paid to the Revolving Credit Lenders hereunder is
rescinded or must otherwise be returned by the Issuing Lender, each
Revolving Credit Lender shall, upon the request of the Issuing Lender
(through the Administrative Agent), repay to the Issuing Lender (through
the Administrative Agent) the amount of such payment paid to such Lender,
with interest at the rate specified in clause (i) of this Section 2.03.
(g) Borrower shall pay to the Administrative Agent for the account
of the Issuing Lender in respect of each Letter of Credit a letter of
credit commission in an amount (not less than $250) equal to (x) the rate
PER ANNUM equal to the Applicable Margin for Revolving Credit Loans that
are LIBOR Loans in effect from time to time, multiplied by (y) the daily
average undrawn face amount of such Letter of Credit for the period from
and including the date of issuance of such Letter of Credit (i) in the
case of a Letter of Credit which expires in accordance with its terms, to
and including such expiration date and (ii) in the case of a Letter of
Credit which is drawn in full or is otherwise terminated other than on the
stated expiration date of such Letter of Credit, to but excluding the date
such Letter of Credit is drawn in full or is terminated, such fee to be
non-refundable and to be paid in arrears quarterly, on each Quarterly Date
(or such $250 PER ANNUM fee to be paid on the date of issuance of the
applicable Letter of Credit), and on the earlier of the Revolving Credit
Commitment Termination Date or the date of the termination of the
Revolving Credit Commitments or the date of such termination, expiration
or the Business Day subsequent to notice of a drawing. The Issuing Lender
shall pay to the Administrative Agent for account of each Revolving Credit
Lender (other than the Issuing Lender), from time to time at reasonable
intervals (but in any event at least quarterly), but only to the extent
actually received from Borrower, an amount equal to such Lender's
Revolving Credit Commitment Percentage of all letter of credit commissions
referred to in the first sentence of this clause (g). In addition,
Borrower shall pay to the Administrative Agent for account of the Issuing
Lender only in respect of each Letter of Credit a letter of credit
issuance fee in an amount equal to, in the case of standby Letters of
Credit, 0.25% PER ANNUM multiplied by the original face amount, and, in
the case of documentary Letters of Credit, 0.25% PER ANNUM multiplied by
the average daily outstanding amount, in each case from the issue date
through the expiry date of such Letter of Credit (but in no event less
than $500 per Letter of Credit), such amount to be payable quarterly in
arrears on each Quarterly Date, plus all charges, costs and expenses in
the amounts customarily charged by the Issuing Lender from time to time in
like circumstances with respect to the issuance, amendment or transfer of
each Letter of Credit and drawings and other transactions relating
thereto.
(h) Promptly following the end of each calendar month, the Issuing
Lender shall deliver (through the Administrative Agent) to each Revolving
Credit Lender and Borrower a notice describing the aggregate amount of all
Letters of Credit outstanding at the end of such month. Upon the request
of any Revolving Credit Lender from time to time, the Issuing Lender shall
deliver any other information reasonably requested by such Lender with
respect to each Letter of Credit then outstanding.
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(i) To the extent that any Revolving Credit Lender fails to pay an
amount required to be paid pursuant to clause (e) or (f) of this Section
2.03 on the due date therefor, such Lender shall pay interest to the
Issuing Lender (through the Administrative Agent) on such amount from and
including such due date to but excluding the date such payment is made (i)
during the period from and including such due date to but excluding the
date three Business Days thereafter, at a rate PER ANNUM equal to the
Federal Funds Rate (as in effect from time to time) and (ii) thereafter,
at a rate PER ANNUM equal to the post-default rate (as in effect from time
to time) pursuant to Section 3.02(b).
(j) The issuance by the Issuing Lender of any modification or
supplement to any Letter of Credit hereunder that would extend the expiry
date or increase the face amount thereof shall be subject to the same
conditions applicable under this Section 2.03 to the issuance of new
Letters of Credit, and no such modification or supplement shall be issued
hereunder unless either (x) the respective Letter of Credit affected
thereby would have complied with such conditions had it originally been
issued hereunder in such modified or supplemented form or (y) each
Revolving Credit Lender shall have consented thereto.
(k) Notwithstanding the foregoing, the Issuing Lender shall not be
under any obligation to issue any Letter of Credit if at the time of such
issuance, any order, judgment or decree of any Governmental Authority or
arbitrator shall purport by its terms to enjoin or restrain the Issuing
Lender from issuing such Letter of Credit or any requirement of law
applicable to the Issuing Lender or any request or directive (whether or
not having the force of law) from any Governmental Authority shall
prohibit, or request that the Issuing Lender refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or
shall impose upon such Issuing Lender with respect to such Letter of
Credit any restriction or reserve or capital requirement (for which the
Issuing Lender is not otherwise compensated) not in effect on the date
hereof. At any time that the Issuing Lender shall not be under any
obligation to issue Letters of Credit pursuant to this paragraph (k), the
Issuing Lender may be replaced by Borrower with another Lender reasonably
acceptable to the Administrative Agent upon notice to the Issuing Lender
and the Administrative Agent. Upon any such replacement, the
Administrative Agent shall notify the Lenders of any such replacement of
the Issuing Lender and the replacement Issuing Lender shall agree to be
bound by the applicable provisions of this Agreement. At the time any
such replacement shall become effective, Borrower shall pay all unpaid
fees accrued for the account of the replaced Issuing Lender pursuant to
Section 2.03(g). From and after the effective date of any such
replacement, (i) the successor Issuing Lender shall have all the rights
and obligations of the Issuing Lender under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to
the term "Issuing Lender" shall be deemed to refer to such successor or to
any previous Issuing Lender, or to such successor and all previous Issuing
Lenders, as the context shall require. After the replacement of an
Issuing Lender hereunder, the replaced Issuing Lender shall remain a party
hereto and shall continue to have all the rights and obligations of an
Issuing Lender under this Agreement with respect to Letters of Credit
issued by it prior to such replacement, but shall not be required to issue
additional Letters of Credit.
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The obligations of Borrower under this Agreement and any Letter of Credit
Document to reimburse the Issuing Lender for a drawing under a Letter of
Credit, and to repay any drawing under a Letter of Credit converted into
Revolving Credit Loans, shall be unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement and each such
other Letter of Credit Document under all circumstances, including the
following: (i) any lack of validity or enforceability of this Agreement or
any Letter of Credit Document; (ii) the existence of any claim, setoff,
defense or other right that Borrower may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any Person for whom
any such beneficiary or any such transferee may be acting), the Issuing
Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the Letter of Credit Documents or any
unrelated transaction; (iii) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit; or any defense based upon the failure of any drawing under
a Letter of Credit to conform to the terms of the Letter of Credit or any
non-application or misapplication by the beneficiary of the proceeds of such
drawing; or (iv) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of,
Borrower or a Guarantor; PROVIDED, HOWEVER, that Borrower shall not be
obligated to reimburse the Issuing Lender for any wrongful payment determined
by a court of competent jurisdiction to have been made by the Issuing Lender
as a result of acts or omissions constituting bad faith or gross negligence
on the part of the Issuing Lender. To the extent that any provision of any
Letter of Credit Document is inconsistent with the provisions of this Section
2.03, the provisions of this Section 2.03 shall control.
2.04. TERMINATION AND REDUCTIONS OF COMMITMENTS. (a) (i) The
aggregate amount of the Revolving Credit Commitments shall be automatically
and permanently reduced to zero on the Revolving Credit Commitment
Termination Date. The aggregate amount of Revolving Credit Commitments shall
be permanently reduced on the date any required prepayments described in
Section 2.10(a) are required to be made in the amount specified in Section
2.10(b)(ii).
(ii) The aggregate amount of the Term Loan Commitments shall be
automatically and permanently reduced to zero immediately after the making of
the Term Loans on the Closing Date.
(b) Borrower shall have the right at any time or from time to time
(without premium or penalty except breakage costs (if any)) (i) so long as no
Revolving Credit Loans or Letter of Credit Liabilities will be outstanding as
of the date specified for termination, to terminate the Revolving Credit
Commitments, and (ii) to reduce the aggregate amount of the Unutilized
Revolving Credit Commitments of all the Revolving Credit Lenders; PROVIDED,
HOWEVER, that (x) Borrower shall give notice of each such termination or
reduction as provided in Section 4.05, and (y) each partial reduction shall
be in an aggregate amount at least equal to $5.0 million (or a larger
multiple of $1.0 million) or, if less, the remaining Revolving Credit
Commitments.
(c) The Commitments once terminated or reduced may not be
reinstated.
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2.05. FEES. (a) Borrower shall pay to the Administrative Agent
for the account of each Revolving Credit Lender a commitment fee on the daily
average amount of such Lender's Unutilized Revolving Credit Commitment, for
the period from and including the Closing Date to but not including the
earlier of the date such Revolving Credit Commitment is terminated and the
Revolving Credit Commitment Termination Date, at a rate PER ANNUM equal to
the Applicable Revolving Credit Fee Percentage. Any accrued commitment fee
under this Section 2.05(a) shall be payable in arrears on each Quarterly Date
and on the earlier of the date the Revolving Credit Commitments are
terminated and the Revolving Credit Commitment Termination Date.
(b) Borrower shall pay to the Administrative Agent for its own
account a nonrefundable administrative fee pursuant to the terms of the
Administrative Agent's Fee Letter.
2.06. LENDING OFFICES. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type. No Lender shall (unless required by law or if the
failure to do so would adversely affect such Lender) change its Applicable
Lending Office for LIBOR Loans if such change would increase Borrower's net
costs or expenses hereunder materially (including withholding payments).
2.07. SEVERAL OBLIGATIONS OF LENDERS. The failure of any Lender
to make any Loan to be made by it on the date specified therefor shall not
relieve any other Lender of its obligation to make its Loan on such date, but
neither any Lender nor the Administrative Agent shall be responsible for the
failure of any other Lender to make a Loan to be made by such other Lender,
and no Lender shall have any obligation to the Administrative Agent or any
other Lender for the failure by such Lender to make any Loan required to be
made by such Lender.
2.08. NOTES; REGISTER. (a) (i) At the request of any Lender,
the Revolving Credit Loans made by such Revolving Credit Lender shall be
evidenced by one or more promissory notes of Borrower, substantially in the
form of EXHIBIT A-1, dated the Closing Date, payable to such Lender and
otherwise duly completed.
(ii) At the request of any Lender, the Tranche B Term Loans made or
to be made by such Tranche B Term Loan Lender shall be evidenced by one or
more promissory notes of Borrower, substantially in the form of EXHIBIT A-2,
dated the Closing Date, payable to such Lender and otherwise duly completed.
(iii) At the request of any Lender, the Tranche C Term Loans made or
to be made by such Tranche C Term Loan Lender shall be evidenced by one or
more promissory notes of Borrower, substantially in the form of EXHIBIT A-3,
dated the Closing Date, payable to such Lender and otherwise duly completed.
(iv) At the request of the Swing Loan Lender, the Swing Loans made
by the Swing Loan Lender shall be evidenced by one or more promissory notes
of Borrower, substantially in the form of EXHIBIT A-4, dated the Closing
Date, payable to the Swing Loan Lender and otherwise duly completed.
<PAGE>
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(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to
Borrower, and each payment made on account of the principal thereof, shall be
recorded by such Lender on its books and, prior to any transfer of any Note
evidencing the Loans of such Class held by it, endorsed by such Lender on the
schedule attached to such Note or any continuation thereof; PROVIDED,
HOWEVER, that the failure of such Lender to make any such recordation or
endorsement shall not affect the obligations of Borrower to make a payment
when due of any amount owing hereunder or under such Note.
(c) Borrower hereby designates the Administrative Agent to serve
as its agent, solely for purposes of this Section 2.08, to maintain a
register (the "REGISTER") on which it will record the name and address of
each Lender, the Commitment from time to time of each of the Lenders, the
principal amount of the Loans made by each of the Lenders and each repayment
in respect of the principal amount of the Loans of each Lender. Failure to
make any such recordation or any error in such recordation shall not affect
Borrower's obligations in respect of such Loans. The entries in the Register
shall be conclusive, in the absence of manifest error, and Borrower, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of a Loan or other obligation hereunder
as the owner thereof for all purposes of this Agreement and the other Credit
Documents, notwithstanding any notice to the contrary. The Register shall be
available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice.
2.09. OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF
LOANS. Subject to Section 4.04, Borrower shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or to
Continue Loans of one Type as Loans of the same Type, at any time or from
time to time to be applied as specified by Borrower; PROVIDED, HOWEVER, that:
(a) Borrower shall give the Administrative Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 4.05 (and, upon
the date specified in any such notice of prepayment, the amount to be prepaid
shall become due and payable hereunder); (b) if LIBOR Loans are prepaid or
Converted other than on the last day of an Interest Period for such Loans,
Borrower shall at such time pay all expenses and costs required by Section
5.05; and (c) prepayments of the Term Loans pursuant to this Section 2.09
shall be applied PRO RATA between the Term Loan Tranches based upon the
remaining unpaid amounts thereof and, as to each such Term Loan Tranche, the
amount to be applied thereto shall be applied in inverse order of maturity
among the remaining Amortization Payments based upon the remaining unpaid
amounts thereof. Each notice of Conversion or Continuation shall be
substantially in the form of EXHIBIT J.
Notwithstanding the foregoing, and without limiting the rights and
remedies of the Lenders under Section 10, in the event that any Event of
Default shall have occurred and be continuing, the Administrative Agent may
(and at the request of the Majority Lenders shall) suspend the right of
Borrower to Convert any Loan into a LIBOR Loan, or to Continue any Loan as a
LIBOR Loan, in which event all Loans shall be Converted (on the last day(s)
of the respective Interest Periods therefor) or Continued, as the case may
be, as ABR Loans.
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2.10. MANDATORY PREPAYMENTS. (a) Borrower shall prepay the Term
Loans as follows (each such prepayment to be effected in each case in the
manner, order and to the extent specified in subsection (b) below of this
Section 2.10):
(i) CASUALTY EVENTS. On or prior to the third Business Day after
the date on which any Company receives any Net Available Proceeds from any
Casualty Event, in an aggregate principal amount equal to 100% of such Net
Available Proceeds; PROVIDED, HOWEVER, that (x) so long as no Event of
Default then exists or would arise therefrom, such Net Available Proceeds
shall not be required to be so applied on such date to the extent that
Borrower has delivered an Officers' Certificate to the Administrative
Agent on or prior to such date stating that such proceeds shall be used to
(1) repair, replace or restore any Property in respect of which such Net
Available Proceeds were paid or (2) fund the substitution of other
Property used or usable in the business of Borrower and the Subsidiaries,
in each case within 180 days following the date of the receipt of such Net
Available Proceeds, (y) all such Net Available Proceeds shall be held in
the Collateral Account and released therefrom only in accordance with the
terms of the Security Agreement, and (z) if all or any portion of such Net
Available Proceeds not required to be applied to the prepayment of Term
Loans pursuant to the preceding proviso is not so used within 180 days
after the date of the receipt of such Net Available Proceeds, such
remaining portion shall be applied on the last day of such period as
specified in Section 2.10(b), unless prior to such 180th day a Company
shall have entered into a binding agreement to so use such Net Available
Proceeds, in each case within 180 days after the date of such agreement
(and if not so used, the Net Available Proceeds shall be applied as
specified in Section 2.10(b)).
(ii) EQUITY ISSUANCE. On or prior to the third Business Day after
the date on which any Company receives any Net Available Proceeds from any
Equity Issuance after the Closing Date, in an aggregate principal amount
equal to 50% of such Net Available Proceeds; PROVIDED, HOWEVER, that the
Designated Equity Issuance Proceeds need not be so applied to the extent
contemporaneously applied pursuant to Section 9.06(i) or Section
9.25(a)(4)(y).
(iii) DEBT ISSUANCE. On or prior to the third Business Day after the
date on which any Company receives any Net Available Proceeds from any
Debt Issuance after the Closing Date, in an aggregate principal amount
equal to 100% of such Net Available Proceeds.
(iv) DISPOSITION EVENTS. On or prior to the third Business Day after
the date of receipt by any Company of any Net Available Proceeds from any
Disposition Event, in an aggregate principal amount equal to 100% of the
Net Available Proceeds from such Disposition Event; PROVIDED, HOWEVER,
that (x) the Net Available Proceeds from any Disposition Event permitted
by Section 9.06(g) and Section 9.06(h) shall not be required to be applied
as provided herein on such date if and to the extent that (1) no Event of
Default then exists or would arise therefrom and (2) Borrower delivers an
Officers' Certificate to the Administrative Agent on or prior to such date
stating that such Net Available Proceeds shall be reinvested in capital
assets of Borrower or any Subsidiary in each case within 180 days
following the date of such Disposition Event (which certificate shall set
forth the estimates of the proceeds to be so ex-
<PAGE>
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pended), (y) all such Net Available Proceeds shall be held in the
Collateral Account and released therefrom only in accordance with the
terms of the Security Agreement, and (z) if all or any portion of such
Net Available Proceeds not so applied as provided herein is not so used
within such 180 day period, such remaining portion shall be applied on
the last day of such period as specified in Section 2.10(b), unless
prior to such 180th day a Company shall have entered into a binding
agreement to so use such Net Available Proceeds, in each case within
180 days after the date of such agreement (and if not so used, the Net
Available Proceeds shall be applied as specified in Section 2.10(b)).
(v) EXCESS CASH FLOW. Not later than 100 days after the end of each
fiscal year of Borrower commencing with the fiscal year ended December 31,
1999, in an aggregate principal amount equal to (A) 75% of Excess Cash
Flow for such fiscal year if the Total Leverage Ratio at the end of such
fiscal year is greater than or equal to 2.75:1.0 (as evidenced in an
Officers' Certificate delivered to the Administrative Agent), and (B) 50%
of Excess Cash Flow for such fiscal year if the Total Leverage Ratio at
the end of such fiscal year is less than 2.75:1.0 (as evidenced in an
Officers' Certificate delivered to the Administrative Agent); PROVIDED,
HOWEVER, that on and after the consummation date of the Change of Control
Offer, so long as less than $50.0 million in aggregate principal amount of
the Existing Notes are purchased by Borrower in the Change of Control
Offer, references in this paragraph (v) to "Total Leverage Ratio" shall be
deemed to be references to "Senior Leverage Ratio."
(vi) OTHER REQUIRED PREPAYMENTS. If the terms of any agreement,
instrument or indenture pursuant to which any Indebtedness PARI PASSU with
or junior in right of payment to the Loans is outstanding (or pursuant to
which such Indebtedness is guaranteed) require prepayment of such
Indebtedness out of the proceeds of any Disposition or otherwise unless
such proceeds are used to prepay other Indebtedness, then, to the extent
not otherwise required by this Section 2.10(a), the Loans shall be repaid
in an amount not less than the minimum amount that would be required to be
prepaid not later than the latest time as and upon such terms so that such
other Indebtedness will not be required to be prepaid pursuant to the
terms of the agreement, indenture or instrument or guarantee governing
such other Indebtedness.
(b) APPLICATION. The amount of any required prepayments described
in Section 2.10(a) shall be applied as follows:
(i) FIRST, the amount of the required prepayment shall be applied to
the reduction of Amortization Payments on the Term Loans required by
Section 3.01(b) pro rata among the Term Loan Tranches based upon the
remaining unpaid amounts thereof and, as to each such Term Loan Tranche,
the amount to be applied thereto shall be applied in inverse order of
maturity to the remaining Amortization Payments of such Term Loan Tranche;
and
(ii) SECOND, after such time as no Term Loans remain outstanding,
Revolving Credit Commitments shall be permanently reduced (at the same
time that the prepayment of the Term Loans would have been made and
assuming an unlimited amount thereof then outstanding) PRO RATA in an
amount equal to the remaining amount of any such required prepay-
<PAGE>
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ment that would have been applied to the Term Loans (assuming an
unlimited amount thereof then outstanding) and to the extent that,
after giving effect to such reduction, the aggregate principal amount
of Revolving Credit Loans, PLUS the aggregate principal amount of Swing
Loans, PLUS the aggregate amount of all Letter of Credit Liabilities
would exceed the Revolving Credit Commitments, Borrower shall, FIRST,
prepay outstanding Revolving Credit Loans, SECOND, prepay outstanding
Swing Loans and, THIRD, provide cover for Letter of Credit Liabilities
as specified in Section 2.10(d), in an aggregate amount equal to such
excess.
Notwithstanding the foregoing, if the amount of any prepayment of
Loans required under this Section 2.10 shall be in excess of the amount of
the ABR Loans at the time outstanding, only the portion of the amount of such
prepayment as is equal to the amount of such outstanding ABR Loans shall be
immediately prepaid and, at the election of Borrower, the balance of such
required prepayment shall be either (i) deposited in the Collateral Account
and applied to the prepayment of LIBOR Loans on the last day of the then
next-expiring Interest Period for LIBOR Loans or (ii) prepaid immediately,
together with any amounts owing to the Lenders under Section 5.05.
Notwithstanding any such deposit in the Collateral Account, interest shall
continue to accrue on such Loans until prepayment.
(c) REVOLVING CREDIT EXTENSION REDUCTIONS. Until the Revolving
Credit Commitment Termination Date, Borrower shall from time to time
immediately prepay the Swing Loans and the Revolving Credit Loans (and/or
provide cover for Letter of Credit Liabilities as specified in Section
2.10(d)) in such amounts as shall be necessary so that at all times the
aggregate outstanding amount of the Revolving Credit Loans, PLUS the
aggregate outstanding amount of Swing Loans, PLUS the aggregate outstanding
Letter of Credit Liabilities shall not exceed the Revolving Credit
Commitments as in effect at such time, such amount to be applied, FIRST, to
Swing Loans, SECOND, to Revolving Credit Loans outstanding and, THIRD, as
cover for Letter of Credit Liabilities outstanding as specified in Section
2.10(d).
(d) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that
Borrower shall be required pursuant to this Section 2.10 to provide cover for
Letter of Credit Liabilities, Borrower shall effect the same by paying to the
Administrative Agent immediately available funds in an amount equal to the
required amount, which funds shall be retained by the Administrative Agent in
the Collateral Account (as provided in the Security Agreement as collateral
security in the first instance for the Letter of Credit Liabilities) until
such time as all Letters of Credit shall have been terminated and all of the
Letter of Credit Liabilities paid in full.
2.11. REPLACEMENT OF LENDERS. Borrower shall have the right, if
no Default then exists, to replace any Lender (the "REPLACED LENDER") with
one or more other Eligible Persons reasonably acceptable to the Lead Arranger
(collectively, the "REPLACEMENT LENDER") if (x) such Lender is charging
Borrower increased costs pursuant to Section 5.01 or 5.06 in excess of those
being charged generally by the other Lenders or such Lender becomes incapable
of making LIBOR Loans as provided in Section 5.03 and/or (y) as provided in
Section 12.04(ii), such Lender refuses to consent to certain proposed
amendments, waivers or modifications with respect to this Agreement;
PROVIDED, HOWEVER, that (i) at the time of any replacement pursuant to this
Section 2.11, the Replacement Lender
<PAGE>
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shall enter into one or more assignment agreements in accordance with Section
12.06(b) (and with all fees payable pursuant to Section 12.06 to be paid by
the Replacement Lender) pursuant to which the Replacement Lender shall
acquire all of the Commitments and outstanding Loans of, and in each case
Letter of Credit Interests for, the Replaced Lender and, in connection
therewith, shall pay to (x) the Replaced Lender, an amount equal to the sum
of (A) the principal of, and all accrued interest on, all outstanding Loans
of the Replaced Lender, (B) all Reimbursement Obligations owing to such
Replaced Lender, together with all then unpaid interest with respect thereto
at such time, and (C) all accrued, but theretofore unpaid, fees owing to the
Replaced Lender pursuant to Section 2.05, and (y) the Issuing Lender an
amount equal to such Replaced Lender's Revolving Credit Commitment Percentage
of any Reimbursement Obligations (which at such time remains a Reimbursement
Obligation) to the extent such amount was not theretofore funded by such
Replaced Lender, and (ii) all obligations of Borrower owing to the Replaced
Lender (other than those specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is concurrently
being, paid, but including any amounts which would be paid to a Lender
pursuant to Section 5.05 if Borrower were prepaying a LIBOR Loan) shall be
paid in full to such Replaced Lender concurrently with such replacement.
Upon the execution of the applicable assignment agreement, the payment of
amounts referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of Notes executed by
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder and be released
of all its obligations as a Lender, except with respect to indemnification
provisions applicable to the Replaced Lender under this Agreement, which
shall survive as to such Replaced Lender.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01. REPAYMENT OF LOANS.
(a) REVOLVING CREDIT AND SWING LOANS. Borrower hereby promises to
pay to the Administrative Agent for the account of each Lender the entire
outstanding principal amount of such Lender's Revolving Credit Loans, and
each Revolving Credit Loan shall mature, on the Revolving Credit Commitment
Termination Date. Borrower hereby promises to pay the Swing Loan Lender for
its account the entire outstanding principal amount of the Swing Loans, and
the Swing Loans shall mature, on the Swing Loan Maturity Date.
(b) (1) TRANCHE B TERM LOANS. Borrower hereby promises to pay to
the Administrative Agent for the account of the Tranche B Term Loan Lenders,
in repayment of the principal of the Tranche B Term Loans, the amounts set
forth on SCHEDULE 3.01(B) on the dates set forth on SCHEDULE 3.01(B) (subject
to adjustment for any prepayments required by Section 2.10 to the extent
actually made).
(2) TRANCHE C TERM LOANS. Borrower hereby promises to pay to the
Administrative Agent for the account of the Tranche C Term Loan Lenders, in
repayment of the principal of the Tranche C Term Loans, the amounts set forth
on SCHEDULE 3.01(B) on the dates set forth on SCHEDULE 3.01(B) (subject to
adjustment for any prepayments required by Section 2.10 to the extent
actually made). Notwithstanding the foregoing, Borrower hereby promises to
pay to the Administrative Agent
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for the account of the Tranche C Term Loan Lenders, in repayment in part of
the principal of the Tranche C Term Loans, the Tranche C Term Loan Escrow
Repayment Amount on the Tranche C Term Loan Escrow Maturity Date. In the
event any such repayment pursuant to the preceding sentence is made, the
amounts set forth in SCHEDULE 3.01(b) in respect of Tranche C Term Loans
shall be adjusted by applying the Tranche C Term Loan Escrow Repayment Amount
to reduce such amounts in inverse order of maturity.
3.02. INTEREST. (a) Borrower hereby promises to pay to the
Administrative Agent for the account of each Lender interest on the unpaid
principal amount of each Loan made by such Lender for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full at the following rates PER ANNUM:
(i) during such periods as such Loan is an ABR Loan, the Alternate
Base Rate (as in effect from time to time), PLUS the Applicable Margin and
(ii) during such periods as such Loan is a LIBOR Loan, for each
Interest Period relating thereto, the LIBOR Rate for such Loan for such
Interest Period, PLUS the Applicable Margin.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and other overdue amounts owed by any
Obligor under the Credit Documents (including such interest accruing before
and after judgment) shall bear interest at a rate PER ANNUM equal to (x) in
the case of principal of any Loans, the rate which is 2% in excess of the
rate then borne by such Loans and (y) in the case of interest and such other
amounts, the rate which is 2% in excess of the rate otherwise applicable to
ABR Loans which are Revolving Credit Loans from time to time. Interest which
accrues under this paragraph shall be payable on demand.
(c) Accrued interest on each Loan shall be payable (i) in the case
of an ABR Loan, quarterly on the Quarterly Dates, (ii) in the case of a LIBOR
Loan, on the last day of each Interest Period therefor and, if such Interest
Period is longer than three months, at three-month intervals following the
first day of such Interest Period and (iii) in the case of any LIBOR Loan,
upon the payment or prepayment thereof or the Conversion of such Loan to a
Loan of another Type (but only on the principal amount so paid, prepaid or
Converted), except that interest payable at the rate set forth in Section
3.02(b) shall be payable from time to time on demand. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Administrative Agent shall give notice thereof to the Lenders to which
such interest is payable and to Borrower.
Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01. PAYMENTS. (a) Except to the extent otherwise provided
herein, all payments of principal, interest, Reimbursement Obligations and
other amounts to be made by Borrower under this Agreement and the Notes, and,
except to the extent otherwise provided therein, all payments to be made by
the Obligors under any other Credit Document, shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to
the Administrative Agent at its account at the Principal Office, not later
than 12:00 noon New York time on the date on which such payment
<PAGE>
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shall become due (each such payment made after such time on such due date to
be deemed to have been made on the next succeeding Business Day).
(b) Borrower shall, at the time of making each payment under this
Agreement or any Note for the account of any Lender, specify (in accordance
with Section 2.09 and 2.10, if applicable) to the Administrative Agent (which
shall so notify the intended recipient(s) thereof) the Loans, Reimbursement
Obligations or other amounts payable by Borrower hereunder to which such
payment is to be applied (and in the event that Borrower fails to so specify,
or if an Event of Default has occurred and is continuing, the Administrative
Agent may distribute such payment to the Lenders for application to the
Obligations under the Credit Documents in such manner as it or the Majority
Lenders, subject to Section 4.02, may determine to be appropriate).
(c) Except to the extent otherwise provided in the second sentence
of Section 2.03(g), each payment received by the Administrative Agent or by
the Issuing Lender (through the Administrative Agent) under this Agreement or
any Note for the account of any Lender shall be paid by the Administrative
Agent or by the Issuing Lender (through the Administrative Agent), as the
case may be, to such Lender, in immediately available funds, (x) if the
payment was actually received by the Administrative Agent or by the Issuing
Lender (through the Administrative Agent), as the case may be, prior to 12:00
noon (New York time) on any day, on such day and (y) if the payment was
actually received by the Administrative Agent or by the Issuing Lender
(through the Administrative Agent), as the case may be, after 12:00 noon (New
York time) on any day, by 1:00 p.m. (New York time) on the following Business
Day (it being understood that to the extent that any such payment is not made
in full by the Administrative Agent or by the Issuing Lender (through the
Administrative Agent), as the case may be, the Administrative Agent shall pay
to such Lender, upon demand, interest at the Federal Funds Rate from the date
such amount was required to be paid to such Lender pursuant to the foregoing
clauses until the date the Administrative Agent pays such Lender the amount).
(d) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and interest shall be
payable for any principal so extended for the period of such extension.
4.02. PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing of Loans of a particular Class from the Lenders
under Section 2.01 shall be made from the relevant Lenders, each payment of
commitment fee under Section 2.05 in respect of Commitments of a particular
Class shall be made for account of the relevant Lenders, and each termination
or reduction of the amount of the Commitments of a particular Class under
Section 2.04 shall be applied to the respective Commitments of such Class of
the relevant Lenders, PRO RATA according to the amounts of their respective
Commitments of such Class; PROVIDED, HOWEVER, that Swing Loans shall be made
only by, and interest thereon shall be paid by Borrower only to, the Swing
Loan Lender (subject to such Lender's obligations in respect of any
participation therein purchased by the other Revolving Credit Lenders as
provided in Section 2.01(e)); (b) except as otherwise provided in Section
5.04, LIBOR Loans of any Class having the same Interest Period shall be
allocated PRO RATA among the relevant Lenders according to the amounts of
their respective Revolving Credit and Term Loan Commitments (in the case
of the making of Loans) or their respective Revolving Credit and Term Loans
(in the case
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of Conversions and Continuations of Loans); (c) each payment or prepayment of
principal of Revolving Credit Loans or Term Loans by Borrower shall be made
for account of the relevant Lenders pro rata in accordance with the
respective unpaid outstanding principal amounts of the Loans of such Class
held by them; and (d) each payment of interest on Revolving Credit Loans and
Term Loans by Borrower shall be made for account of the relevant Lenders pro
rata in accordance with the amounts of interest on such Loans then due and
payable to the respective Lenders.
4.03. COMPUTATIONS. Interest on LIBOR Loans and commitment fee
and letter of credit fees shall be computed on the basis of a year of 360
days and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which payable and interest on ABR Loans and
Reimbursement Obligations shall be computed on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable.
Notwithstanding the foregoing, for each day that the Alternate Base Rate is
calculated by reference to the Federal Funds Rate, interest on ABR Loans and
Reimbursement Obligations shall be computed on the basis of a year of 360
days and actual days elapsed (including the first day but excluding the last
day).
4.04. MINIMUM AMOUNTS. Except for mandatory prepayments made
pursuant to Section 2.10, Conversions or prepayments made pursuant to Section
5.04 and borrowings hereunder to finance any payment made in respect of a
Letter of Credit, each borrowing, Conversion and prepayment of principal of
Loans (other than Swing Loans, for which the minimum amounts thereof are in
Section 2.01(e)) shall be in an amount at least equal to $500,000 (or, if
less, the remaining aggregate principal amount thereof) with respect to ABR
Loans and $500,000 (or, if less, the remaining aggregate principal amount
thereof) with respect to LIBOR Loans and in multiples of $100,000 in excess
thereof (borrowings, Conversions or prepayments of or into Loans of different
Types or, in the case of LIBOR Loans, having different Interest Periods at
the same time hereunder to be deemed separate borrowings, Conversions and
prepayments for purposes of the foregoing, one for each Type or Interest
Period). Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBOR Loans having the same Interest Period
shall be in an amount at least equal to $500,000 and in multiples of $100,000
in excess thereof and, if any LIBOR Loans or portions thereof would otherwise
be in a lesser principal amount for any period, such Loans or portions, as
the case may be, shall be ABR Loans during such period.
4.05. CERTAIN NOTICES. Notices by Borrower to the Administrative
Agent of terminations or reductions of the Commitments, of borrowings,
Conversions, Continuations and optional prepayments of Loans and of Classes
of Loans, of Types of Loans and of the duration of Interest Periods shall be
irrevocable and shall be effective only if received by the Administrative
Agent not later than 12:00 noon New York time on the number of Business Days
prior to the date of the relevant termination, reduction, borrowing,
Conversion, Continuation or prepayment or the first day of such Interest
Period specified in the table below.
<PAGE>
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NOTICE PERIODS
<TABLE>
<CAPTION>
Notice Number of Business Days Prior
- ------ -----------------------------
<S> <C>
Termination or reduction of Commitments 2
Borrowing or optional prepayment of, or
Conversions into, ABR Loans (including Swing Loans) 1
Borrowing or optional prepayment of,
Conversions into, Continuations as, or
duration of Interest Periods for, LIBOR Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the
amount and the Class of the Commitments to be terminated or reduced. Each
such notice of borrowing, Conversion, Continuation or prepayment shall
specify the Class of Loans to be borrowed, Converted, Continued or prepaid
and the amount (subject to Section 4.04) and Type of each Loan to be
borrowed, Converted, Continued or prepaid and the date of borrowing,
Conversion, Continuation or prepayment (which shall be a Business Day). Each
such notice of the duration of an Interest Period shall specify the Loans to
which such Interest Period is to relate. Unless otherwise consented to by
the Lead Arranger in its sole discretion, prior to the later of (x) 10
Business Days after the date of consummation of the Change of Control Offer,
and (y) the date on which Borrower has been notified by the Lead Arranger
that the primary syndication of the Commitments has been completed, no
borrowing of or Conversion into any LIBOR Loan may be made having an Interest
Period of other than seven days. The Administrative Agent shall promptly
notify the Lenders of the contents of each such notice. In the event that
Borrower fails to select the Type of Loan within the time period and
otherwise as provided in this Section 4.05, such Loan (if outstanding as a
LIBOR Loan) will be automatically Converted into an ABR Loan on the last day
of the then current Interest Period for such Loan or (if outstanding as an
ABR Loan) will remain as, or (if not then outstanding) will be made as, an
ABR Loan. In the event that Borrower fails to select an Interest Period for
any LIBOR Loan within the time period and otherwise as provided in this
Section 4.05, such Interest Period shall be for one month.
4.06. NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless
the Administrative Agent shall have received written notice from a Lender or
Borrower (the "PAYOR") prior to the date on which the Payor is to make
payment to the Administrative Agent of (in the case of a Lender) the proceeds
of a Loan to be made by such Lender hereunder or a payment to the
Administrative Agent for the account of one or more of the Lenders hereunder
(such payment being herein called the "REQUIRED PAYMENT"), which notice shall
be effective upon receipt, that the Payor does not intend to make the
Required Payment to the Administrative Agent, the Administrative Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available
to the intended recipient(s) on such date; and, if the Payor has not in fact
made the Required Payment to the Administrative Agent, the recipient(s) of
such payment shall, on demand, repay to the Administrative Agent the amount
so made available together with interest thereon in respect of each day
during the period commencing on the date (the "ADVANCE DATE")
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such amount was so made available by the Administrative Agent until the date
the Administrative Agent recovers such amount at a rate per annum equal to
the Federal Funds Rate for such day and, if such recipient(s) shall fail
promptly to make such payment, the Administrative Agent shall be entitled to
recover such amount, on demand, from the Payor, together with interest as
aforesaid; PROVIDED, HOWEVER, that if neither the recipient(s) nor the Payor
shall return the Required Payment to the Administrative Agent within three
Business Days of the date such demand was made, then, retroactively to the
Advance Date, the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows (without double recovery):
(i) if the Required Payment shall represent a payment to be made by
Borrower to the Lenders, Borrower and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate set forth in Section 3.02(b) (without
duplication of the obligation of Borrower under Section 3.02 to pay
interest on the Required Payment at the rate set forth in
Section 3.02(b)), it being understood that the return by the recipient(s)
of the Required Payment to the Administrative Agent shall not limit such
obligation of Borrower under Section 3.02 to pay interest at the rate set
forth in Section 3.02(b) in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a Loan to be
made by the Lenders to Borrower, the Payor and Borrower shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment pursuant to Section 3.02, it being understood that
the return by Borrower of the Required Payment to the Administrative Agent
shall not limit any claim Borrower may have against the Payor in respect
of such Required Payment.
4.07. RIGHT OF SETOFF; SHARING OF PAYMENTS; ETC. (a) Each
Obligor agrees that, in addition to (and without limitation of) any right of
setoff, banker's lien or counterclaim a Lender may otherwise have, each
Lender shall be entitled, at its option (to the fullest extent permitted by
law), to set off and apply any deposit (general or special, time or demand,
provisional or final), or other indebtedness, held by it for the credit or
account of such Obligor at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Lender's Loans,
Reimbursement Obligations or any other amount payable to such Lender
hereunder that is not paid when due (regardless of whether such deposit or
other indebtedness is then due to such Obligor), in which case it shall
promptly notify such Obligor and the Administrative Agent thereof; PROVIDED,
HOWEVER, that such Lender's failure to give such notice shall not affect the
validity thereof.
(b) Each of the Lenders agrees that, if it should receive (other
than pursuant to Section 5) any amount hereunder (whether by voluntary
payment, by realization upon security, by the exercise of the right of setoff
or banker's lien, by counterclaim or cross action, by the enforcement of any
right under the Credit Documents, or otherwise) which is applicable to the
payment of the principal of, or interest on, the Loans, Reimbursement
Obligations or fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
amounts then owed and due to such Lender bears to the total of such amounts
then owed and due to all of the Lenders immediately prior to such receipt,
then such Lender receiving such excess payment
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shall purchase for cash without recourse or warranty from the other Lenders
an interest in the Obligations of the respective Obligor to such Lenders in
such amount as shall result in a proportional participation by all of the
Lenders in such amount; PROVIDED, HOWEVER, that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
but without interest. Borrower consents to the foregoing arrangements.
(c) Borrower agrees that any Lender so purchasing such a
participation may exercise all rights of setoff, banker's lien, counterclaim
or similar rights with respect to such participation as fully as if such
Lender were a direct holder of Loans or other amounts (as the case may be)
owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a setoff to which this Section 4.07 applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section 4.07 to share in the benefits of any recovery on such
secured claim.
Section 5. YIELD PROTECTION, ETC.
5.01. ADDITIONAL COSTS. (a) If the adoption of, or any change
in, any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority or
the NAIC made subsequent to the date hereof:
(i) shall subject any Lender or Issuing Lender to any tax of any
kind whatsoever with respect to this Agreement, any Note, any Letter of
Credit or any Lender's participation therein, any Letter of Credit
Document or any LIBOR Loan made by it or change the basis of taxation of
payments to such Lender in respect thereof by any Governmental Authority
(except for taxes covered by or expressly excluded from coverage by
Section 5.06 and changes in the rate of tax on the overall net income of
such Lender or its Applicable Lending Office, or any affiliate thereof or
franchise tax by any Governmental Authority);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender or Issuing Lender which is not otherwise included in
the determination of the LIBOR Rate hereunder; or
(iii) shall impose on such Lender or Issuing Lender any other
condition (excluding taxes);
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and the result of any of the foregoing is to increase the cost to such Lender
or Issuing Lender, by an amount which such Lender or Issuing Lender deems to
be material, of making, converting into, continuing or maintaining LIBOR
Loans or issuing or participating in Letters of Credit or to reduce any
amount receivable hereunder in respect thereof then, in any such case,
Borrower shall promptly pay such Lender or Issuing Lender, upon its written
demand, any additional amounts necessary to compensate such Lender or Issuing
Lender for such increased cost or reduced amount receivable; PROVIDED,
HOWEVER, that a Lender that is an assignee or transferee of an interest under
this Agreement pursuant to Section 2.11 or 12.06 that was already a Lender
hereunder immediately prior to such assignment or transfer shall be entitled
to additional amounts pursuant to this Section 5.01 on the assigned or
transferred interest only to the same extent as the assignor Lender. If any
Lender or Issuing Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify Borrower, through the
Administrative Agent, of the event by reason of which it has become so
entitled. A certificate as to any additional amounts setting forth the
calculation of such additional amounts pursuant to this Section 5.01
submitted by such Lender or Issuing Lender, through the Administrative Agent,
to Borrower shall be conclusive in the absence of clearly demonstrable error.
Without limiting the survival of any other covenant hereunder, this Section
5.01 shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder.
(b) In the event that any Lender or Issuing Lender shall have
determined that the adoption of any law, rule, regulation or guideline
regarding capital adequacy (or any change after the date hereof therein or in
the interpretation or application thereof) or compliance by any Lender or
Issuing Lender or any corporation controlling such Lender or Issuing Lender
with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or Governmental Authority or
the NAIC, in each case, made subsequent to the date hereof including, without
limitation, the issuance of any final rule, regulation or guideline, does or
shall have the effect of reducing the rate of return on such Lender's or
Issuing Lender's or such corporation's capital as a consequence of its
obligations hereunder or under any Letter of Credit to a level below that
which such Lender or Issuing Lender or such corporation could have achieved
but for such adoption, change or compliance (taking into consideration such
Lender's or Issuing Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Lender or Issuing Lender to be
material, then from time to time, after submission by such Lender or Issuing
Lender to Borrower (with a copy to the Administrative Agent) of a written
request therefor, Borrower shall promptly pay to such Lender or Issuing
Lender such additional amount or amounts as will compensate such Lender or
Issuing Lender for such reduction.
(c) Each Lender (and Issuing Lender) shall notify Borrower of any
event that will entitle such Lender (or Issuing Lender, as the case may be)
to compensation under paragraph (a) or (b) of this Section 5.01 as promptly
as practicable, but in any event within 90 days after such Lender (or Issuing
Lender, as the case may be) obtains actual knowledge thereof; PROVIDED,
HOWEVER, that (i) if any Lender (or Issuing Lender, as the case may be) fails
to give such notice within 90 days after it obtains actual knowledge of such
an event, such Lender (or Issuing Lender, as the case may be) shall, with
respect to compensation payable pursuant to this Section 5.01 in respect of
any costs resulting from such event, only be entitled to payment under this
Section 5.01 for costs incurred from and after the date 90 days prior to the
date that such Lender (or Issuing Lender, as the case may be) does give
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such notice and (ii) each Lender (or Issuing Lender, as the case may be),
will designate a different Applicable Lending Office for the Loans of such
Lender (or the Letters of Credit, as the case may be) affected by such event
if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender (or Issuing
Lender, as the case may be), be disadvantageous to such Lender (or Issuing
Lender, as the case may be). Each Lender (or Issuing Lender, as the case may
be) will furnish to Borrower at the time of request for compensation under
paragraph (a) or (b) of this Section 5.01 a certificate setting forth the
basis, amount and reasonable detail of computation of each request by such
Lender for compensation under paragraph (a) or (b) of this Section 5.01,
which certificate shall, except for demonstrable error, be final, conclusive
and binding for all purposes.
5.02. LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any LIBOR
Base Rate for any Interest Period:
(i) the Administrative Agent determines, which determination shall
be conclusive, absent manifest error, that quotations of interest rates
for the relevant deposits referred to in the definition of "LIBOR Base
Rate" in Section 1.01 are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of interest
for LIBOR Loans as provided herein; or
(ii) if the related Loans are Revolving Credit Loans, the Majority
Revolving Credit Lenders or, if the related Loans are Tranche B Term
Loans, the Majority Tranche B Term Loan Lenders or, if the related Loans
are Tranche C Term Loans, the Majority Tranche C Term Loan Lenders
determine, which determination shall be conclusive, that the relevant
rates of interest referred to in the definition of "LIBOR Base Rate" in
Section 1.01 upon the basis of which the rate of interest for LIBOR Loans
for such Interest Period is to be determined are not likely adequate to
cover the cost to the applicable Lenders of making or maintaining LIBOR
Loans for such Interest Period,
then the Administrative Agent shall give Borrower and each Lender prompt
notice thereof, and so long as such condition remains in effect, the affected
Lenders shall be under no obligation to make additional LIBOR Loans (but
shall make their portion of any additional Borrowings as ABR Loans), to
Continue LIBOR Loans or to Convert ABR Loans into LIBOR Loans and Borrower
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding LIBOR Loans, either prepay such Loans of such affected Lenders or
Convert such Loans of such affected Lenders into ABR Loans in accordance with
Section 2.09.
5.03. ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender
or Issuing Lender or its Applicable Lending Office to honor its obligation to
make or maintain LIBOR Loans or issue Letters of Credit hereunder (and, in
the sole opinion of such Lender or Issuing Lender, the designation of a
different Applicable Lending Office would either not avoid such unlawfulness
or would be disadvantageous to such Lender or Issuing Lender), then such
Lender or Issuing Lender shall promptly notify Borrower thereof (with a copy
to the Administrative
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Agent) and such Lender's or Issuing Lender's obligation to make or Continue,
or to Convert Loans of any other Type into, LIBOR Loans or issue Letters of
Credit shall be suspended until such time as such Lender or Issuing Lender
may again make and maintain LIBOR Loans or issue Letters of Credit (in which
case the provisions of Section 5.04 shall be applicable).
5.04. TREATMENT OF AFFECTED LOANS. If the obligation of any
Lender to make LIBOR Loans or to Continue, or to Convert ABR Loans into,
LIBOR Loans shall be suspended pursuant to Section 5.03, such Lender's LIBOR
Loans shall be automatically Converted into ABR Loans on the last day(s) of
the then current Interest Period(s) for such LIBOR Loans (or on such earlier
date as such Lender may specify to Borrower with a copy to the Administrative
Agent as is required by law) and, unless and until such Lender gives notice
as provided below that the circumstances specified in Section 5.03 which gave
rise to such Conversion no longer exist:
(i) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal which would otherwise
be applied to such Lender's LIBOR Loans shall be applied instead to its
ABR Loans; and
(ii) all Loans which would otherwise be made or Continued by such
Lender as LIBOR Loans shall be made or Continued instead as ABR Loans and
all ABR Loans of such Lender which would otherwise be Converted into LIBOR
Loans shall remain as ABR Loans.
If such Lender gives notice to Borrower with a copy to the Administrative
Agent that the circumstances specified in Section 5.03 which gave rise to the
Conversion of such Lender's LIBOR Loans pursuant to this Section 5.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when LIBOR Loans are outstanding, such Lender's
ABR Loans shall be automatically Converted, on the first day(s) of the next
succeeding Interest Period(s) for such outstanding LIBOR Loans, to the extent
necessary so that, after giving effect thereto, all Loans held by the Lenders
holding LIBOR Loans and by such Lender are held pro rata (as to principal
amounts, Types and Interest Periods) in accordance with their respective
Commitments.
5.05. COMPENSATION. (a) Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender
may sustain or incur as a consequence of (1) default by Borrower in payment
when due of the principal amount of or interest on any LIBOR Loan, (2)
default by Borrower in making a borrowing of, Conversion into or Continuation
of LIBOR Loans after Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (3) default by Borrower in
making any prepayment after Borrower has given a notice thereof in accordance
with the provisions of the Agreement, or (4) the making of a payment or a
prepayment of LIBOR Loans on a day which is not the last day of an Interest
Period with respect thereto, including in each case, any such loss (excluding
loss of margin) or expense arising from the reemployment of funds obtained by
it or from fees payable to terminate the deposits from which such funds were
obtained.
(b) For the purpose of calculation of all amounts payable to a
Lender under this Section 5.05 each Lender shall be deemed to have actually
funded its relevant LIBOR Loan through the
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purchase of a deposit bearing interest at the LIBOR Rate in an amount equal
to the amount of the LIBOR Loan and having a maturity comparable to the
relevant Interest Period; PROVIDED, HOWEVER, that each Lender may fund each
of its LIBOR Loans in any manner it sees fit, and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this
subsection. Any Lender requesting compensation pursuant to this Section 5.05
will furnish to the Administrative Agent and Borrower a certificate setting
forth the basis and amount of such request and such certificate, absent
manifest error, shall be conclusive. Without limiting the survival of any
other covenant hereunder, this covenant shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable
hereunder.
5.06. NET PAYMENTS. (a) All payments made by Borrower or any
Guarantor hereunder or under any Note or any Guarantee will be made without
setoff, counterclaim or other defense. Except as provided in Section
5.06(b), all such payments will be made free and clear of, and without
deduction or withholding for, any present or future Taxes now or hereafter
imposed by any Governmental Authority or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding any Excluded Tax) and all interest, penalties or similar
liabilities with respect thereto (all such Taxes (other than Excluded Taxes)
being referred to collectively as "COVERED TAXES"). If any Covered Taxes are
so levied or imposed, Borrower and each Guarantor, as the case may be, agrees
(on a joint and several basis for the Guarantors) to pay the full amount of
such Covered Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement, the Guarantees or
under any Note, after withholding or deduction for or on account of any
Covered Taxes, will not be less than the amount provided for herein or in
such Note. If any amounts are payable in respect of Covered Taxes pursuant
to the preceding sentence (any such amounts, the "GROSS-UP AMOUNT"), Borrower
and each Guarantor agrees, notwithstanding the definition of Excluded Taxes,
to reimburse (on a joint and several basis for the Guarantors) each Lender,
upon the written request of such Lender, (i) for Taxes imposed on or measured
by the net income or net profits of such Lender pursuant to the laws of the
jurisdiction in which such Lender is organized or in which the principal
office or Applicable Lending Office of such Lender is located or under the
laws of any political subdivision or taxing authority of any such
jurisdiction by reason of the making of payments in respect of Covered Taxes
pursuant to this Section (including pursuant to this sentence) and (ii) for
any withholding of Taxes as such Lender shall determine are payable by, or
withheld from, such Lender in respect of amounts paid in respect of Covered
Taxes to or on behalf of such Lender pursuant to the preceding sentence and
in respect of any amounts paid to or on behalf of such Lender pursuant to
this sentence. Borrower and each Guarantor, as the case may be, will furnish
to the Administrative Agent within 45 days after the date the payment of any
Covered Taxes is due pursuant to applicable law certified copies of tax
receipts or other documentation reasonably satisfactory to such Lender
evidencing such payment by Borrower or any Guarantor. Borrower and the
Guarantors agree (jointly and severally for the Guarantors) to indemnify and
hold harmless each Lender, and reimburse such Lender upon its written
request, for the amount of any Covered Taxes so levied or imposed and paid by
such Lender and any liability (including penalties, additions to tax,
interest and expenses) arising therefrom or with respect thereto.
"EXCLUDED TAXES" shall mean other than as provided in the third
sentence of the first paragraph of this Section 5.06(a), any Tax (other than
any Other Taxes) imposed on or measured by
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the net income or net profits of a Lender pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the
principal office or Applicable Lending Office of such Lender is located or
any jurisdiction in which such Lender conducts business or any subdivision
thereof or therein.
(b) Each Lender that is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax
purposes (a "NON-U.S. LENDER") agrees to deliver to Borrower and the
Administrative Agent on or prior to the Closing Date or, in the case of a
Lender that is an assignee or transferee of an interest under this Agreement
pursuant to Section 2.11 or 12.06 (unless the respective Lender was already a
Lender hereunder immediately prior to such assignment or transfer), on the
date of such assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments to be
made under this Agreement and under any Note (or, with respect to any
assignee Lender, at least as extensive as the assigning Lender), or (ii) if
the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
EXHIBIT L (any such certificate, a "SECTION 5.06 CERTIFICATE") and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 (or successor form) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments to be
made under this Agreement and under any Note (or, with respect to any
assignee Lender, at least as extensive as the assigning Lender). At the
request of Borrower, each Lender that is a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax
purposes (a "U.S. Lender"), other than a U.S. Lender that is a corporation or
financial institution (an "Exempt Lender"), agrees to deliver to Borrower and
the Administrative Agent on or prior to the Closing Date, or in the case of a
U.S. Lender that is not an Exempt Lender and that is an assignee or
transferee of an interest under this Agreement pursuant to Section 2.11 or
12.06 (unless the respective Lender was already a Lender hereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Lender, two accurate and complete original
signed copies of Internal Revenue Service Form W-9 (or successor form) in
order to demonstrate such Lender's entitlement to a complete exemption from
United States back-up withholding tax with respect to payments to be made
under this Agreement and under any Note. In addition, each Lender agrees that
from time to time after the Closing Date, when a lapse in time or change in
circumstances renders the previous certifica tion obsolete or inaccurate in
any material respect, it will deliver to Borrower and the Administrative
Agent two new accurate and complete original signed copies of Internal
Revenue Service Form 4224, Form 1001, Form W-8 and a Section 5.06
Certificate, or Form W-9 (if a Form W-9 was previously provided to Borrower
and the Administrative Agent pursuant to Borrower's request), as the case may
be, and such other forms as may be required in order to confirm or establish
the entitlement of such Lender to a continued exemption from or reduction in
United States withholding tax with respect to payments under this Agreement
and any Note, or it shall immediately notify Borrower and the Administrative
Agent of its inability to deliver any such form or certificate, in which case
such Lender shall not be required to deliver any such form or certificate
pursuant to this Section 5.06(b). Notwithstanding the foregoing, no Lender
shall be required to deliver any such form or certificate if a change in
treaty, law or regulation has occurred prior to the date on which such
delivery would other-
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wise be required that renders any such form or certificate inapplicable or
would prevent the Lender from duly completing and delivering any such form or
certificate with respect to it and such Lender so advises Borrower. Neither
Borrower nor any Guarantor shall be required to indemnify any Non-U.S.
Lender, or to pay any additional amounts to any Non-U.S. Lender, in respect
of any Covered Taxes to the extent that (i) the obligation to pay such
Covered Taxes would not have arisen but for a failure by such Non-U.S. Lender
to comply with the provisions of this Section 5.06(b) or (ii) if the Internal
Revenue Service makes a final determination that a Lender is a "conduit
entity" participating in a "conduit financing arrangement" within the meaning
of Treasury Regulation Section 1.881-3, such additional amounts are in excess
of the amounts that would otherwise have been payable had such Lender not
been a "conduit entity" participating in a "conduit financing arrangement"
within the meaning of Treasury Regulation Section 1.881-3. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 5.06 and except as set forth in Section 12.06(b), Borrower
agrees to pay additional amounts and to indemnify each Lender in the manner
set forth in Section 5.06(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any
amounts deducted or withheld by it as described in the immediately preceding
sentence as a result of any changes after the Closing Date in any applicable
law, treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of income or
similar Covered Taxes. For purposes of the immediately preceding sentence,
the final U.S. Treasury regulations that were issued October 6, 1997 with
respect to the withholding of United States federal income tax (the "NEW
WITHHOLDING REGULATIONS") shall not be considered to constitute a change
after the Closing Date, or otherwise, in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of income or similar
Covered Taxes, notwithstanding that the New Withholding Regulations generally
are only effective for payments made after December 31, 1999.
(c) In addition, Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or under the Notes
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or the Notes (hereinafter referred to as "OTHER TAXES").
(d) Any Lender claiming any additional amounts payable pursuant to
this Section 5.06 agrees to use (at the Obligors' expense) reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions)
to change the jurisdiction of its Applicable Lending Office if it would avoid
the need for, or reduce the amount of, any such additional amounts that may
thereafter accrue; PROVIDED, HOWEVER, that such change of the Applicable
Lending Office, and the filing of any certificates or forms contemplated by
the immediately succeeding sentence, would not, in the sole judgment of such
Lender, be otherwise disadvantageous to such Lender. Each Lender shall
submit to Borrower or any applicable Governmental Authority all certificates
or forms relating to Taxes reasonably requested of it by Borrower pursuant to
applicable provisions of the Code, treaties or regulations.
(e) If Borrower or any Guarantor pays any Gross-up Amount or
additional amount under this Section 5.06 to a Lender and such Lender
determines in its sole and absolute discretion that it has actually received
or realized in connection therewith any refund or any reduction of, or credit
against, its tax liabilities (a "TAX BENEFIT"), such Lender shall pay to such
Borrower or such Guarantor,
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as the case may be, an amount that the Lender shall, in its sole and absolute
discretion, determine is equal to the net benefit, after tax, which was
obtained by the Lender as a consequence of such Tax Benefit; PROVIDED,
HOWEVER, that (i) such Lender shall not be required to make any payment under
this Section 5.06(e) if an Event of Default shall have occurred and be
continuing; (ii) any taxes that are imposed on a Lender as a result of a
disallowance or reduction (including through the expiration of any tax credit
carryover or carryback of such Lender that otherwise would not have expired)
of any Tax Benefit with respect to which such Lender has made a payment to
Borrower or any Guarantor pursuant to this Section 5.06(e) shall be treated
as a tax for which Borrower or any Guarantor is obligated to indemnify such
Lender pursuant to this Section 5.06 without any exclusions or defenses; and
(iii) nothing in this Section 5.06(e) shall require the Lender to disclose
any confidential information to Borrower or any Guarantor (including its tax
returns).
Section 6. GUARANTEE.
6.01. THE GUARANTEE. The Guarantors hereby jointly and severally
guarantee as a primary obligor and not as a surety to each Lender, Issuing
Lender and Agent and their respective successors and assigns the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest (including any interest, fees,
costs or charges that would accrue but for the provisions of the Bankruptcy
Code after any bankruptcy or insolvency petition under the Bankruptcy Code)
on the Loans made by the Lenders to, and the Notes held by each Lender of,
Borrower and all other Obligations from time to time owing to the Lenders,
Issuing Lender or Agents by Borrower under this Agreement and under the Notes
and by any Obligor under any of the other Credit Documents, and all
obligations of Borrower or any Subsidiary to any Lender or any Affiliate of
any Lender in respect of any Swap Contract and all Obligations owing to the
Issuing Lender under the Letter of Credit Documents, in each case strictly in
accordance with the terms thereof (such obligations being herein collectively
called the "GUARANTEED OBLIGATIONS"). The Guarantors hereby jointly and
severally agree that if Borrower shall fail to pay in full when due (whether
at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment
or renewal of any of the Guaranteed Obligations, the same will be promptly
paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
6.02. OBLIGATIONS UNCONDITIONAL. The obligations of the
Guarantors under Section 6.01 are absolute, irrevocable and unconditional,
joint and several, irrespective of the value, genuineness, validity,
regularity or enforceability of the obligations of Borrower under this
Agreement, the Notes or any other agreement or instrument referred to herein
or therein, or any substitution, release or exchange of any other guarantee
of or security for any of the Guaranteed Obligations, and, to the fullest
extent permitted by applicable law, irrespective of any other circumstance
whatsoever that might otherwise constitute a legal or equitable discharge or
defense of a surety or Guarantor (except for payment in full). Without
limiting the generality of the foregoing, it is agreed that the occurrence of
any one or more of the following shall not alter or impair the liability of
the Guarantors hereunder which shall remain absolute, irrevocable and
unconditional under any and all circumstances as described above:
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(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be amended in any
respect, or any right under this Agreement, the Notes or any other Credit
Document or any other agreement or instrument referred to herein or
therein shall be amended or waived in any respect or any other guarantee
of any of the Guaranteed Obligations or any security therefor shall be
released or exchanged in whole or in part or otherwise dealt with;
(iv) any lien or security interest granted to, or in favor of, the
Issuing Lender or any Lender or Agent as security for any of the
Guaranteed Obligations shall fail to be perfected; or
(v) the release of any other Guarantor.
The Guarantors hereby expressly waive diligence, presentment,
demand of payment, protest and all notices whatsoever, and any requirement
that the Issuing Lender or any Agent or any Lender exhaust any right, power
or remedy or proceed against Borrower under this Agreement or the Notes or
any other agreement or instrument referred to herein or therein, or against
any other Person under any other guarantee of, or security for, any of the
Guaranteed Obligations. The Guarantors waive any and all notice of the
creation, renewal, extension, waiver, termination or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Issuing
Lender, any Lender or any Agent upon this guarantee or acceptance of this
guarantee, and the Guaranteed Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in
reliance upon this guarantee, and all dealings between Borrower and the
Issuing Lender, Lenders and Agents shall likewise be conclusively presumed to
have been had or consummated in reliance upon this guarantee. This guarantee
shall be construed as a continuing, absolute, irrevocable and unconditional
guarantee of payment without regard to any right of offset with respect to
the Guaranteed Obligations at any time or from time to time held by the
Issuing Lender, Lenders and Agents, and the obligations and liabilities of
the Guarantors hereunder shall not be conditioned or contingent upon the
pursuit by the Issuing Lender, Lenders or Agents or any other Person at any
time of any right or remedy against Borrower or against any other Person
which may be or become liable in respect of all or any part of the Guaranteed
Obligations or against any collateral security or guarantee therefor or right
of offset with respect thereto. This guarantee shall remain in full force
and effect and be binding in accordance with and to the extent of its terms
upon the Guarantors and the successors and assigns thereof, and shall inure
to the benefit of the Lenders, and their respective successors and assigns,
notwithstanding that from time to time during the term of this Agreement
there may be no Guaranteed Obligations outstanding.
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6.03. REINSTATEMENT. The obligations of the Guarantors under this
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Borrower in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any
of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise. The Guarantors jointly and
severally agree that they will indemnify the Issuing Lender, each Agent and
each Lender on demand for all reasonable costs and expenses (including
reasonable fees of counsel) incurred by the Issuing Lender, such Agent or
such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law, other than any costs or
expenses resulting from the gross negligence or bad faith of such Creditor.
6.04. SUBROGATION; SUBORDINATION. Each Guarantor hereby agrees
that until the indefeasible payment and satisfaction in full in cash of all
Guaranteed Obligations and the expiration and termination of the Commitments
of the Lenders under this Agreement it shall not exercise any right or remedy
arising by reason of any performance by it of its guarantee in Section 6.01,
whether by subrogation or otherwise, against Borrower or any other Guarantor
of any of the Guaranteed Obligations or any security for any of the
Guaranteed Obligations. The payment of any amounts due with respect to any
indebtedness of Borrower or any other Guarantor now or hereafter owing to any
Guarantor by reason of any payment by such Guarantor under the Guarantee in
this Section 6 is hereby subordinated to the prior indefeasible payment in
full in cash of the Guaranteed Obligations. Each Guarantor agrees that it
will not demand, sue for or otherwise attempt to collect any such
indebtedness of Borrower to such Guarantor until the Obligations shall have
been indefeasibly paid in full in cash. If, notwithstanding the foregoing
sentence, any Guarantor shall prior to the indefeasible payment in full in
cash of the Guaranteed Obligations collect, enforce or receive any amounts in
respect of such indebtedness, such amounts shall be collected, enforced and
received by such Guarantor as trustee for the Lead Arranger, the Issuing
Lender and the Lenders and be paid over to the Administrative Agent on
account of the Guaranteed Obligations without affecting in any manner the
liability of such Guarantor under the other provisions of the guaranty
contained herein.
6.05. REMEDIES. The Guarantors jointly and severally agree that,
as between the Guarantors and the Lenders, the obligations of Borrower under
this Agreement and the Notes may be declared to be forthwith due and payable
as provided in Section 10 (and shall be deemed to have become automatically
due and payable in the circumstances provided in said Section 10) for
purposes of Section 6.01 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against Borrower and that, in the event of
such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and
payable by Borrower) shall forthwith become due and payable by the Guarantors
for purposes of Section 6.01.
6.06. INSTRUMENT FOR THE PAYMENT OF MONEY. Each Guarantor hereby
acknowledges that the guarantee in this Section 6 constitutes an instrument
for the payment of money, and consents and agrees that any Lender or Agent,
at its sole option, in the event of a dispute by such Guarantor in
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the payment of any moneys due hereunder, shall have the right to bring
motion-action under New York CPLR Section 3213.
6.07. CONTINUING GUARANTEE. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08. GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action
or proceeding involving any state corporate law, or any state, Federal or
foreign bankruptcy, insolvency, reorganization or other law affecting the
rights of creditors generally, if the obligations of any Guarantor under
Section 6.01 would otherwise be held or determined to be void, voidable,
invalid or unenforceable, or subordinated to the claims of any other
creditors, on account of the amount of its liability under Section 6.01,
then, notwithstanding any other provision to the contrary, the amount of such
liability shall, without any further action by such Guarantor, any Lender,
any Agent or any other Person, be automatically limited and reduced to the
highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
Section 7. CONDITIONS PRECEDENT.
7.01. EFFECTIVENESS AND INITIAL EXTENSION OF CREDIT. The
effectiveness of the Credit Documents and the obligation of the Lenders to
make any initial extension of credit hereunder (whether by making a Loan or
issuing a Letter of Credit) is subject to the satisfaction of the conditions
precedent that:
(i) DOCUMENTATION AND EVIDENCE OF CERTAIN MATTERS. The Lead
Arranger shall have received the following documents, each duly executed
where appropriate (with sufficient conformed copies for each Lender), each
of which shall be reasonably satisfactory to the Lead Arranger (and to the
extent specified below, to the Majority Lenders or to each Lender, as the
case may be) in form and substance:
(1) CORPORATE DOCUMENTS. Certified true and complete copies of
the charter and by-laws and all amendments thereto (or equivalent
documents) of each Obligor and Parent and of all corporate authority
for each Obligor and Parent (including board of director resolutions
and evidence of the incumbency, including specimen signatures, of
officers) with respect to the execution, delivery and performance of
such of the Credit Documents to which such Obligor and Parent is
intended to be a party and each other document to be delivered by
such Obligor or Parent from time to time in connection herewith and
the extensions of credit hereunder and the consummation of the
Transactions, certified as of the Closing Date as complete and
correct copies thereof by the Secretary or an Assistant Secretary of
such Obligor or Parent.
(2) OFFICERS' CERTIFICATE. An Officers' Certificate of
Borrower, dated the Closing Date, to the effect set forth in clauses
(a) and (b) of Section 7.02(i) and to the effect that all conditions
precedent to the making of such extension of credit have
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been satisfied (except to the extent that any such condition is
required to be satisfactory to, or determined by, any Agent, the
Lenders or the Majority Lenders).
(3) OPINIONS OF COUNSEL. (i) Opinion of Paul, Hastings,
Janofsky & Walker, LLP, counsel to the Obligors and Parent,
substantially in the form of EXHIBIT G-1 and (ii) Opinion of local
counsel to the Obligors reasonably acceptable to the Lead Arranger
(and each Obligor and Parent hereby instructs such counsel to deliver
such opinion to the Lenders and the Agents).
(4) THE CREDIT AGREEMENT. This Agreement, (i) executed and
delivered by a duly authorized officer of each Obligor with a
counterpart for each Lender, and (ii) executed and delivered by a
duly authorized officer of each Lender and Agent.
(5) NOTES. The Notes, duly completed and executed for each
Lender that has requested Notes prior to the Closing Date.
(6) SECURITY DOCUMENTS. The Security Agreement, the Credit
Facility Escrow Agreement, such other pledge agreements required
under local law in the reasonable judgment of counsel to the
Administrative Agent and requested reasonably in advance of the
intended Closing Date (each of which shall be in full force and
effect) and the Perfection Certificate, substantially in the form of
EXHIBIT P, duly authorized, executed and delivered by the Obligors
and the Administrative Agent, and the certificates identified under
the name of such Obligors in Annex 1 to the Security Agreement,
accompanied by undated stock powers executed in blank if applicable,
and the notes identified under the name of such Obligors in Annex 1B
to the Security Agreement, accompanied by undated notations or
instruments of assignment executed in blank.
(7) SOLVENCY CERTIFICATE AND OPINION. A certificate from the
chief financial officer of Borrower substantially in the form of
EXHIBIT M, and, at Borrower's expense, an opinion of Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. in form and substance
reasonably satisfactory to the Lead Arranger with respect to the
Solvency of Borrower (on a consolidated basis) immediately after
giving effect to the Transactions.
(8) INSURANCE. Evidence of insurance complying with the
requirements of Section 9.04 and the Security Documents in scope,
form and substance reasonably satisfactory to the Lead Arranger and
certificates naming the Administrative Agent as an additional insured
and/or loss payee, and stating that such insurance shall not be
canceled or revised without 30 days prior written notice by the
insurer to the Administrative Agent.
(9) TRANSACTION DOCUMENTS, ETC. Copies of each of the
Transaction Documents, any management or similar agreement entered
into by any Obligor or any executive officer or director thereof with
Parent or any of its Affiliates, and all exhib-
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its, appendices, annexes and schedules to any thereof, each certified
by a senior officer of Borrower as true, complete and correct copies
thereof.
(10) AUDITED FINANCIAL STATEMENTS OF WING. Audited financial
statements of Wing for the fiscal year ended December 31, 1997,
together with the report thereon by Pricewaterhousecoopers, certified
public accountants, which shall not have any material qualification.
(11) CHANGE OF CONTROL OFFER DOCUMENTS. Substantially final
drafts of the Change of Control Offer Documents in form and substance
reasonably satisfactory to the Lead Arranger, and such drafts shall
reflect that the Change of Control Offer will be commenced no later
than the fifth succeeding Business Day after the Closing Date.
(ii) DATE OF CLOSING. Such extension of credit shall be made on or
before October 7, 1998.
(iii) COMPLETION OF INVESTOR DEBT SECURITIES FINANCING. Atrium
Holdings shall have received aggregate gross proceeds of not less than
$20.0 million from the Investor Debt Securities Financing.
(iv) INVESTOR ESCROW FUNDING. The Investor Escrow Agreement shall
have been duly authorized, executed and delivered by the parties thereto
and the Investor Escrow Amount shall have been delivered thereunder.
(v) EQUITY CONTRIBUTIONS. Atrium Holdings shall have received at
least $50.0 million from the Equity Contributions. Immediately after
giving effect to the Transactions, the Investors and/or entities
controlled by, or under common control with, them shall beneficially own
not less than a majority of the economic and voting interests in Parent,
and Parent shall beneficially own all of the economic and voting interests
in Atrium Holdings, and Atrium Holdings shall beneficially own all of the
economic and voting interests in Borrower.
(vi) CONSUMMATION OF TRANSACTIONS. The Transactions (other than the
Change of Control Offer) shall have been or shall simultaneously be
consummated in accordance with the terms hereof and the terms of the
Transaction Documents and the other documentation therefor (without the
waiver or amendment of any material condition unless consented to by the
Lead Arranger and the Majority Lenders).
(vii) MAXIMUM CONSIDERATION. The total consideration (including debt
assumed) to consummate the Merger shall not exceed $275.0 million.
(viii) EXISTING DEBT REPAYMENT. All obligations of each Company with
respect to the Refinanced Debt shall have been (or shall be
simultaneously) paid in full and all lending commitments thereunder
terminated to the satisfaction of the Lead Arranger with all Liens in
favor of existing lenders being unconditionally released. The Lead
Arranger shall have received a "pay-off" letter with respect to all such
Refinanced Debt. In addition, the Lead Ar-
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ranger shall have received from any Person holding any Lien securing any
such Refinanced Debt, such Uniform Commercial Code termination statements,
mortgage releases and other instruments, in each case in proper form for
recording, as the Lead Arranger shall have reasonably requested to release
and terminate of record the Liens securing such Refinanced Debt.
(ix) NO OTHER DEBT OR PREFERRED STOCK. After giving effect to the
Transactions and the initial borrowings hereunder on the Closing Date,
each Company shall have outstanding no Indebtedness or preferred stock (or
direct or indirect guarantee or other credit support in respect thereof)
outstanding other than (i) the Loans, (ii) the Existing Notes, (iii) the
Investor Debt Securities and (iv) Capitalized Lease Obligations and
purchase money indebtedness listed on SCHEDULE 9.08 not exceeding $5.0
million in the aggregate on terms and conditions reasonably satisfactory
to the Lead Arranger.
(x) TAX SHARING AGREEMENT. The Tax Sharing Agreement shall have
been executed and delivered by the parties thereto and shall be in full
force and effect.
(xi) FEES AND EXPENSES. The Lead Arranger shall have received
satisfactory evidence that fees and expenses in connection with the
Transactions (other than prepayment penalties and option compensation
resulting from the Transactions) will not exceed $14.0 million (exclusive
of any expenses paid by seller pursuant to the Merger Agreement).
(xii) NO STRUCTURAL SUBORDINATION TO THE EXISTING NOTES. Borrower and
the obligor on the Existing Notes (or any refinancing thereof) shall be
the same entity.
(xiii) NO MATERIAL ADVERSE CHANGE. There shall not have occurred or
become known any Material Adverse Change of the Contributed Businesses and
Borrower, together with their respective Subsidiaries taken as a whole,
after giving effect to the Transactions, since December 31, 1997.
(xiv) PRO FORMA BALANCE SHEET. The Lead Arranger and the Lenders
shall have received a pro forma consolidated balance sheet of Borrower as
of June 30, 1998 after giving effect to the Transactions.
(xv) APPROVALS. All requisite Governmental Authorities and third
parties shall have approved or consented to the Transactions and the other
transactions contemplated hereby to the extent required and all applicable
appeal periods shall have expired. There shall be no governmental or
judicial action or Proceeding, actual or threatened, that has had the
effect of (or could reasonably be expected to have the effect of)
restraining, preventing or imposing materially burdensome conditions on
any of the Transactions or the other transactions contemplated hereby.
(xvi) PAYMENT OF FEES AND EXPENSES OF AGENTS. All accrued fees and
expenses (including the reasonable fees and expenses of Cahill Gordon &
Reindel, special counsel to both the Lead Arranger and the Administrative
Agent (and appropriate local counsel in respect of
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security interest matters)) of the Lead Arranger and the Administrative
Agent in connection with the Credit Documents shall have been paid.
(xvii) MAXIMUM REVOLVING CREDIT LOANS. The aggregate amount of
Revolving Credit Loans made in connection with the consummation of the
Transactions on the Closing Date shall not exceed $5.0 million unless
consented to by the Lead Arranger in its sole discretion.
(xviii) MAXIMUM PRO FORMA TOTAL LEVERAGE RATIO. The Lead Arranger and
the Lenders shall have received satisfactory evidence (including
satisfactory supporting schedules and other data) that the Total Leverage
Ratio (assuming for purposes of Consolidated EBITDA that the Transactions
(other than the Change of Control Offer) had occurred on the first day of
the relevant Measurement Period) is not greater than 4.6:1.0.
(xix) FILINGS AND LIEN SEARCHES. The Obligors shall have authorized,
executed and delivered each of the following:
(1) UCC Financing Statements (Form UCC-1) in appropriate form
for filing under the UCC and any other applicable law, rule or
regulation in each jurisdiction as may be necessary or appropriate to
perfect the Liens created, or purported to be created, by the
Security Documents;
(2) the results of a recent lien, tax and judgment search
against each Company as debtor in each of the jurisdictions and
offices where (a) assets of each Company are located or recorded,
(b) any of the Collateral is located and (c) each Company's principal
place of business is located, and such search shall reveal no liens
on any of their assets except for liens permitted by the Credit
Documents or liens to be discharged in connection with the
transactions contemplated hereby; and
(3) evidence of arrangements for (A) the completion of all
recordings and filings of, or with respect to, the Security
Documents, including, to the extent required by Lead Arrangers,
filings with the United States Patent, Trademark and Copyright
offices, (B) delivery of such other security and other documents, and
(C) the taking of all actions as may be necessary or, in the
reasonable opinion of the Lead Arranger, desirable, to perfect the
Liens created, or purported to be created, by the Security Agreement.
(xx) CONDITIONS RELATING TO MORTGAGED REAL PROPERTY AND REAL
PROPERTY. On or prior to the Closing Date, each Obligor to enter into a
Mortgage shall have caused to be delivered to the Administrative Agent, on
behalf of the Lenders, the following documents and instruments:
(i) a Mortgage encumbering each Mortgaged Real Property in
favor of the Administrative Agent, for the benefit of the Lenders, in
form for recording in the recording office of each jurisdiction where
each such Mortgaged Real Property is
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situated, together with such other documentation as shall
be required to create a lien under applicable law, and other
similar statements as are contemplated by the counsel opinions
described in subsection 7.01(i)(3) hereof in respect of such
Mortgage, all of which shall be in form and substance reasonably
satisfactory to the Lead Arranger, which Mortgage and other
instruments shall be effective to create a first priority Lien on
such Mortgaged Real Property subject to no Liens other than Prior
Liens applicable to such Mortgaged Real Property;
(ii) with respect to each Mortgaged Real Property, such
consents, approvals, estoppels, tenant subordination agreements or
other instruments as necessary or as shall be reasonably deemed
required by the Lead Arranger to consummate the transactions
contemplated hereby or to grant the Lien contemplated by the
Mortgage; and
(iii) the following documents and instruments:
(1) with respect to each Mortgage, a policy (or commitment
to issue a policy) of title insurance insuring (or committing to
insure) the Lien of such Mortgage as a valid first priority Lien
on the real property and fixtures described therein in an amount
not less than 115% of the fair market value thereof which policy
(or commitment) shall (a) be issued by the Title Company,
(b) include such reinsurance arrangements (with provisions for
direct access) as shall be reasonably acceptable to the Lead
Arranger, (c) have been supplemented by such endorsements (or
where such endorsements are not available, opinions of special
counsel or other professionals reasonably acceptable to the Lead
Arranger) as shall be reasonably requested by the Lead Arranger,
(d) such affidavits and instruments of indemnification as shall
be reasonably required to induce the Title Company to issue the
policy or policies (or commitment) and endorsements contemplated
in this subparagraph (iii) and (e) contain no exceptions to
title other than exceptions for (x) Liens of the type described
in clauses (a), (b), (c), (d) and (f) of the definition of
Permitted Liens, (y) any Lien of the type described in clause
(s) of the definition of Permitted Liens to the extent the
original Lien is permitted hereunder and (z) the Prior Liens
applicable to such Mortgaged Real Property;
(2) with respect to each Mortgaged Real Property (other
than as set forth on SCHEDULE 7.01(XX)), a Survey;
(3) with respect to each Mortgaged Real Property, policies
or certificates of insurance as required by the Mortgage
relating thereto;
(4) with respect to each Mortgaged Real Property, UCC,
judgment and tax lien searches complying with Section
7.01(xix)(ii) above;
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(5) evidence acceptable to the Lead Arrangers of payment
by Borrower of all title insurance premiums, search and
examination charges, survey costs, mortgage recording taxes and
related charges required for the recording of the Mortgages and
issuance of the title insurance policies referred to in
subclause (iii)(1) of this Section 7.01(xxv) above;
(6) with respect to each Real Property or Mortgaged Real
Property, copies of all Leases, subleases, leases in which
Borrower holds the tenant's interest or other agreements
relating to possessory interests, if any. To the extent any of
the foregoing affect any Mortgaged Real Property, such agreement
shall be subordinate to the Lien of the Mortgage to be recorded
against such Mortgaged Real Property either expressly by its
terms or pursuant to a subordination, non-disturbance and
attornment agreement and shall otherwise be reasonably
acceptable to the Lead Arrangers;
(7) with respect to each Mortgaged Real Property, Borrower
shall have made all notification, registrations and filings, to
the extent required by, and in accordance with, all State and
Local Real Property Disclosure Requirements applicable to such
Mortgaged Real Property, including the use of forms provided by
state or local agencies, where such forms exist, whether to
Borrower or to or with the state or local agency; and
(8) with respect to each Mortgaged Real Property, an
Officers' Certificate or other evidence reasonably satisfactory
to the Lead Arranger that as of the date thereof there (a) has
been issued and is in effect, to the extent required, a valid
and proper certificate of occupancy or local or foreign
equivalent for the use then being made of such Mortgaged Real
Property, (b) has not occurred any material Casualty Event of
any Mortgaged Real Property and (c) except as could not be
reasonably expected to have a Material Adverse Effect or as may
be disclosed in the Survey of such Mortgaged Real Property
delivered pursuant to subclause (iii)(2) of this
Section 7.01(xx) above, are no disputes regarding boundary
lines, location, encroachment or possession of such Mortgaged
Real Property and no state of facts existing which could give
rise to any such claim.
(xxi) OTHER MATTERS. The Lenders shall have received such other legal
opinions, corporate documents and other instruments and/or certificates as
the Lead Arranger or the Majority Lenders may request in their reasonable
discretion.
7.02. INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT. The obligation
of the Lenders to make any Loan or otherwise extend any credit to Borrower upon
the occasion of each borrowing or other extension of credit (whether by making
a Loan or issuing a Letter of Credit but excluding any Continuation of any
LIBOR Loan) hereunder (including the initial borrowing) is subject to the
further conditions precedent that:
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(i) NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE. Both
immediately prior to the making of such Loan or other extension of credit
and also after giving pro forma effect thereto and to the intended use
thereof:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Obligors in
Section 8, and by each Obligor in each of the other Credit Documents
to which it is a party, shall be true and complete in all material
respects on and as of the date of the making of such Loan or other
extension of credit with the same force and effect as if made on and
as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date).
(ii) NO LEGAL BAR. The Loans and the use of proceeds thereof shall
not contravene, violate or conflict with, nor involve any Lender in a
violation of, any law, rule, injunction, or regulation or determination of
any court of law or other Governmental Authority.
Each notice of borrowing or request for the issuance of a Letter of
Credit by Borrower hereunder shall constitute a certification by Borrower to
the effect set forth in clause (i) above as of the date of such borrowing or
issuance.
Each notice submitted by Borrower hereunder for an extension of
credit hereunder shall constitute a representation and warranty by Borrower,
as of the date of such notice and as of the relevant borrowing date or date
of issuance of a Letter of Credit, as applicable, that the applicable
conditions in Sections 7.01 and 7.02 have been satisfied or waived in
accordance with the terms hereof.
7.03. PERMITTED ACQUISITIONS. The obligation of the Lenders to
make any Revolving Loan or otherwise extend any credit to Borrower, the
proceeds of which will be used to make a Permitted Acquisition, is subject to
the satisfaction of the conditions set forth in Section 7.01 (if the date of
such extension of credit is the Closing Date) and Section 7.02 and to the
further condition precedent that there is at least $10.0 million of aggregate
Unutilized Revolving Credit Commitments after giving effect to such extension
of credit to effect any such Permitted Acquisition.
Section 8. REPRESENTATIONS AND WARRANTIES. Each of the Obligors
and Parent (with respect to itself only) represents and warrants to the
Creditors that at and as of each Funding Date (in each case immediately
before and immediately after giving effect to the transactions to occur on
such date (including the Transactions)):
8.01. CORPORATE EXISTENCE. Parent, each Obligor and each
Subsidiary: (a) is a corporation, partnership or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power and authority, and has all governmental licenses, authorizations,
consents and approvals necessary to own its Property and carry on its
business as now being conducted, except as would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect; and (c) is
qualified to do business and is
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in good standing in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure to be so
qualified and in good standing individually or in the aggregate is reasonably
likely to have a Material Adverse Effect.
8.02. FINANCIAL CONDITION; ETC. (a) Borrower has heretofore
delivered to the Lenders (A) the audited consolidated balance sheets of
Borrower and its Subsidiaries as of December 31, 1995, December 31, 1996 and
December 31, 1997, and the related statements of earnings, changes in
stockholders' equity and cash flows for the fiscal years ended on those
dates, together with reports thereon by Pricewaterhousecoopers, certified
public accountants, (B) the unaudited consolidated balance sheets of Borrower
and its Subsidiaries as of March 31, 1998 and June 30, 1998, and the related
statements of earnings and cash flows for the fiscal periods ended on those
dates, (C) the audited consolidated balance sheets of Wing as of June 30,
1995, June 30, 1996, June 30, 1997 and December 31, 1997, and the related
statements of earnings, changes in stockholders' equity and cash flows for
the fiscal years ended on those dates, together with reports thereon by
Pricewaterhousecoopers, certified public accountants, (D) the unaudited
consolidated balance sheets of Wing as of March 31, 1998 and June 30, 1998
and the related statements of earnings and cash flows for the fiscal periods
ended on those dates, (E) the audited consolidated balance sheets of Darby as
of December 31, 1996 and December 31, 1997, and the related statements of
earnings, changes in stockholders' equity and cash flows for the fiscal years
ended on those dates, together with reports thereon by
Pricewaterhousecoopers, certified public accountants, and (F) the unaudited
consolidated balance sheets of Darby as of March 31, 1998 and June 30, 1998
and the related statements of earnings and cash flows for the fiscal periods
ended on those dates. All of said financial statements, including in each
case the related schedules and notes are true, complete (in the case of
year-end financial statements) and correct in all material respects, have
been prepared in accordance with GAAP consistently applied (other than the
omission of footnotes with respect to interim statements) and present fairly
the financial position of Borrower and its Subsidiaries, Wing and its
Subsidiaries or Darby and its Subsidiaries, as the case may be, as of the
respective dates of said balance sheets and the results of their operations
for the respective periods covered thereby, subject (in the case of interim
statements) to period-end audit adjustments.
(b) Except as set forth in the financial statements or other
information referred to in Section 8.02(a), as of the Closing Date there are
no material liabilities of any Company of any kind, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which is reasonably
likely to result in such a liability, other than:
(i) liabilities incurred in the ordinary course of business
consistent with past practice since December 31, 1997 which in the
aggregate are not reasonably likely to have a Material Adverse Effect; and
(ii) liabilities under this Agreement and the other Credit Documents,
the Merger Agreement, the Contribution Agreements or the Investor Debt
Securities Documents or liabilities incurred in connection with the
transactions contemplated hereby.
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(c) Except as set forth in the financial statements referred to in
Section 8.02(a), since December 31, 1997, there has been no Material Adverse
Effect or any event, change or circumstance which could reasonably be expected
to cause or evidence, either individually or together with any other events,
changes and circumstances, a Material Adverse Effect.
(d) The pro forma balance sheets of Borrower and its Consolidated
Subsidiaries (the "PRO FORMA BALANCE SHEETS"), certified by the chief financial
officer of Borrower, copies of which have been heretofore furnished to each
Lender, together with the notes thereto, accurately reflect in all material
respects all adjustments necessary to give effect to the Transactions, were
prepared based on good faith assumptions, and present fairly in all material
respects on a pro forma basis the consolidated financial position of Borrower
and its Consolidated Subsidiaries as of June 30, 1998, adjusted as described
above.
8.03. LITIGATION. Except as disclosed in SCHEDULE 8.03, there is no
Proceeding pending against, or to the knowledge of any Company threatened in
writing against or affecting, any Company or any of its respective Properties
before any Governmental Authority that has a reasonable likelihood of being
adversely determined and that, if determined or resolved adversely to such
Company in accordance with the plaintiff's demands, is reasonably likely to
have (individually or in the aggregate) a Material Adverse Effect.
8.04. NO BREACH; NO DEFAULT. (a) None of the execution, delivery
and performance by each of the Obligors and Parent of any Credit Document or
Transaction Document to which it is a party and the consummation of the
transactions herein and therein contemplated (including the Transactions) will
(i) conflict with or result in a breach of, or require any consent (which has
not been obtained and is in full force and effect) under, any Organic Document
of any Company or Parent, or any applicable Requirement of Law or any order,
writ, injunction or decree of any Governmental Authority binding on any Company
or Parent, or any term or provision of any Contractual Obligation of any
Company or Parent, or (ii) constitute (with due notice or lapse of time or
both) a default under any such Contractual Obligation, or (iii) result in the
creation or imposition of any Lien (except for the Liens created pursuant to
the Security Documents) upon any Property of any Company or Parent pursuant to
the terms of any such Contractual Obligation, except with respect to each of
the foregoing which is not (either individually or in the aggregate) reasonably
likely to have a Material Adverse Effect.
(b) No Company is in default under or with respect to any
Contractual Obligation (including any Transaction Document) or any order,
award or decree of any Governmental Authority or arbitrator binding upon it
or any of its Property in any respect which is likely to have (individually
or in the aggregate) a Material Adverse Effect.
(c) No Default has occurred and is continuing.
8.05. ACTION. Each of the Obligors and Parent has all necessary
corporate power, authority and legal right to execute, deliver and perform
its obligations under each Credit Document and Transaction Document to which
it is a party and to consummate the transactions herein and
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therein contemplated; the execution, delivery and performance by each of the
Obligors and Parent of each Credit Document and Transaction Document to which
it is a party and the consummation of the transactions herein and therein
contemplated have been duly authorized by all necessary corporate action on
its part; and this Agreement has been duly and validly executed and delivered
by each of the Obligors and Parent and constitutes, and each of the Notes and
the other Credit Documents and Transaction Documents to which it is a party
when executed and delivered by such Obligor or Parent (in the case of the
Notes, for value) will constitute, its legal, valid and binding obligation,
enforceable against each of the Obligors and Parent in accordance with its
terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
of general applicability from time to time in effect affecting the
enforcement of creditors' rights and remedies and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
8.06. APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any Governmental Authority or any
securities exchange are necessary for the execution, delivery or performance
by any Obligor or Parent of the Credit Documents and the Transaction
Documents to which it is a party or for the legality, validity or
enforceability hereof or thereof or for the consummation of the transactions
herein and therein contemplated, except for filings and recordings in respect
of the Liens created pursuant to the Security Documents and, in connection
with the Transactions, except for consents, filings and authorizations that
have been maintained or made and are in full force and effect.
8.07. REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT. The
representations and warranties set forth in Section 3.1 of the Merger
Agreement are, in each case, true and correct in all material respects as of
the time such representations and warranties were made and shall be true and
correct in all material respects as of the Closing Date as if such
representations and warranties were made on and as of such date, unless such
representations and warranty expressly indicates that it is being made as of
any other specific date.
8.08. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability could reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed the fair market value of the assets of all
such underfunded Plans by an amount that could reasonably be expected to have
a Material Adverse Effect. Each Company is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Employee Benefit Plan maintained by such Company. Using
actuarial assumptions and computation methods consistent with subpart 1 of
subtitle E of Title IV of ERISA, the aggregate liabilities of any of each
ERISA Entity to all Multiemployer Plans in the event of a complete withdrawal
therefrom, as of the close of the most recent fiscal year of each such
Multiemployer Plan, would not reasonably be expected to result in a Material
Adverse Effect.
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Each Foreign Plan has been maintained in substantial compliance
with its terms and with the requirements of any and all applicable laws,
statutes, rules, regulations and orders and has been maintained, where
required, in good standing with applicable regulatory authorities, except
where failure to do so would not be expected to have a Material Adverse
Effect. Neither the Borrower nor any Subsidiary have incurred any material
obligation in connection with the termination of or withdrawal from any
Foreign Plan. The present value of the accrued benefit liabilities (whether
or not vested) under each Foreign Plan which is funded, determined as of the
end of the most recently ended fiscal year of the Borrower or Subsidiary on
the basis of actuarial assumptions, each of which is reasonable, did not
materially exceed the current value of the assets of such Foreign Plan, and
for each Foreign Plan which is not funded, the obligations of such Foreign
Plan are properly accrued.
8.09. TAXES. Each Company has filed or caused to be filed all
U.S. federal income tax returns and all other material returns, statements,
forms and reports for taxes (the "RETURNS"), domestic or foreign, required to
be filed by it and has paid all taxes payable by it which have become due or
any assessments made against it or any of its Property and all other material
taxes, fees or other charges imposed on it or any of its Property (including
the Mortgaged Real Property) by any Governmental Authority (other than those
which, in the aggregate, are not substantial in amount or those the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have
been provided on the books of the relevant Company, as the case may be); the
Returns accurately reflect in all material respects all liability for taxes
of the relevant Company for the periods covered thereby; and no tax lien has
been filed (except with respect to taxes not yet due and payable) and, to the
best knowledge of the Obligors, no action, suit, proceeding, investigation,
audit or claim is being asserted or has been threatened in writing or
otherwise by any authority with respect to any such tax, fee or other charge,
except as could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. No Company has entered into an
agreement or waiver extending any statute of limitations relating to the
payment or collection of taxes of any Company.
8.10. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT;
OTHER RESTRICTIONS. No Company is an "investment company", or a company
"controlled" by an "investment company", within the meaning of the United
States Investment Company Act of 1940, as amended. No Company is a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company"
of a "holding company", within the meaning of the United States Public
Utility Holding Company Act of 1935, as amended. No Obligor is subject to
regulation under any law or regulation which limits its ability to incur
Indebtedness, other than Regulation X of the Board of Governors of the
Federal Reserve System.
8.11. ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 8.11
and except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect: (i) each Company is in
compliance with and in the last two years has been in compliance with, and is
not subject to liability under, any Environmental Laws applicable to it and
there are no Environmental Laws, including such Laws which have been formally
proposed for public comment, which would reasonably be expected to result in
material expenditures by any Company, and no such Environmental Laws would
reasonably be expected to interfere in any material way with current or
pro-
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jected operations of any Company; (ii) no Company has received written notice
that it or any of its predecessors in interest has been identified as a
potentially responsible party under the United States Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or any other Environmental Law, nor has any Company received
notice that any Hazardous Materials that it or any of its predecessors in
interest has used, generated, stored, treated, handled, transported or
disposed of, or arranged for disposal or treatment of, have been found at any
site at which any Person is conducting or plans to conduct any action
pursuant to any Environmental Law, and no Company, or to the knowledge of the
Obligors, any of their respective predecessors in interest, has disposed of,
arranged for the disposal or treatment of, or otherwise released Hazardous
Materials at any site at which any Person is conducting or plans to conduct
any action under Environmental Law; (iii) no properties now or formerly
owned, leased or operated by any Company or any of their respective
predecessors in interest, are (x) listed or proposed for listing on the
National Priorities List under CERCLA or (y) listed on the Comprehensive
Environmental Response, Compensation and Liability Information System List
promulgated pursuant to CERCLA or (z) included on any similar lists
maintained by any Governmental Authority; (iv) there are no past or present
events, conditions, activities, practices or actions, or any agreements,
judgments, decrees or orders by which any Company is bound, which would
reasonably be expected to prevent any Company's compliance with any
Environmental Law, or which would reasonably be expected to give rise to any
liability of any Company under any Environmental Law, including, without
limitation, liability under CERCLA or similar state or foreign laws; (v) no
Lien has been asserted or recorded, or to the knowledge of the Obligors,
threatened, under any Environmental Law with respect to any asset, facility,
inventory or property currently owned, leased or operated by any Company;
(vi) there are no underground storage tanks or related piping at any property
owned, operated or leased by any Company and no such tanks or related piping
have been removed from such properties; and (vii) no Company is subject to
any Proceeding alleging the violation of, or liability under, any
Environmental Law and, to the knowledge of the Obligors, no such Proceeding
is threatened.
8.12. ENVIRONMENTAL INVESTIGATIONS. All material environmental
investigations, studies, audits, assessments and data which are in the
possession, custody or control of any Company relating (i) to the current or
prior business, operations, facilities or Property of any Company or any of
their respective predecessors in interest or (ii) to any facility, Property
or other asset now or previously owned, operated, leased or used by any
Company or any of their respective predecessors in interest have been made
available to the Lead Arranger and the Lenders.
8.13. USE OF PROCEEDS. No Company is engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying
Margin Stock and no part of the proceeds of any extension of credit hereunder
will be used directly or indirectly and whether immediately, incidentally or
ultimately to purchase or carry any Margin Stock or to extend credit to
others for such purpose or to refund Indebtedness originally incurred for
such purpose. Borrower will use the proceeds of (i) all Term Loans to
finance the Transaction and related fees and expenses, and (ii) Revolving
Credit Loans to finance the Transactions (in an amount not to exceed $5.0
million unless consented to by the Lead Arranger in its sole discretion), and
for general corporate purposes; provided, however, that not more than $20.0
million in aggregate principal amount of Revolving Credit Loans shall be used
to finance Acquisitions.
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Following application of the proceeds of each extension of credit
hereunder, not more than 25 percent of the value of the assets (either of
Borrower only or of Borrower and its Consolidated Subsidiaries) will be
Margin Stock. If requested by any Lender or the Lead Arranger, Borrower will
furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 referred
to in Regulation U.
8.14. SUBSIDIARIES. As of the Closing Date (after giving effect
to the Transactions), none of Borrower or Atrium Holdings has any
Subsidiaries or interests in partnerships, joint ventures or business trusts
other than the entities set forth on SCHEDULE 8.14. Borrower and Atrium
Holdings own, as of the Closing Date, the percentage of the issued and
outstanding Equity Interests or other evidences of the ownership of each of
their respective Subsidiaries, partnerships or joint ventures listed on
SCHEDULE 8.14 as set forth on such Schedule. Except as set forth on SCHEDULE
8.14, no such Subsidiary, partnership or joint venture has issued any
securities convertible into shares of its Equity Interests (or other evidence
of ownership) or any Equity Rights to acquire such shares or securities
convertible into such shares (or other evidence of ownership), and the
outstanding stock and securities (or other evidence of ownership) of such
Subsidiaries, partnerships or joint ventures are owned by Borrower, Atrium
Holdings or Parent free and clear of all Liens and Equity Rights of others of
any kind whatsoever, except for Liens pursuant to the Security Documents.
Atrium Holdings does not have any direct equity interest in any Person other
than Borrower. Parent does not have any direct equity interest in any Person
other than Atrium Holdings.
8.15. PROPERTIES. Each of the Companies (i) has good title to and
beneficial ownership of all Property owned by it, including all the Property
reflected in the most recent financial statements provided hereunder (except
Property sold or otherwise disposed of since the date thereof in the ordinary
course of business or as otherwise not prohibited by the Credit Documents),
or acquired after the date thereof, free and clear of all Liens, except
Permitted Liens or Liens otherwise permitted by Section 9.07 and (ii) is the
lessee of all leasehold estates and is in possession of the Properties
purported to be leased thereunder, and each such lease is valid without
default thereunder by the lessee or, to the knowledge of the Obligors, the
lessor. Title to all Property of any Company is held by such Company free
and clear of all Liens except for Permitted Liens and Prior Liens or as
otherwise permitted by Section 9.07.
8.16. SECURITY INTEREST; ABSENCE OF FINANCING STATEMENTS; ETC.
The Security Documents, once executed and delivered, will create, in favor of
the Administrative Agent for the benefit of the Issuing Lender, Lenders and
Agents, as security for the obligations purported to be secured thereby, a
valid and enforceable, and upon filing or recording with the appropriate
Governmental Authorities and delivery of the applicable documents to the
Administrative Agent, perfected first priority security interest in and Lien
upon all of the Collateral (and the proceeds thereof), superior to and prior
to the rights of all third persons other than the holders of Prior Liens and
subject to no other Liens other than Permitted Liens or Liens otherwise
permitted by Section 9.07.
Except with respect to Prior Liens, Permitted Liens or as otherwise
permitted by Section 9.07 and the Liens created by the Security Documents,
there is no financing statement, security agreement, chattel mortgage, real
estate mortgage or other document filed or recorded with any filing
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records, registry, or other public office, that purports to cover, affect or
give notice of any Lien on, or security interest in, any Property of any
Company or rights thereunder.
8.17. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. The Companies
hold all governmental permits, licenses, authorizations, consents and
approvals necessary for the Companies to own, lease, and operate their
respective Properties and to operate their respective businesses as now being
conducted (collectively, the "PERMITS"), except for Permits the failure of
which to obtain is not reasonably likely to have a Material Adverse Effect.
None of the Permits has been modified in any way that is reasonably likely to
have a Material Adverse Effect. All Permits are in full force and effect
except where the failure to be in full force and effect is not reasonably
likely to have a Material Adverse Effect.
Each Company is in material compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any Governmental
Authority in all jurisdictions in which it is presently doing business, and
each Company will comply with all such laws and regulations which may be
imposed in the future in jurisdictions in which it may then be doing
business, in each case other than those the non-compliance with which would
not (individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect. There does not exist any judgment, order or
injunction prohibiting or imposing material adverse conditions upon any of
the Transactions, or the performance by any Obligor of its obligations under
the Credit Documents, the Transaction Documents and all applicable laws.
8.18. TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of any Obligor to any Creditor in connection with the negotiation,
preparation or delivery of this Agreement and the other Credit Documents or
included herein or therein or delivered pursuant hereto or thereto or
pursuant to any information memorandum distributed in connection with the
syndication of the Commitments and Loans, including all filings made with the
Commission by Borrower or any Company but in each case excluding all
projections, whether prior to or after the date of this Agreement, when taken
as a whole, do not, as of the date such information was furnished, contain
any untrue statement of material fact or omit to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not materially misleading. The
projections and pro forma financial information furnished at any time by any
Obligor to any Creditor pursuant to this Agreement have been prepared in good
faith based on assumptions believed by Borrower to be reasonable at the time
made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual
results during the period or periods covered by such financial information
may differ from the projected results set forth therein by a material amount
and no Obligor, however, makes any representation as to the ability of any
Company to achieve the results set forth in any such projections. Each
Obligor understands that all such statements, representations and warranties
shall be deemed to have been relied upon by the Lenders as a material
inducement to make each extension of credit hereunder.
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8.19. SOLVENCY; ETC. As of the Closing Date and each other date
of an extension of credit hereunder immediately prior to and immediately
following such extension of credit, each Obligor is and will be Solvent
(after giving effect to Section 6.08).
8.20. CONTRACTS. No Company is in default under any material
contract or agreement to which it is a party or by which it is bound, nor, to
Borrower's knowledge, does any condition exist that, with notice or lapse of
time or both, would constitute such default, excluding in any case such
defaults that are not reasonably likely to have a Material Adverse Effect.
SCHEDULE 8.20 accurately and completely lists (x) all agreements, if any,
among the stockholders (or any of their Affiliates other than any Company) of
Parent on the one hand and any Company on the other in effect on the date
hereof and all (y) material agreements which are in effect on the date hereof
in connection with the conduct of the business of the Companies.
8.21. LABOR MATTERS. Set forth on SCHEDULE 8.21 is a list and
description (including dates of termination) of all collective bargaining or
similar agreements between or applicable to any Company as of the date hereof
and any union, labor organization or other bargaining agent in respect of the
employees of any Company on the date indicated on SCHEDULE 8.21. Except as
set forth in SCHEDULE 8.21, there are no strikes or other labor disputes
against any Company pending or, to the knowledge of any Obligor, threatened.
8.22. YEAR 2000. Each Company has reviewed their operations with
a view to assessing whether their business or operations will, in the
receipt, transmissions, processing, manipulation, storage, retrieval,
retransmission or other utilization of data, be vulnerable to any significant
risk that computer hardware, software or any equipment containing embedded
microchips used in their business or operations will not in the case of dates
or time periods occurring after December 31, 1999 function at least as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000. No Company has reason to believe that the risks associated
with the Year 2000 issue are reasonably likely to have a Material Adverse
Effect.
8.23. CHANGE OF CONTROL OFFER DOCUMENTS. The Change of Control
Offer Documents will not, as of their respective dates, taken as a whole,
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Section 9. COVENANTS. Each Obligor, for itself and on behalf of
its Subsidiaries, covenants and agrees with the Creditors that, so long as
any Commitment, Loan or Letter of Credit Liability is outstanding and until
payment in full of all amounts payable by Borrower hereunder:
9.01. FINANCIAL STATEMENTS, ETC. The Companies shall deliver to
the Administrative Agent (and the Administrative Agent shall deliver to each
Lender within three Business Days after the receipt thereof):
(a) QUARTERLY FINANCIALS. As soon as available and in any event
within 45 days after the end of each of the first three quarterly fiscal
periods of each fiscal year beginning with the fiscal quarter ending
September 30, 1998, consolidated statements of operations, cash flows
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and stockholders' equity of Borrower and its Consolidated Subsidiaries for
such period and for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated balance sheet
of Borrower and its Consolidated Subsidiaries as at the end of such
period, setting forth in each case in comparative form (i) the
corresponding consolidated statements of operations, cash flows and
stockholders' equity for the corresponding periods in the preceding fiscal
year (provided that for purposes of any fiscal quarter ending on or prior
to the first anniversary after the Closing Date, this clause (i) shall
only require pro forma consolidated statements of operations for the
corresponding periods in the preceding fiscal year that give effect to the
Transactions as if they occurred on the first day of the preceding fiscal
year) and (ii) the corresponding budget or plan for such period,
accompanied by a certificate of a Responsible Officer of Borrower, which
certificate shall state that said consolidated financial statements fairly
present the consolidated financial condition, results of operations and
cash flows of Borrower and its Consolidated Subsidiaries in accordance
with GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments); in addition, Borrower
shall provide consolidated financial statements for Foreign Subsidiaries
(if any) for the same periods in fiscal years 1998 and thereafter
substantially consistent with the foregoing;
(b) ANNUAL FINANCIALS. As soon as available and in any event within
90 days after the end of each fiscal year beginning with the fiscal year
ending December 31, 1998, consolidated and consolidating statements of
operations, cash flows and stockholders' equity of Borrower and its
Consolidated Subsidiaries for such year and the related consolidated and
consolidating balance sheet of Borrower and its Consolidated Subsidiaries
as at the end of such year, setting forth in each case in comparative form
(i) the corresponding consolidated and consolidating information as of the
end of and for the preceding fiscal year (provided that for purposes of
any fiscal year ending on or prior to the first anniversary after the
Closing Date, this clause (i) shall only require a pro forma consolidated
statement of operations for the preceding fiscal year that gives effect to
the Transactions as if they occurred on the first day of such preceding
fiscal year and consolidating information as of the end of and for the
preceding fiscal year) and (ii) the corresponding budget or plan for such
period, and accompanied by an opinion, without material qualification,
thereon of independent certified public accountants of recognized national
standing, which opinion shall state that said consolidated and
consolidating financial statements fairly present the consolidated and
consolidating financial condition, results of operations and cash flows of
Borrower and its Consolidated Subsidiaries as at the end of, and for, such
fiscal year in accordance with GAAP, consistently applied; Borrower shall
supply such additional information and detail as to any item or items
contained on any such statement that Lenders (to the extent applicable)
may reasonably require; all such information will be prepared in
accordance with GAAP consistently applied; in addition, Borrower shall
provide consolidated financial statements for Foreign Subsidiaries (if
any) for the same periods in fiscal years 1998 and thereafter
substantially consistent with the foregoing;
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(c) COMPLIANCE CERTIFICATE.
(i) concurrently with the delivery of the financial statements
referred to in Section 9.01(b), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no
knowledge was obtained of any Event of Default relating to the
Financial Maintenance Covenants, except as specified in such
certificate; and
(ii) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, a certificate of a senior
financial officer of Borrower (I) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing
the action that Borrower has taken and proposes to take with respect
thereto) and (II) setting forth in reasonable detail the computations
necessary (to the extent applicable) to determine whether each
Company is in compliance with Sections 9.07, 9.08, 9.09, 9.10 and
9.11 as of the end of the respective quarterly fiscal period or
fiscal year;
(d) OTHER FINANCIAL INFORMATION. Promptly upon delivery thereof to
the stockholders of any Company generally, copies of all financial
statements and reports and proxy statements so delivered, and within five
days after the same are filed, copies of all financial statements and
reports which any Company may make to or file with the Commission or any
successor or analogous Governmental Authority;
(e) INTEREST RATE CERTIFICATES. Together with the financial
statements delivered pursuant to clause (a) or (b) of this Section 9.01,
an Interest Rate Certificate;
(f) NOTICE OF DEFAULT. Promptly after any Company knows or has
reason to believe that any Default has occurred or that Atrium Holdings is
in default of any material term or provision of the Investor Debt
Securities Documents or any other agreement or instrument relating to or
evidencing material Indebtedness of any Company (including, without
limitation, the Existing Notes Indenture), a notice of such Default
describing the same in reasonable detail and, together with such notice or
as soon thereafter as possible, a description of the action that the
Companies have taken and propose to take with respect thereto;
(g) ENVIRONMENTAL MATTERS. Written notice of any Environmental
Claim materially affecting any Company, any Mortgaged Real Property or the
operations of any Company, and any notice from any Person of (i) the
occurrence of any release, spill or discharge of any Hazardous Material
that is reportable under any Environmental Law, (ii) the commencement of
any clean-up pursuant to or in accordance with any Environmental Law of
any Hazardous Material at, on, under or within the Mortgaged Real Property
or any part thereof, (iii) any matters relating to Hazardous Materials or
Environmental Laws that may impair, or threaten to impair, Lenders'
security interest in the Mortgaged Real Property or any Obligor's ability
to perform any of its obligations under this Agreement when such
performance is due or (iv) any
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other condition, circumstance, occurrence or event which could reasonably
be expected to result in a material liability of any Company under any
Environmental Law;
(h) AUDITORS' REPORTS. Promptly upon receipt thereof, copies of all
reports submitted to any Company by independent certified public
accountants in connection with each annual, interim or special audit of
such Company's books made by such accountants, including, without
limitation, any management letter commenting on any Company's internal
controls submitted by such accountants to management at any time;
(i) ANNUAL BUDGETS. As soon as practicable and in any event within
60 days after the beginning of each fiscal year of Borrower beginning with
fiscal year 1999, a consolidated plan and financial forecast for such
fiscal year, including without limitation (a) a forecasted consolidated
balance sheet and forecasted consolidated statements of income and cash
flows of Borrower and its Consolidated Subsidiaries for such fiscal year,
together with an Officers' Certificate demonstrating pro forma compliance
for such fiscal year with Section 9.11 and an explanation of the
assumptions on which such forecasts are based and (b) forecasted
consolidated statements of income and cash flows of Borrower and its
Consolidated Subsidiaries for each month of each such fiscal year,
together with an explanation of the assumptions on which such forecasts
are based;
(j) LIEN MATTERS. Written notice of (1) the incurrence of any Lien
(other than Permitted Liens, Prior Liens and other Liens expressly
permitted by the terms of the applicable Security Document) on, or claim
asserted against any of the Collateral or (2) the occurrence of any other
event which is reasonably likely to adversely affect the aggregate value
of the Collateral;
(k) NOTICE OF MATERIAL ADVERSE EFFECT OR MATERIAL ADVERSE CHANGE.
Written notice of the occurrence of any event or condition which has had
or has resulted in or is reasonably likely to have or result in any
Material Adverse Effect or any Material Adverse Change;
(l) GOVERNMENTAL FILINGS AND NOTICES. Promptly after request by the
Administrative Agent, copies of any other reports or documents that were
filed by any Company with any Governmental Agency;
(m) ERISA INFORMATION. Promptly upon the occurrence of any ERISA
Event that, alone or together with any other ERISA Events that have
occurred, is reasonably likely to result in liability to the Companies in
an aggregate amount exceeding $250,000, a written notice specifying the
nature thereof, what action the Borrower, its Subsidiaries or other ERISA
Entity have taken, are taking or propose to take with respect thereto,
and, when known, any action taken or threatened by the Internal Revenue
Service, Department of Labor, PBGC or Multiemployer Plan sponsor with
respect thereto;
(n) ERISA FILINGS, ETC. Upon request by the Administrative Agent,
copies of: (i) each Schedule B (Actuarial Information) to the annual
report (Form 5500 Series) filed by the Borrower, its Subsidiaries or ERISA
Affiliates with the Internal Revenue Service with re-
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spect to each Plan; (ii) the most recent actuarial valuation report for
each Plan; (iii) all notices received by the Borrower or any of its
Subsidiaries or ERISA Affiliates from a Multiemployer Plan sponsor or
any governmental agency concerning an ERISA Event; and (iv) such other
documents or governmental reports or filings relating to any Employee
Benefit Plan as the Administrative Agent shall reasonably request;
(o) CHANGE OF CONTROL OFFER. On the date of commencement of the
Change of Control Offer, copies of the Change of Control Offer Documents;
as soon as available, any amendment or supplement to the Change of Control
Offer Documents after the date of commencement thereof; and on the date of
consummation of the Change of Control Offer (i) an Officers' Certificate
stating the principal amount of Existing Notes Borrower is required to
purchase in the Change of Control Offer and the principal amount of
Existing Notes that will remain outstanding after consummation of the
Change of Control Offer and (ii) the opinion of Paul, Hastings, Janofsky &
Walker, LLP, counsel to the Obligors, addressed to the Administrative
Agent and the Lenders, to the effect that Borrower has satisfied all of
its obligations under the Existing Notes Indenture to purchase the
Existing Notes from the holders thereof arising as a result of the
consummation of the Transactions (other than the Change of Control Offer);
(p) NAME AND LOCATION CHANGES. Promptly, written notice of any
change (i) in such Company's corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of such Obligor's chief executive office,
its principal place of business, any office in which it maintains books or
records relating to Collateral owned by it or any office or facility at
which Collateral owned by it is located (including the establishment of
any such new office or facility), (iii) in such Company's identity or
corporate structure, (iv) resulting in any tangible Collateral being
located in any jurisdiction in which a financing statement must be, but
has not been, filed in order to perfect the Administrative Agent's Liens,
or (v) in such Company's Federal Taxpayer Identification Number (to the
extent applicable); each Company will not effect or permit any change
referred to in the preceding sentence unless all filings have been made
under the Uniform Commercial Code or otherwise that are required in order
for the Administrative Agent to continue at all times following such
change to have a valid, legal and perfected security interest in all the
Collateral; and
(q) MISCELLANEOUS. Promptly, such financial and other information
with respect to any Company as any Creditor may from time to time
reasonably request.
9.02. LITIGATION, ETC. Borrower shall promptly give to the
Administrative Agent and each Lender notice of all Proceedings, and any
material development thereof, affecting any Company, except Proceedings which
could not reasonably be expected to have (individually or in the aggregate) a
Material Adverse Effect.
9.03. EXISTENCE; COMPLIANCE WITH LAW; PAYMENT OF TAXES; INSPECTION
RIGHTS; PERFORMANCE OF OBLIGATIONS; ETC. Each Company shall (i) preserve and
maintain its legal existence and
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all of its material rights, privileges and franchises (PROVIDED, HOWEVER,
that nothing in this Section 9.03 shall prohibit any transaction expressly
permitted under Section 9.06), (ii) except as is not reasonably likely to
have (individually or in the aggregate) a Material Adverse Effect, comply
with the requirements of all applicable laws, rules, regulations and orders
of Governmental Authorities, (iii) except as is not reasonably likely to have
(individually or in the aggregate) a Material Adverse Effect, timely file
true, accurate and complete tax returns required by all Governmental
Authorities and pay and discharge all Taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which any penalties attach thereto (except for
any such Tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which adequate
reserves are being maintained in accordance with GAAP); (iv) maintain all of
its Properties used or useful in its business in good working order and
condition, ordinary wear and tear excepted, except to the extent that the
failure to do so with respect to any such Property is not reasonably likely
to have (individually or in the aggregate) a Material Adverse Effect; (v)
permit representatives of any Creditor during normal business hours and upon
reasonable notice to examine, copy and make extracts from its books and
records, to inspect its Properties, and to discuss its business and affairs
with its officers and employees, all to the extent reasonably requested by
such Creditor; (vi) allow the Lead Arranger to consult with Borrower's
independent public accountants and auditors with respect to the financial
affairs of the Companies and authorize such accountants to disclose to the
Lead Arranger and the Lenders any and all financial statements and other
supporting financial documents and schedules including copies of any
management letter with respect to the business, financial condition and other
affairs of the Companies; at the request of the Lead Arranger, Borrower shall
deliver a letter addressed to such accountants instructing them to comply
with the provisions of this Section 9.03(vi); (vii) perform in all material
respects all of its Contractual Obligations, except where such failure to so
perform, singly or in the aggregate with all other such failures, is not
reasonably likely to have a Material Adverse Effect; and (viii) keep proper
books of record and accounts, in which full and correct entries shall be made
of all financial transactions and the Property and business of each Company
in accordance with GAAP in effect from time to time or as otherwise required
by applicable rules and regulations of any Governmental Authority having
jurisdiction over such Company.
9.04. INSURANCE. (A) Each Company shall maintain, with
financially sound and reputable insurers, insurance of the kinds and in the
amounts customarily insured against by companies engaged in the same or
similar business and similarly situated (including business interruption
insurance). Each Company shall pay all insurance premiums payable by it as
and when due. Borrower will advise the Administrative Agent promptly of any
material policy cancellation, reduction or amendment. No Obligor will and
will not permit any Subsidiary to materially modify any of the provisions of
any policy with respect to casualty insurance without delivering the original
copy of the endorsement reflecting such modification to the Administrative
Agent.
(B) All policies of insurance required to be maintained by any
Obligor must name the Administrative Agent on behalf of the Issuing Lender,
Lenders and Agents as loss payee (in the case of property insurance) or
additional insured (in the case of liability insurance), as applicable, or
certificate holder (in the case of workers' compensation insurance) and must
provide that no cancellation, non-renewal or modification (including reduced
coverage) of the policies will be made without thirty
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days' prior written notice to the Administrative Agent and if the insurance
carrier shall have received written notice from the Administrative Agent of
the occurrence and continuance of an Event of Default, the insurance carrier
shall pay all proceeds otherwise payable to any Obligor under such policies
directly to the Administrative Agent.
(C) The Obligors shall give immediate written notice of any loss
in excess of $5.0 million to the insurance carrier and to Administrative
Agent. Each Obligor hereby irrevocably authorizes and empowers the
Administrative Agent, as its attorney-in-fact coupled with an interest, if
any Default shall have occurred or such loss is reasonably likely to be
materially adverse to the Lenders, to make proof of loss, to adjust and
compromise any claim under insurance policies, to appear in and prosecute any
action rising from such insurance policies, to collect and receive insurance
proceeds, and to deduct therefrom the Administrative Agent's expenses
incurred in the collection of such proceeds. Nothing contained in this
Section 9.04(C), however, shall require the Administrative Agent to incur any
expense or take any action hereunder.
(D) Each policy of insurance obtained or maintained by any Company
shall: (i) be written by financially responsible companies selected by
Borrower and having an A.M. Best rating of "A" or better and being in a
financial size category of XII or larger, or by other companies reasonably
acceptable to the Administrative Agent and the Lead Arranger; (ii) waive all
rights of subrogation of the insurers against the Creditors; (iii) waive any
right of the insurers to set-off or counterclaim or to make any other
deduction, whether by way of attachment or otherwise, as against any
Creditor; (iv) waive all claims for insurance premiums or commissions or
additional premiums or assessments against the Creditors; and (v) provide
that, except in the case of third-party liability insurance, the proceeds of
any loss affecting any Property which is Collateral (including Real Property)
or interests therein shall be applied in accordance with the terms of this
Agreement.
(E) If at any time the area in which any Mortgaged Real Property
is located is designated (i) a "flood hazard area" in any Flood Insurance
Rate Map published by the Federal Emergency Management Agency (or any
successor agency), Borrower shall obtain flood insurance in such total amount
as the Administrative Agent or the Majority Lenders may from time to time
reasonably require, and otherwise comply with the National Flood Insurance
Program as set forth in the Flood Disaster Protection Act of 1973, as amended
from time to time, or (ii) a "Zone 1" area, Borrower shall obtain earthquake
insurance in such total amount as the Administrative Agent or the Majority
Lenders may reasonably require; PROVIDED, HOWEVER, that Borrower shall not,
unless required by applicable law pertaining to Borrower or any Creditor, be
required to obtain any insurance described in this Section 9.04(E) if not
available at commercially reasonable rates.
(F) In the event that Borrower deems it necessary in its
reasonable business judgment to obtain insurance with respect to
environmental liabilities of Wing and Darby substantially similar to that
being obtained with respect to Borrower in connection with the Merger,
Borrower shall obtain such insurance with respect to Wing and Darby from a
financially capable company to the extent economically feasable in the
reasonable judgment of Borrower.
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9.05. LIMITATION ON LINES OF BUSINESS No Company shall directly
or indirectly engage to any material extent in any line or lines of business
activity other than the business of the type conducted by Borrower and the
Subsidiaries as of the Closing Date (after giving effect to the Merger and
the Contributions) or any business related, ancillary or complementary
thereto.
9.06. LIMITATION ON FUNDAMENTAL CHANGES, ACQUISITIONS OR
DISPOSITIONS. No Company shall, directly or indirectly, in a single
transaction or series of transactions, (1) merge, consolidate or amalgamate
with or into any Person (other than pursuant to the Transactions on the
Closing Date), or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), (2) effect any Acquisition, or (3) effect any
Disposition (or agree to do any of the foregoing). Notwithstanding the
foregoing provisions of this Section 9.06, each of the following shall be
permitted:
(a) purchases and sales of Property to be sold or used in the
ordinary course of business;
(b) the pledge of the Collateral pursuant to the Security Documents
and the incurrence of any Permitted Lien;
(c) the merger, consolidation, dissolution or liquidation of (1) any
Subsidiary with or into (i) Borrower if Borrower shall be the continuing
or surviving corporation or (ii) any Qualified Subsidiary or if such
Qualified Subsidiary shall be the continuing or surviving corporation, and
(2) any Subsidiary that is not a Qualified Subsidiary with or into any
other Subsidiary that is not a Qualified Subsidiary;
(d) Dispositions by (1) any Company to Borrower or to any Qualified
Subsidiary or (2) any Subsidiary that is not a Qualified Subsidiary to any
other Subsidiary that is not a Qualified Subsidiary;
(e) Dispositions of used, worn out, obsolete or surplus Property by
any Company in the ordinary course of business;
(f) sale or discount, in each case without recourse, of accounts
receivable past due arising in the ordinary course of business, but only
in connection with the compromise or collection thereof; PROVIDED,
HOWEVER, that in no event may any Company enter into any factoring or
securitization program with respect to receivables;
(g) any Disposition by Borrower or any Subsidiary for fair market
value not to exceed $10.0 million in the aggregate in any fiscal year of
Borrower and $35.0 million in the aggregate since the Closing Date;
PROVIDED, HOWEVER, that the Net Available Proceeds therefrom are applied
as specified in Section 2.10(a)(iv) or applied to the prepayment of the
Loans as specified in Section 2.10 (a)(iv);
(h) Dispositions described on SCHEDULE 9.06 for fair market value
not to exceed $4.0 million; PROVIDED, HOWEVER, that the Net Available
Proceeds therefrom are applied as specified
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in Section 2.10(a)(iv) or applied to the prepayment of the Loans as
specified in Section 2.10 (a)(iv);
(i) Acquisitions by Borrower or any Qualified Subsidiary; PROVIDED,
HOWEVER, that each Acquisition under this Section 9.06(i) shall satisfy
each of the following conditions:
(i) the Loans to be made on the Closing Date shall have been
made, and the Transactions shall have been consummated;
(ii) no Default then exists or would result therefrom;
(iii) immediately after giving effect to such Acquisition,
Borrower would be in compliance with Section 9.05;
(iv) after giving pro forma effect in accordance with GAAP to
such Acquisition, (1) Borrower shall be in compliance with all of the
Financial Maintenance Covenants as of the Test Date immediately prior
to the consummation thereof (assuming, for purposes of the Financial
Maintenance Covenants, that such Acquisition, and all other
Acquisitions consummated since the first day of the relevant
Measurement Period for each of the Financial Maintenance Covenant
ending on or prior to the date of such Acquisition, had occurred on
the first day of such relevant Measurement Period), and the Lenders
shall have been provided reasonably detailed calculations of such
compliance and reasonable supporting data and information with
respect thereto), and (2) as reasonably determined in good faith by
Borrower at such time based on available information then known by
Borrower, Borrower and the Subsidiaries can reasonably be expected to
remain in compliance with such covenants through the Final Maturity
Date and to have sufficient cash liquidity to conduct their
respective business and pay their respective debts and other
liabilities as they come due;
(v) no Company shall, in connection with any such Acquisition,
assume or remain liable with respect to any Indebtedness or other
liability (including any material tax or ERISA liability) of the
related seller, except (1) to the extent permitted under Section 9.08
or, if after giving pro forma effect thereto, the representations and
warranties of each Obligor and Parent in Section 8 would be true in
all material respects, and (2) obligations of the seller or acquired
Person or business incurred in the ordinary course of business and
necessary or desirable to the continued operation of the underlying
properties, and any other such liabilities or obligations not
permitted to be assumed or otherwise supported by any of the
Companies hereunder shall be paid in full or released as to the
assets being so acquired on or before the consummation of such
Acquisition;
(vi) the Properties acquired in connection with any such
Acquisition shall be free and clear of any Liens, other than
Permitted Liens or Liens otherwise permitted by Section 9.07;
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(vii) the board of directors of the acquired Person shall not
have indicated privately to any Company or publicly its opposition to
the consummation of such Acquisition;
(viii) either (x) such Acquisition shall be effected through
Borrower or a Qualified Subsidiary and the Person or business
acquired shall at the time of consummation of such Acquisition be
merged or combined or consolidated with or into a domestic Qualified
Subsidiary or shall be at the time of consummation thereof a domestic
Qualified Subsidiary or (y) the Acquisition Consideration for such
Acquisition, together with the aggregate amount of the Acquisition
Consideration for all other Acquisitions (other than Acquisitions
made pursuant to Section 9.06(m)) effected pursuant to this Section
9.06(i) that do not comply with clause (x) of this subparagraph
(viii) since the Closing Date, shall not exceed $5.0 million;
(ix) with respect to any Acquisition involving Acquisition
Consideration of more than $10.0 million, Borrower shall have
provided not fewer than 30 days prior to the proposed closing thereof
the Lead Arranger and the Lenders with (1) written notice thereof and
a brief description of the material terms thereof and a brief
description of the business or Person to be acquired, (2) historical
financial statements for the last three fiscal years (or, if less,
for the period of such Person's existence) of the Person or business
to be acquired (audited if available without undue cost or delay) and
unaudited financial statements thereof for the most recent interim
period which are available, (3) reasonably detailed projections for
the succeeding five years (or, if earlier, through the year in which
the Final Maturity Date occurs) pertaining to the Person or business
to be acquired, (4) copies of all material documentation pertaining
to such Acquisition, and (5) all such other information and data
relating to such Acquisition or the Person or business to be acquired
as may be reasonably requested by Lead Arrangers or the Majority
Lenders;
(x) Borrower shall have delivered to the Lead Arranger and the
Lenders (x) an Officers' Certificate at least 10 days prior to the
date of consummation of such Acquisition (but in any event not
earlier than a date which would result in the Test Date occurring on
or immediately prior to the consummation of such Acquisition being
more than 135 days prior to the date of consummation of such
Acquisition) certifying that (1) such Acquisition complies with this
Section 9.06(i) (which shall have attached thereto reasonably
detailed backup data and calculations showing such compliance), and
(2) such Acquisition is not reasonably likely to have a Material
Adverse Effect and (y) financial statements referred to in clause
(ix) of this Section 9.06(i) for the most recently ended fiscal
period if the latest financial statements previously delivered
pursuant to clause (ix) cover a period ending more than 135 days
before the date of consummation of such Acquisition; and
(xi) the Acquisition Consideration for such Acquisition,
together with the aggregate amount of the Acquisition Consideration
for all Acquisitions (other than
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Acquisitions made pursuant to Sections 9.06(m) below) effected
pursuant to this Section 9.06(i) since the Closing Date, shall not
exceed $20.0 million (PROVIDED, HOWEVER that any portion of such
Acquisition Consideration that consists of an "earn-out" or similar
payment shall not exceed $5.0 million in the aggregate since the
Closing Date), PLUS the then available amount of the Designated
Equity Issuance Proceeds but not to exceed $20.0 million.
(j) transfers resulting from any casualty or condemnation of
Property;
(k) licenses or sublicenses by any Company of software, trademarks
and other intellectual property and general intangible and leases,
licenses or subleases of other property in the ordinary course of business
and which do not materially interfere with the business of any Company;
(l) any consignment arrangements or similar arrangements for the
sale of assets in the ordinary course of business of any Company;
(m) Acquisitions not otherwise permitted hereunder by Borrower or
any Subsidiary; PROVIDED, HOWEVER, that (1) the sole consideration
provided therefor by any Company is Equity Interests of Parent or
Qualified Capital Stock of Atrium Holdings, and (2) such Acquisition shall
comply with each of clauses (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii)(x), (ix) and (x) of Section 9.06(i) (with references therein to
Section 9.06(i) being deemed references to this Section 9.06(m)); and
(n) the making of Investments permitted by Section 9.09 and the
liquidation in the ordinary course of business of (A) Permitted
Investments and (B) Investments made pursuant to Sections 9.09(a) and
9.09(b).
To the extent the Majority Lenders waive the provisions of this Section 9.06
with respect to the sale or other disposition of any Collateral, or any
Collateral is sold or otherwise disposed of as permitted by this Section 9.06
(other than to any Obligor), such Collateral in each case shall be sold or
otherwise disposed of free and clear of the Liens created by the Security
Documents and the Administrative Agent shall take such actions as are
appropriate in connection therewith.
9.07. LIMITATION ON LIENS AND RELATED MATTERS. No Company shall,
directly or indirectly, create, incur, assume or suffer to exist any Lien
upon or with respect to any Collateral except for Prior Liens and other Liens
created by or expressly permitted by the applicable Security Document. No
Company shall, directly or indirectly, create, incur, assume or suffer to
exist any Lien upon or with respect to any of their respective Property that
does not constitute Collateral, whether now owned or hereafter acquired, or
assign any right to receive income, or file or permit the filing of any
financing statement under the UCC or any other similar notice of Lien under
any similar recording or notice statute, except the following, which are
herein collectively referred to as "PERMITTED LIENS":
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(a) Liens in existence on the Closing Date and identified in
SCHEDULE 9.07 (excluding, however, following the making of the initial
Loans hereunder, Liens securing any Refinanced Debt);
(b) Liens imposed by any Governmental Authority for taxes,
assessments or charges not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the relevant Company, in accordance
with GAAP;
(c) Liens imposed by law which were incurred in the ordinary course
of business, such as carriers', warehousemen's, landlords' and mechanics'
Liens and other similar Liens arising in the ordinary course of business,
in each case for sums the payment of which is not required by Section
9.03;
(d) pledges or deposits under workers' compensation, unemployment
insurance and other social security legislation or the deposits securing
the liability to insurance carriers;
(e) pledges or deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions or minor defects or
irregularities in title incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Real Property or minor imperfections in title
thereto which, in the aggregate, are not material in amount, and which do
not in any case materially detract from the value of the Real Property
subject thereto or interfere with the ordinary conduct of the business of
any Company;
(g) Liens upon tangible personal Property acquired after the Closing
Date by Borrower or any Subsidiary, each of which Liens either (A) existed
on such Property before the time of its acquisition and was not created in
anticipation thereof, or (B) was created solely for the purpose of
securing Indebtedness representing, or incurred to finance or refinance,
the cost of such Property or improvements thereon; PROVIDED, HOWEVER, that
(1) no such Lien shall extend to or cover any Property of any Company
other than the Property so acquired and improvements thereon and proceeds
thereof, and (2) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed 100% of the fair market value of such
Property at the time it was acquired;
(h) Liens existing on any Property of any Person at the time such
Property is acquired or such Person becomes a Subsidiary or is merged or
consolidated with or into a Subsidiary and, in each case, not created in
contemplation of or in connection with such event; PROVIDED, HOWEVER, that
such Liens do not extend to any other Property of any Company;
(i) Liens not otherwise permitted hereunder securing obligations of
Borrower or any Subsidiary at any time not exceeding in the aggregate $5.0
million;
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(j) Liens securing obligations under Swap Contracts with any
Creditor to the extent such Swap Contract relates to the Loans and only so
long as the Obligations are secured by the same collateral on at least a
pari passu basis;
(k) Liens consisting of judgment or judicial attachment Liens
(including prejudgment attachment) in existence less than 60 days after
the entry thereof or the enforcement of which is effectively stayed or
payment of which is covered in full (subject to a customary deductible) by
insurance or which do not otherwise result in an Event of Default under
Section 10(h);
(l) Liens securing obligations in respect of Capital Leases solely
on Property subject to such Capital Leases;
(m) leases or subleases granted to third Persons not interfering in
any material respect with the business of any Company;
(n) Liens arising from UCC financing statements regarding leases
permitted by this Agreement;
(o) any interest or title of a lessor or sublessor under any lease
permitted by this Agreement;
(p) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods so long as such Liens attach only to the imported
goods;
(q) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by any Company in the ordinary course of
business;
(r) Liens created under the Credit Documents securing the
obligations owing to the Creditors; and
(s) any extension, renewal or replacement of the foregoing;
PROVIDED, HOWEVER, that the Liens permitted by this Section 9.07(s) shall
not cover any additional principal amount of Indebtedness or Property
(other than like Property substituted for Property covered by such Lien).
Except with respect to (i) specific Property encumbered pursuant to
a Lien permitted to be incurred pursuant to this Section 9.07 or (ii)
specific Property to be sold pursuant to an executed agreement with respect
to a Disposition consummated in accordance with this Agreement, no Company
will directly or indirectly enter into any agreement on or after the Closing
Date prohibiting or restricting in any manner (directly or indirectly and
including by way of covenant, representation or warranty or event of default)
the creation or assumption of any Lien upon its Property, whether now owned
or hereafter acquired, except pursuant to the Credit Documents, the Existing
Notes Indenture and the Investor Debt Securities Documents and any Permitted
Refinancing of either thereof (so long
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as such Permitted Refinancing is not more restrictive in such regard than the
Existing Notes Indenture or the Investor Debt Securities Documents, as
applicable, as in effect on the Closing Date).
9.08. PROHIBITION ON DISQUALIFIED CAPITAL STOCK; LIMITATION ON
INDEBTEDNESS AND CONTINGENT OBLIGATIONS. No Company shall directly or
indirectly issue or permit to be outstanding any Disqualified Capital Stock,
other than Disqualified Capital Stock issued to and held by Borrower or any
Qualified Subsidiary. No Company shall, directly or indirectly, incur any
Indebtedness or any Contingent Obligation, except (each of which shall be
given independent effect) for the following:
(a) the Loans and the other Obligations (including the Guarantees)
under the Credit Documents;
(b) (A) the Refinanced Debt, (B) the Existing Notes (less all
repayments (including, without limitation, in connection with the Change
of Control Offer) and prepayments thereof), (C) the Investor Debt
Securities issued on the Closing Date and any further Investor Debt
Securities issued to GEIPPP II and Ardatrium in connection with the
consummation of the Change of Control Offer and having identical terms to
the Investor Debt Securities not to exceed an amount sufficient to produce
gross proceeds equal to the Investor Utilized Amount (but only so long as
not a direct or indirect obligation of Borrower or any Subsidiary), (D)
other Indebtedness and Contingent Obligations (other than the Existing
Notes and the Refinanced Debt) outstanding on the Closing Date and listed
in SCHEDULE 9.08 and specified on SCHEDULE 9.08 as to remain outstanding
after the Closing Date (less the aggregate amount of any permanent
prepayments or repayments thereof), and (E) in the case of the Investor
Debt Securities, the Existing Notes and any such Indebtedness listed on
SCHEDULE 9.08, Permitted Refinancings thereof; PROVIDED, HOWEVER, that the
Refinanced Debt shall not be outstanding after the Closing Date;
(c) (x) Indebtedness and Contingent Obligations of Borrower or any
Subsidiary owing to Borrower or any Qualified Subsidiary, (y) Indebtedness
and Contingent Obligations of any Subsidiary that is not a Qualified
Subsidiary owed to any other Subsidiary that is not a Qualified Subsidiary
and (z) Indebtedness of Atrium Holdings owing to Borrower incurred on the
Closing Date in connection with the Transactions in form and substance
satisfactory to the Lead Arranger; PROVIDED, HOWEVER, that (1) such
Indebtedness shall be evidenced by an Intercompany Note which (other than
if issued by or held by a Foreign Subsidiary) shall be pledged to the
Administrative Agent on behalf of the Lenders pursuant to the Security
Agreement and (2) such Indebtedness and Contingent Obligations shall not
be held by any Person other than Borrower or a Qualified Subsidiary and
shall not be subordinate to any other Indebtedness or Contingent
Obligations or other obligation of the obligor unless also subordinated to
the Loans on terms no less favorable to the Lenders than that of any other
creditor;
(d) Contingent Obligations in respect of operating leases;
<PAGE>
-96-
(e) Indebtedness and Contingent Obligations arising from honoring a
check, draft or similar instrument against insufficient funds; PROVIDED,
HOWEVER, that such Indebtedness is extinguished within two Business Days
of its incurrence;
(f) Swap Contracts;
(g) Contingent Obligations of Borrower, Atrium Holdings or any
Subsidiary in respect of Indebtedness or other liabilities of Borrower or
any Subsidiary to the extent that the existence of such Indebtedness or
other liabilities is not prohibited under this Agreement;
(h) Contingent Obligations in connection with Dispositions permitted
under Section 9.06, arising in connection with indemnification and other
agreements in respect of any contract relating to such Disposition, not to
exceed the consideration received by Borrower or any Subsidiary in
connection with such sale and excluding, however, in all cases any
Contingent Obligation with respect to any obligation of any third person
incurred in connection with the acquisition of the Property which is the
subject of such Disposition;
(i) Indebtedness and Contingent Obligations of Borrower and the
Subsidiaries (including Permitted Refinancings thereof) secured by Liens
permitted under Section 9.07(g) or (l) (and extensions, renewals or
replacements thereof pursuant to Section 9.07(s)) not exceeding (together
with any Permitted Refinancing thereof) $5.0 million in the aggregate at
any time outstanding for Borrower and the Subsidiaries collectively;
(j) Contingent Obligations of Atrium Holdings and any Subsidiary in
respect of any registration rights agreement permitted by the proviso to
Section 9.25(b);
(k) Indebtedness of a Person that becomes a Subsidiary after the
date hereof; PROVIDED, HOWEVER, that (1) such Indebtedness existed at the
time such Person became a Subsidiary and was not created in connection
with or in anticipation thereof, (2) immediately after giving effect to
the acquisition of such Person by Borrower no Default shall have occurred
and be continuing, and (3) the aggregate amount of Indebtedness
outstanding at any time pursuant to this Section 9.08(k) shall not exceed
$5.0 million for all Subsidiaries; and
(l) Indebtedness and Contingent Obligations incurred by Borrower or
any Subsidiary, and any Permitted Refinancing thereof, not to exceed in
the aggregate at any time outstanding the excess of (1) $10.0 million over
(2) the aggregate amount of Indebtedness outstanding pursuant to
Section 9.08(k).
All intercompany debt shall be unsecured and subordinate in right
of payment (to the same extent as the subordination provisions set forth in
EXHIBIT B hereto) to the Obligations. Each Obligor, by its execution and
delivery of this Agreement, hereby agrees to subordinate its right of payment
under any intercompany debt owed to it by Borrower or any Subsidiary to the
full and complete payment and performance of the Obligations. No Obligor
shall incur any Subordinated Debt unless such Subordinated Debt shall be
subordinated to the Obligations at least to the same extent and
<PAGE>
-97-
for so long as such Subordinated Debt is subordinated to any other
Indebtedness pursuant to documentation reasonably acceptable to the Lead
Arranger.
9.09. LIMITATION ON INVESTMENTS; LIMITATION ON CREATION OF
SUBSIDIARIES. No Company shall, directly or indirectly, make or permit to
remain outstanding any Investment, except for the following:
(a) operating deposit accounts and certificates of deposit with
banks in the ordinary course of business;
(b) Permitted Investments;
(c) Investments by any Company in Borrower or any Qualified
Subsidiary or in any Subsidiary if as a result thereof or in connection
therewith such Subsidiary becomes a Qualified Subsidiary (provided that no
Investment will be permitted in respect of any Subsidiary with respect to
which Borrower has not complied with Section 9.20);
(d) Investments outstanding on the Closing Date and identified in
SCHEDULE 9.09 and any renewals, amendments and replacements thereof that
do not increase the amount thereof;
(e) Investments that constitute Indebtedness or Contingent
Obligations permitted under Section 9.08;
(f) advances, loans or extensions of credit by any Company to
(1) employees of any Company in the ordinary course of business; PROVIDED,
HOWEVER, that the aggregate amount of all such loans, advances and
extensions of credit shall not at any time exceed in the aggregate $2.0
million (without giving effect to any write-down or write-off thereof) and
(2) employees of any Company in connection with stock option plans so long
as (x) such loans do not involve cash payments by any Company and (y) no
Company incurs any obligations at any time to repurchase the stock so
purchased;
(g) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in
the ordinary course of business;
(h) pledges or deposits required in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
social security or similar legislation;
(i) pledges or deposits in connection with (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed money),
leases or statutory obligations, (ii) contingent obligations on surety or
appeal bonds, and (iii) other non-delinquent obligations of a like nature,
in each case incurred in the ordinary course of business;
(j) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obliga-
<PAGE>
-98-
tions of, and other disputes with, customers and suppliers arising in the
ordinary course of business;
(k) Borrower and the Subsidiaries may hold additional Investments in
any Subsidiary which is not a Qualified Subsidiary to the extent that such
Investments reflect an increase in the stockholders' equity of such
Subsidiary resulting from retained earnings of such Subsidiary;
(l) Investments by any Subsidiary (other than a Qualified
Subsidiary) in any other Subsidiary (other than a Qualified Subsidiary);
(m) Capital Expenditures permitted by Section 9.11(d);
(n) Investments by any Company in any Subsidiary which is not a
Qualified Subsidiary to the extent made in the ordinary course to fund or
support the ordinary course operations of such Subsidiary so long as no
Default shall have occurred and be continuing; PROVIDED, HOWEVER, that (1)
the amount of such Investments made pursuant to this clause (n) shall not
exceed $1.0 million in the aggregate outstanding at any time (without
giving effect to any write-down or write-off thereof), and (2) all such
Investments which are Indebtedness shall be evidenced by Intercompany
Notes, which shall be pledged to Administrative Agent pursuant to the
Security Agreement;
(o) Borrower or any Subsidiary may hold the Equity Interests of any
Subsidiary existing on the Closing Date or created or acquired thereafter
in accordance with the provisions hereof and any additional Equity
Interests issued in exchange therefor or as a dividend thereon;
(p) Investments for the creation of any Wholly Owned Foreign
Subsidiary which is a foreign sales corporation consisting of de minimis
capitalization;
(q) Investments consisting of non-cash consideration received in the
form of securities, notes or similar obligations in connection with any
Disposition permitted by Section 9.06(g) (which shall not be subordinated
by its terms to any obligations of the issuer thereof); PROVIDED, HOWEVER,
that (1) the aggregate amount of such non-cash consideration received in
connection with any such Disposition shall not exceed 20% of the total
consideration received in connection with such Disposition, (2) such non-
cash consideration is pledged pursuant to the appropriate Security
Document, and (3) the aggregate amount of such Investments made and
outstanding at any time shall not exceed $5.0 million (without giving
effect to any write-downs or write-offs thereof);
(r) Investments by Foreign Subsidiaries in high quality investments
of the type similar to Permitted Investments made outside the United
States;
(s) Permitted Acquisitions;
<PAGE>
-99-
(t) Investments by Borrower or any Subsidiary in any joint venture
so long as after giving effect thereto Borrower shall be in compliance
with Section 9.05 and the aggregate amount thereof outstanding at any time
(without giving effect to any write-downs or write-offs thereof, but net
of any cash returns of capital, cash dividends and cash distributions
received in respect thereof) does not exceed $5.0 million; and
(u) in addition to the foregoing, other Investments by Borrower or
any Subsidiary not exceeding in the aggregate outstanding at any time
(without giving effect to any write-downs or write-offs thereof, but net
of any cash returns of capital, cash dividends and cash distributions
received in respect thereof) $5.0 million.
No Company shall, directly or indirectly, create or acquire any
Subsidiary without the prior written consent of the Majority Lenders, which
consent shall not be unreasonably withheld; PROVIDED, HOWEVER, that the
provisions of this paragraph shall not require the Majority Lenders' consent
for (I) the creation or acquisition of direct or indirect Wholly Owned
Subsidiaries so long as Section 9.20 is complied with at the time of
formation or acquisition thereof, and (II) the creation or acquisition of any
Subsidiary which is not a Wholly Owned Subsidiary so long as the Investment
made in connection therewith complies with this Section 9.09 at the time of
formation or acquisition thereof.
9.10. LIMITATION ON DIVIDEND PAYMENTS. No Company shall, directly
or indirectly, declare or make any Dividend Payment at any time, except:
(a) any Subsidiary may declare and make Dividend Payments to
Borrower or any Subsidiary to the extent made PRO RATA to all holders of
Equity Interests thereof;
(b) Dividend Payments on the Closing Date necessary to consummate
the Merger (including transaction expenses) in accordance with the
Transaction Documents and any management agreement entered into with any
Investor on the Closing Date;
(c) so long as no Default has occurred and is continuing or would
arise therefrom, Borrower may make Dividend Payments to Atrium Holdings if
the proceeds thereof are used at the time of such Dividend Payment by
Atrium Holdings (and Atrium Holdings may use such Dividend Payments by
Borrower as set forth below):
(i) to pay out-of-pocket expenses, for administrative, legal
and accounting services provided by third parties that are reasonable
and customary and incurred in the ordinary course of business for the
professional services, or to pay franchise fees and similar costs;
and
(ii) to make a Dividend Payment to Parent to redeem Equity
Interests (other than Disqualified Capital Stock) held by current or
former employees or directors of any Company (or their estates or
beneficiaries of their estates) upon the death, disability,
retirement or termination of employment or directorship, as the case
may be, pursuant to any agreement in effect on the Closing Date as in
effect on the Closing Date and pursuant to other agreements on
substantially similar terms entered into after
<PAGE>
-100-
the Closing Date; PROVIDED, HOWEVER, that the aggregate cash
consideration paid, or distributions made, pursuant to this clause
(c)(ii) shall not exceed $2.0 million in the aggregate since the
Closing Date, PLUS, in each case, the proceeds of any Excluded
Equity Issuance consummated contemporaneously with such purchase or
redemption; and
(d) so long as no Default has occurred and is continuing or would
arise therefrom, Borrower may make Dividend Payments to Atrium Holdings
out of the then existing amount of the Borrower Portion of Excess Cash
Flow to the extent that, at the time of making such Dividend Payment and
after giving pro forma effect to any Revolving Loans made to fund such
Dividend Payment, the Total Leverage Ratio as of the most recently
completed fiscal quarter for which financial statements have been
delivered pursuant to Section 9.01(a) or (b) is less than 2.75:1.0;
PROVIDED HOWEVER, that (A) either (I) such Dividend Payment is made after
September 30, 2003 and not earlier than the second Business Day prior to
the due date of any scheduled interest payment on the Investor Debt
Securities and the proceeds thereof are used at the time of such Dividend
Payment by Atrium Holdings to pay, on the scheduled semiannual interest
payments dates, interest accrued on the Investor Debt Securities
subsequent to September 30, 2003 or (II) the proceeds of such Dividend
Payment are contemporaneously used by Atrium Holdings to repay Investor
Debt Securities and (B) on and after the consummation date of the Change
of Control Offer, so long as less than $50.0 million in aggregate
principal amount of the Existing Notes are purchased by Borrower in the
Change of Control Offer, references in this paragraph (d) to "Total
Leverage Ratio" shall be deemed to be references to "Senior Leverage
Ratio."
9.11. FINANCIAL COVENANTS.
(a) MAXIMUM TOTAL LEVERAGE RATIO. The Total Leverage Ratio shall
not, as of any Test Date during the period from the Closing Date until the
date of the consummation of the Change of Control Offer, exceed the ratio of
5.25. On and after the date of consummation of the Change of Control Offer,
the Total Leverage Ratio shall not, as of any Test Date during any period set
forth in the table below, exceed (i) if $50.0 million or less in aggregate
principal amount of the Existing Notes are purchased by Borrower in the
Change of Control Offer (as specified in the Officers' Certificate delivered
pursuant to Section 9.01(o)), the ratio set forth opposite such period in
column I of the table below, (ii) if $100.0 million in aggregate principal
amount of the Existing Notes are purchased by Borrower in the Change of
Control Offer (as specified in such Officers' Certificate or if no such
Officers' Certificate is so delivered), the ratio set forth opposite the
corresponding period in column II of the table below, and (iii) if more than
$50.0 million but less than $100.0 million of the Existing Notes are
purchased by Borrower in the Change of Control Offer (as specified in such
Officers' Certificate), the ratio equal to (x) the ratio set forth opposite
such period in column I of the table below MINUS (y) the product of (A) a
fraction, the numerator of which is the aggregate principal amount of
Existing Notes in excess of $50.0 million purchased by Borrower in the Change
of Control Offer (as specified in the Officers' Certificate or if no such
Officers' Certificate is so delivered), and the denominator of which is $50.0
million, MULTIPLIED by (B) the absolute value of the difference between the
ratios set forth opposite such period in columns I and II below (such ratio
to be confirmed by Borrower, the
<PAGE>
-101-
Administrative Agent and the Lead Arranger by a notice distributed to each
Lender within 30 days after consummation of the Change of Control Offer).
<TABLE>
<CAPTION>
Period Column I Column II
------ -------- ---------
<S> <C> <C>
Consummation of Change of
Control Offer - 3/31/99 5.25 4.75
4/1/99 - 9/30/99 5.00 4.50
10/1/99 - 3/31/00 4.75 4.00
4/1/00 - 9/30/00 4.50 3.80
10/1/00 - 3/31/01 4.25 3.40
4/1/01 - 9/30/01 4.00 3.10
10/1/01 - 3/31/02 3.75 2.70
4/1/02 - 9/30/02 3.50 2.50
10/1/02 - 3/31/03 3.25 2.20
4/1/03 - 9/30/03 3.00 2.20
10/1/03 - 3/31/04 2.75 2.00
4/1/04 and thereafter 2.50 2.00
</TABLE>
(b) MINIMUM INTEREST COVERAGE RATIO. The Interest Coverage Ratio
shall not, as of any Test Date during the period from the Closing Date until
the date of the consummation of the Change of Control Offer, be less than the
ratio of 1.90. On and after the date of consummation of the Change of
Control Offer, the Interest Coverage Ratio shall not, as of any Test Date
during any period set forth in the table below, be less than (i) if $50.0
million or less in aggregate principal amount of the Existing Notes are
purchased by Borrower in the Change of Control Offer (as specified in the
Officers' Certificate delivered pursuant to Section 9.01(o)), the ratio set
forth opposite such period in column I of the table below, (ii) if $100.0
million in aggregate principal amount of the Existing Notes are purchased by
Borrower in the Change of Control Offer (as specified in such Officers'
Certificate)), the ratio set forth opposite such period in column II of the
table below, and (iii) if more than $50.0 million but less than $100.0
million of the Existing Notes are purchased by Borrower in the Change of
Control Offer (as specified in such Officers' Certificate or if no such
Officers' Certificate is so delivered), the ratio equal to (x) the ratio set
forth opposite such period in column I of the table below PLUS (y) the
product of (A) a fraction, the numerator of which is the aggregate principal
amount of Existing Notes in excess of $50.0 million purchased by Borrower in
the Change of Control Offer (as specified in such Officers' Certificate), and
the denominator of which is $50.0 million, MULTIPLIED by (B) the absolute
value of the difference between the numbers set forth opposite such period in
columns I and II below (such ratio to be confirmed by Borrower by a notice
distributed to each Lender within 30 days after consummation of the Change of
Control Offer).
<PAGE>
-102-
<TABLE>
<CAPTION>
Period Column I Column II
------ -------- ---------
<S> <C> <C>
Consummation of Change of
Control Offer - 3/31/99 1.90 2.20
4/1/99 - 9/30/99 2.00 2.35
10/1/99 - 3/31/00 2.10 2.50
4/1/00 - 9/30/00 2.20 2.65
10/1/00 - 3/31/01 2.30 2.85
4/1/01 - 9/30/01 2.50 3.30
10/1/01 - 3/31/02 2.75 3.75
4/1/02 - 9/30/02 3.20 4.25
10/1/02 - 3/31/03 3.50 4.75
4/1/03 - 9/30/03 3.75 4.75
10/1/03 and thereafter 4.00 5.00
</TABLE>
(c) MINIMUM FIXED CHARGE COVERAGE RATIO. The Fixed Charge
Coverage Ratio shall not, as of any Test Date during the period from the
Closing Date until the date of the consummation of the Change of Control
Offer, be less than the ratio of 1.25. On and after the date of consummation
of the Change of Control Offer, the Fixed Charge Coverage Ratio shall not, as
of any Test Date during any period set forth in the table below, be less than
(i) if $50.0 million or less in aggregate principal amount of the Existing
Notes are purchased by Borrower in the Change of Control Offer (as specified
in the Officers' Certificate delivered pursuant to Section 9.01(o)), the
ratio set forth opposite such period in column I of the table below, (ii) if
$100.0 million in aggregate principal amount of the Existing Notes are
purchased by Borrower in the Change of Control Offer (as specified in such
Officers' Certificate)), the ratio set forth opposite such period in column
II of the table below, and (iii) if more than $50.0 million but less than
$100.0 million of the Existing Notes are purchased by Borrower in the Change
of Control Offer (as specified in such Officers' Certificate), the ratio
equal to (x) the ratio set forth opposite such period in column I of the
table below PLUS (y) the product of (A) a fraction, the numerator of which is
the aggregate principal amount of Existing Notes in excess of $50.0 million
purchased by Borrower in the Change of Control Offer (as specified in such
Officers' Certificate or if no such Officers' Certificate is so delivered),
and the denominator of which is $50.0 million, MULTIPLIED by (B) the absolute
value of the difference between the numbers set forth opposite such period in
columns I and II below (such ratio to be confirmed by Borrower by a notice
distributed to each lender within 30 days after consummation of the Change of
Control Offer).
<PAGE>
-103-
<TABLE>
<CAPTION>
Period Column I Column II
------ -------- ---------
<S> <C> <C>
Consummation of Change of
Control Offer - 3/31/99 1.25 1.40
4/1/99 - 9/30/99 1.30 1.50
10/1/99 - 3/31/00 1.40 1.60
4/1/00 - 9/30/00 1.50 1.70
10/1/00 - 3/31/01 1.60 1.80
4/1/01 - 9/30/01 1.70 1.95
10/1/01 - 3/31/02 1.75 2.10
4/1/02 - 9/30/02 1.90 2.30
10/1/02 - 3/31/03 2.00 2.50
4/1/03 - 9/30/03 2.15 2.80
10/1/03 - 3/31/04 2.30 3.10
4/1/04 - 9/30/04 2.70 3.50
10/1/04 and thereafter 3.00 3.80
</TABLE>
(d) CAPITAL EXPENDITURES. Borrower shall not permit the aggregate
amount of Capital Expenditures made by Borrower and the Subsidiaries to
exceed (a) $1.75 million in the aggregate for the period from the Closing
Date until December 31, 1998, (b) $7.0 million in the aggregate for the
fiscal year ended December 31, 1999, (c) $7.5 million in the aggregate for
the fiscal year ended December 31, 2000, (d) $8.0 million in the aggregate
for the fiscal year ended December 31, 2001 and (e) $10.0 million in the
aggregate for the fiscal year ended December 31, 2002 and for any fiscal year
of Borrower thereafter; PROVIDED, HOWEVER, that (x) if the aggregate amount
of Capital Expenditures for any fiscal year shall be less than the amount
permitted for such fiscal year (before giving effect to any carryover), then
the shortfall may be added to the amount of Capital Expenditures permitted
for the immediately succeeding (but not any other) fiscal year if the amount
expended in such fiscal year would not exceed 125% of the amount permitted
for such fiscal year (before any carryover) and (y) in determining whether
any amount is available for carryover, the amount expended in any fiscal year
shall first be deemed to be from the amount allocated to such year before any
carryover.
9.12. PLEDGE OR MORTGAGE OF ADDITIONAL COLLATERAL. (a) Promptly,
and in any event within 30 days, after the acquisition of any Property of the
type that would have constituted Collateral at the Closing Date (including
the Equity Interests of any Subsidiary hereafter created or acquired owned
directly by Borrower or any Qualified Subsidiary) other than Real Property
(the "ADDITIONAL COLLATERAL") and after the creation or acquisition of any
Wholly Owned Subsidiary or other Subsidiary (so long as such creation or
acquisition is by Borrower or any Qualified Subsidiary), each Obligor shall
take all action reasonably necessary or desirable, if any, including the
execution and delivery of all such agreements, assignments, documents,
registers and instruments (including amendments to the Credit Documents) and
the filing of appropriate financing statements or other documents under the
provisions of the UCC or applicable requirements of any Governmental
Authority in each of the offices where such filing is necessary or
appropriate, to grant (in the reasonable judgment of Administrative Agent or
the Majority Lenders) to the Administrative Agent for the benefit of the
Issuing Lender, Lenders and Agents a duly perfected first priority Lien on
such Property pursuant to the appropriate Security Documents subject to Prior
Liens permitted under Section 9.07(g) or (h); PROVIDED,
<PAGE>
-104-
HOWEVER, that not more than 65% of the capital stock of any Foreign
Subsidiary (limited to "first-tier" Foreign Subsidiaries) need be pledged.
In the event that, after the Closing Date, any Obligor (including
any Qualified Subsidiary created or acquired on or after the Closing Date)
acquires or holds an interest with a market or book value of $2.0 million or
more in any Real Property, such Obligor shall (i) take such actions and
execute such documents as the Administrative Agent shall reasonably require
to confirm the Lien of an existing Mortgage, if applicable, or to create a
new Mortgage on such additional Real Property and (ii) cause to be delivered
to the Administrative Agent, on behalf of the Lenders, the documents and
instruments reasonably requested by the Administrative Agent, including,
without limitation, the items set forth in Section 7.01 in respect of
Mortgaged Real Property. If requested by the Lead Arranger or the Majority
Lenders, Borrower shall obtain at its sole expense and as soon as practicable
but in any event not later than 45 days after request therefor, Phase 1
environmental reports from an environmental engineering firm reasonably
acceptable to the Lead Arranger with respect to any Real Property held by any
Company if not delivered on or prior to the Closing Date.
The costs of all actions taken by the parties in connection with
the pledge of Additional Collateral or in connection with any Mortgage,
including reasonable costs of counsel for the Administrative Agent, shall be
paid by the Obligors promptly following written demand.
(b) With respect to each Mortgaged Real Property set forth in
SCHEDULE 7.01(XX), the Obligors shall deliver a Survey to the Administrative
Agent, on behalf of the Lenders, on or prior to the 30th day after the
Closing Date.
9.13. SECURITY INTERESTS; FURTHER ASSURANCES. Each Obligor shall,
promptly, upon the reasonable request of the Administrative Agent or any
Lender, at Borrower's expense, execute, acknowledge and deliver, or cause the
execution, acknowledgment and delivery of, and thereafter register, file or
record, or cause to be registered, filed or recorded, in an appropriate
governmental office, any document or instrument supplemental to or
confirmatory of the Security Documents or otherwise deemed by the
Administrative Agent reasonably necessary or desirable for the continued
validity, perfection and priority of the Liens on the Collateral covered
thereby, or obtain any consents, including, without limitation, landlord or
similar lien waivers and consents, as may be reasonably necessary or
appropriate in connection therewith.
Each Obligor shall deliver or cause to be delivered to the
Administrative Agent from time to time such other documentation, consents,
authorizations, approvals and orders in form and substance reasonably
satisfactory to the Administrative Agent as the Administrative Agent shall
reasonably deem necessary to perfect or maintain the Liens on the Collateral.
If any Lender determines in good faith that it is required by any
Governmental Authority or any Requirement of Law to obtain appraisals as to
the market value of any Real Property constituting Collateral, Borrower shall
obtain such appraisals as soon as practicable but in any event not less than
60 days after request therefor, at the sole cost and expense of Borrower and
in confor-
<PAGE>
-105-
mity with the requirements of such Governmental Authority and all
Requirements of Law, as from time to time in effect.
If an Event of Default shall have occurred and be continuing, upon
the reasonable request of the Administrative Agent, Borrower will obtain and
deliver to the Administrative Agent appraisal reports in form and substance
and from appraisers satisfactory to the Administrative Agent, stating (a) the
then current fair market, orderly liquidation and forced liquidation values
of all or any portion of the equipment or real estate owned by any Company
and (b) the then current business value of each Company. All such appraisals
shall be conducted and made at the reasonable expense of the Borrower.
Upon the exercise by the Administrative Agent or the Lenders of any
power, right, privilege or remedy pursuant to any Credit Document which
requires any consent, approval, registration, qualification or authorization
of any Governmental Authority, each Obligor shall execute and deliver all
applications, certifications, instruments and other documents and papers that
the Administrative Agent or the Lenders may be so required to obtain.
9.14. COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) Each Company shall
comply with all Environmental Laws, and will keep or cause all Property to be
kept free of any Liens under Environmental Laws, unless failure to do so
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or subject any Agent, Lender or Issuing Lender to any
material risk of damages or liability; (b) in the event of the presence of
any Hazardous Material at, on, under or emanating from any Real Property
which would reasonably be expected to result in liability under or a
violation of any Environmental Law, in each case which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect, each Company shall undertake, and/or use their best efforts to cause
any of their respective tenants or occupants to undertake, at no expense to
any Lender, any action required pursuant to Environmental Laws to mitigate
and eliminate such adverse effect; PROVIDED, HOWEVER, that no Company shall
be required to comply with any order or directive of a Governmental Authority
which is being contested in good faith and by proper proceedings so long as
it has maintained adequate reserves with respect to such compliance to the
extent required in accordance with GAAP; (c) each Company shall promptly
notify the Administrative Agent of the occurrence of any event specified in
clause (b) of this Section 9.14 and shall periodically thereafter keep the
Administrative Agent informed of any material actions taken in response to
such event and the results of such actions; and (d) at the written request of
the Administrative Agent at any time and from time to time, each Obligor will
provide, at such Obligor's sole cost and expense, an environmental site
assessment (including, without limitation, the results of any groundwater or
other testing, conducted if the Administrative Agent directs that such
testing be conducted) concerning any Real Property now or hereafter owned,
leased or operated by any Company, conducted by an environmental consulting
firm proposed by such Obligor and approved by the Administrative Agent
indicating the presence or absence of Hazardous Materials and the potential
cost of any required investigation or other response or any corrective action
in connection with any Hazardous Materials on, at, under or emanating from
such Real Property and the potential cost of any required investigation,
response or corrective action to address any such Hazardous Materials;
PROVIDED, HOWEVER, that such request may be made only if (a) there has
occurred and is continuing an Event of
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Default, (b) the Administrative Agent reasonably believes that any Company or
any such Real Property or operations are not in material compliance with
Environmental Law or (c) circumstances exist that reasonably could be
expected to form the basis of an Environmental Claim against such Company or
any such Real Property which could, individually or in the aggregate, have a
Material Adverse Effect. If any Obligor fails to provide the same within 60
days after such request was made, the Administrative Agent may but is under
no obligation to conduct the same, and such Obligor shall grant and hereby
grants to the Administrative Agent and its agents access to such Real
Property and specifically grants the Administrative Agent an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment, all at such Obligor's sole cost and expense.
9.15. LIMITATION ON TRANSACTIONS WITH AFFILIATES. No Company
shall, directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property, the rendering of any service, or a merger or consolidation) with or
for the benefit of any Affiliate (an "AFFILIATE TRANSACTION") unless such
Affiliate Transaction is (i) otherwise not prohibited under this Agreement;
(ii) in the ordinary course of such Company's business, and (iii) on fair and
reasonable terms that are not less favorable to such Company than those that
are reasonably obtainable at the time in an arm's-length transaction with a
Person that is not such an Affiliate; PROVIDED, HOWEVER, that, other than
with respect to clauses (b) or (f) of this Section 9.15, so long as no
Default under Section 10(a), (e), (f), (g) or (j) or Section 10(d) arising by
virtue of a default in the performance of any obligation in Section 9.05,
9.06, 9.07, 9.08, 9.09, 9.10, 9.15, 9.25 or 9.28 shall have occurred and be
continuing or would arise therefrom, the following shall be permitted: (a)
Dividend Payments permitted by Section 9.10; (b) reasonable fees and
compensation paid to, and customary indemnity and reimbursement provided on
behalf of, officers, directors and employees of any Company in the ordinary
course of business; (c) loans or advances to employees permitted by Section
9.09; (d) transactions and agreements contemplated by the Management
Agreement and any amendments thereof permitted by Section 9.17 (including any
payment of accrued fees thereunder for any prior period during which the
payment thereof was not permitted by this Section 9.15); (e) transactions and
agreements in respect of any registration rights agreement permitted by the
proviso to Section 9.25(b); (f) transactions and agreements pursuant to and
payments under the Tax Sharing Agreement and any amendments thereof permitted
by Section 9.27; or (g) transactions and agreements in existence on the
Closing Date and described with particularity in SCHEDULE 9.15 (as such
agreements are in effect on the Closing Date, the "EXISTING AFFILIATE
AGREEMENTS") and the transactions pursuant to the Existing Affiliate
Agreements; PROVIDED, FURTHER, HOWEVER, so long as any Default under Section
10(d) arising by virtue of a default in the performance of any obligation in
Section 9.11 has not been cured or waived and Borrower shall not subsequently
be in compliance therewith in each case within 90 days after the occurrence
thereof, payments pursuant to management agreements described in clause (d)
of this Section 9.15 shall only be permitted in an amount equal to 50% of the
amount then due (other than any accrued and unpaid portion) provided for
therein as in effect on the Closing Date and the remaining 50% shall be
permitted to (and shall) accrue thereunder on a subordinated basis.
9.16. LIMITATION ON ACCOUNTING CHANGES; LIMITATION ON INVESTMENT
COMPANY STATUS. No Company shall make or permit, any change in (i)
accounting policies or reporting practices, except immaterial changes and
except as required by GAAP or (ii) its fiscal year end (December 31 of each
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year). No Obligor shall be or become an investment company subject to the
registration requirements under the United States Investment Company Act of
1940, as amended.
9.17. LIMITATION ON MODIFICATIONS OF CERTAIN DOCUMENTS, ETC. No
Company shall, directly or indirectly, consent to any modification,
supplement or waiver of, or amend, in any manner which could reasonably be
expected to be materially adverse to the Lenders, any of the provisions of
any Organic Document. No material change that could reasonably be expected
to be adverse to the Lenders may be made to the Merger Agreement, the
Contribution Agreements, the Investor Debt Securities Documents, the Existing
Notes Indenture, the Management Agreement, in each case without the consent
of the Lead Arranger and the Majority Lenders and, in the case of the
Investor Escrow Agreement, the Majority Tranche C Term Loan Lenders.
9.18. INTEREST RATE PROTECTION AGREEMENTS. Borrower shall obtain,
on or within 90 days after the Closing Date, interest rate protection
agreements having terms and with counterparties reasonably satisfactory to
the Lead Arranger as shall result in at least 50% of the aggregate principal
amount of then outstanding Total Debt of Borrower (as of the next Business
Day after the consummation of the Change of Control Offer) either bearing
interest at a fixed rate or being hedged for a period of at least three years
from the date the initial interest rate protection agreements were obtained.
9.19. LIMITATION ON CERTAIN RESTRICTIONS AFFECTING SUBSIDIARIES.
No Company (other than a Foreign Subsidiary) shall, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any direct
or indirect encumbrance or restriction on the ability of such Company to (a)
pay dividends or make any other distributions on such Company's Equity
Interests or any other interest or participation in its profits owned by any
other Company, or pay any Indebtedness or any other obligation owed to any
other Company, (b) make Investments in or to any other Company, or (c)
transfer any of its Property to any other Company. The foregoing shall not
prohibit (i) any such encumbrances or restrictions existing under or by
reason of (A) applicable law, (B) the Credit Documents, (C) the Investor Debt
Securities Documents as in effect on the date hereof, (D) the Existing Notes
Indenture as in effect on the date hereof and (E) any Permitted Refinancing
of the Investor Debt Securities Documents or the Existing Notes Indenture so
long as such restriction in such Permitted Refinancing is not more
disadvantageous to the Lenders or Borrower than the Investor Debt Securities
Documents or Existing Notes Indenture, as applicable, as in effect on the
date hereof, (ii) restrictions on the transfer of assets subject to a Lien
permitted under Section 9.07, (iii) customary restrictions on subletting or
assignment of any lease governing a leasehold interest of any Company, and
(iv) with respect to restrictions described in clause (c) only, restrictions
on the transfer of any Property subject to a Disposition permitted under this
Agreement.
9.20. ADDITIONAL OBLIGORS. Upon any Obligor creating or acquiring
any Wholly Owned Subsidiary (other than a Foreign Subsidiary) after the
Closing Date (each such Wholly Owned Subsidiary referred to herein as an
"ADDITIONAL OBLIGOR" and collectively as the "ADDITIONAL OBLIGORS"), Borrower
shall (i) cause each such Wholly Owned Subsidiary to execute and deliver all
such agreements, guarantees, documents and certificates (including any
amendments to the Credit Documents and a Joinder Agreement) as the
Administrative Agent may reasonably request and do such other acts and things
as the Administrative Agent may reasonably request in order to have such
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Wholly Owned Subsidiary guarantee the Obligations in accordance with the
terms of the Credit Documents, (ii) promptly (I) execute and deliver to the
Administrative Agent such amendments to the Security Documents as the
Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first
priority security interest in the Equity Interests and debt securities of
such new Wholly Owned Subsidiary which are owned by Borrower or any Wholly
Owned Subsidiary and required to be pledged pursuant to the Security
Agreement, (II) deliver to the Administrative Agent the certificates
representing such Equity Interests and debt securities, together with (A) in
the case of such Equity Interests, undated stock powers endorsed in blank,
and (B) in the case of such debt securities, endorsed in blank, in each case
executed and delivered by a responsible officer of Borrower or such
Subsidiary, as the case may be, (III) cause such new Wholly Owned Subsidiary
to take such actions necessary or advisable to grant to the Administrative
Agent for the benefit of the Lenders a perfected first priority security
interest in the collateral described in the Security Agreement with respect
to such new Wholly Owned Subsidiary (subject to Prior Liens, if any),
including, without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Security
Agreement or by law or as may be reasonably requested by the Administrative
Agent, and (IV) if reasonably requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
9.21. LIMITATION ON DESIGNATION OF DESIGNATED SENIOR INDEBTEDNESS.
Borrower shall not, nor shall it permit any Subsidiary to, designate any
Indebtedness or other obligation, other than Indebtedness under the Credit
Documents, as "Designated Senior Indebtedness," as such term is defined in
the Existing Notes Indenture as in effect on the Closing Date or any
Permitted Refinancing thereof, or any comparable designation that confers
upon the holders of such Indebtedness or other obligation (or any Person
acting on their behalf) the right to initiate blockage periods under the
Existing Notes Indenture or any other Indebtedness or other obligation of the
Borrower and its Subsidiaries.
9.22. FOREIGN SUBSIDIARIES' SECURITY. If following a change in
the relevant sections of the Code or the regulations, rules, rulings, notices
or other official pronouncements issued or promulgated thereunder, counsel
for Borrower reasonably acceptable to the Administrative Agent does not
within 30 days after a request from the Administrative Agent or the Majority
Lenders deliver evidence, in form and substance mutually satisfactory to the
Administrative Agent and Borrower, with respect to any Foreign Subsidiary
which has not already had all of its stock pledged pursuant to the Security
Agreement that (i) a pledge of 65% or more of the total combined voting power
of all classes of capital stock of such Foreign Subsidiary entitled to vote
and (ii) the entering into by such Foreign Subsidiary of a Joinder Agreement,
in any such case could reasonably be expected to cause the undistributed
earnings of such Foreign Subsidiary as determined for Federal income tax
purposes to be treated as a deemed dividend to such Foreign Subsidiary's
United States parent for Federal income tax purposes, then in the case of a
failure to deliver the evidence described in clause (i) above, that portion
of such Foreign Subsidiary's outstanding capital stock so issued by such
Foreign Subsidiary and not theretofore pledged pursuant to the Security
Agreement shall be pledged to the Administrative Agent for the benefit of the
Lenders pursuant to the Security Agreement (or another security agreement in
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substantially similar form, if needed), and in the case of a failure to
deliver the evidence described in clause (ii) above, such Foreign Subsidiary
shall execute and deliver a Joinder Agreement, guaranteeing the Obligations
of Borrower under the Loan Documents and granting the Administrative Agent
for the benefit of the Lenders a security interest in all of such Foreign
Subsidiary's assets securing the Obligations of such Foreign Subsidiary under
its Guarantee, in each case to the extent that the entering into of such
Joinder Agreement is permitted by the laws of the respective foreign
jurisdiction and with all documents delivered pursuant to this Section 9.22
to be in form and substance reasonably satisfactory to the Administrative
Agent.
9.23. LIMITATION ON ACTIVITIES OF PARENT AND ATRIUM HOLDINGS.
Neither Parent nor Atrium Holdings shall conduct any business, incur any
obligations (other than the Credit Documents and corporate overhead
(including, without limitation, fees and expenses incidental to an initial
public offering) and, in the case of Atrium Holdings, the Investor Debt
Securities Documents and Indebtedness permitted by Section 9.08(c)(z)) or
hold or acquire any assets (other than (i) the Equity Interests of, (x) in
the case of Parent, Atrium Holdings and (y) in the case of Atrium Holdings,
Borrower and (ii) in the case of Atrium Holdings, cash in an amount not to
exceed $1.0 million at any time) and shall have no operations other than
holding such Equity Interests and activities reasonably related thereto.
9.24. LIMITATION ON ISSUANCE OR DISPOSITIONS OF EQUITY INTERESTS
OF COMPANIES. Borrower shall not issue any of its Equity Interests or Equity
Rights or permit any Person to own any of its Equity Interests or Equity
Rights other than Atrium Holdings or any parent or indirect parent thereof.
Atrium Holdings shall not, directly or indirectly, effect any Disposition of
any Equity Interests or Equity Rights of Borrower other than the pledge
thereof pursuant to the Security Agreement. No Company shall effect the
Disposition of any Equity Interests of any Subsidiary unless (i) all Equity
Interests owned by such Company are sold pursuant thereto in accordance with
the Credit Documents, upon which sale the Guarantee of such Subsidiary shall
be automatically deemed to be released, or (ii) an Investment in an amount
equal to the fair market value of the remaining Equity Interests owned by
such Company in such Subsidiary after giving effect to such Disposition would
have been permitted to be made at such time pursuant to Section 9.09 (at the
time of such sale an Investment shall be deemed made in such Subsidiary in an
amount equal to the fair market value of such Equity Interests).
9.25. LIMITATION ON PAYMENTS OR PREPAYMENTS OF INDEBTEDNESS OR
MODIFICATION OF DEBT DOCUMENTS. No Company shall, directly or indirectly:
(a) make any payment or prepayment (optional or otherwise) on or
redemption of or any payments in redemption, defeasance or repurchase (any
such action, a "RESTRICTED DEBT PAYMENT") of the Investor Debt Securities,
any Existing Notes or any Subordinated Debt (whether in cash, securities
or other Property), except (1) regularly scheduled mandatory payments of
interest, (2) (x) any Restricted Debt Payment with respect to the Existing
Notes pursuant to the Change of Control Offer and (y) so long as no
Default has occurred and is continuing or would arise therefrom, such
repurchase is at a price not in excess of the then applicable redemption
price in the Existing Notes Indenture and such Existing Notes are
can-
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celled upon repurchase, any Restricted Debt Payment with respect to the
Existing Notes out of the then existing amount of the Borrower Portion of
Excess Cash Flow to the extent that, immediately prior to such repayment
and after giving pro forma effect to any Revolving Credit Loans made to
fund such repayment, the Total Leverage Ratio as of the most recently
completed fiscal quarter for which financial statements have been
delivered pursuant to Section 9.01(a) or (b) is less than 2.75:1.0;
PROVIDED, HOWEVER, that on and after the consummation date of the Change
of Control Offer, so long as less than $50.0 million in aggregate
principal amount of the Existing Notes are purchased by Borrower in the
Change of Control Offer, references in this paragraph (a)(2)(y) to "Total
Leverage Ratio" shall be deemed to be references to "Senior Leverage
Ratio", (3) any Permitted Refinancing to the extent permitted hereunder,
(4) any Restricted Debt Payment with respect to the Investor Debt
Securities (x) to the extent permitted by Section 9.10(d), (y) so long as
no Default has occurred and is continuing or would arise therefrom, with
the then available amount of the Designated Equity Issuance Proceeds but
not to exceed $20.0 million and (z) so long as no Default has occurred and
is continuing or would arise therefrom, out of that portion of the Net
Available Proceeds from any Equity Issuance not required to be applied to
the Loans and the Commitments pursuant to Section 2.10(a)(ii), in each
case of such clause (x), (y) or (z) so long as such repayment or
repurchase is at a price not in excess of that provided for in the
Investor Debt Securities Documents applicable at such time and such
Investor Debt Securities are cancelled and (5) the conversion or exchange
of any Indebtedness into shares of common Equity Interests of Parent; or
(b) amend, supplement, waive or otherwise modify any of the
provisions of any Investor Debt Securities Document or the Existing Notes
Indenture or the Existing Notes or any Subordinated Debt (or any Permitted
Refinancing thereof):
(i) which shortens the fixed maturity, or increases the rate
or shortens the time of payment of interest or dividends on, or
increases the amount or shortens the time of payment of any
principal, liquidation preference or premium payable whether at
maturity, at a date fixed for prepayment or by acceleration or
otherwise of such Indebtedness, or increases the amount of, or
accelerates the time of payment of, any fees payable in connection
therewith;
(ii) which relates to the affirmative or negative covenants,
events of default, redemption or repurchase provisions, or remedies
under the documents or instruments evidencing such Indebtedness and
the effect of which is to subject any Company to any more onerous or
more restrictive provisions taken as a whole; or
(iii) which otherwise materially adversely affects the interests
of the Lenders as senior creditors or the interests of the Lenders
under this Agreement or any other Credit Document in any respect;
PROVIDED, HOWEVER, that the foregoing shall not prohibit (i) any amendment,
supplement or other modification of any Investor Debt Securities Document to
the extent that such amended, supplemented or modified Investor Debt Security
Document is not materially more onerous taken as a whole to Atrium
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Holdings and its Subsidiaries and the Lenders than the Existing Notes
Indenture taken as a whole (as in effect on the date hereof as if Atrium
Holdings were the issuer thereunder and the Investor Debt Securities were
issued and outstanding as of the date of the Existing Notes Indenture and
whether or not the Existing Notes Indenture is in effect on the date of such
amendment, supplement or waiver) (provided that if such amended, supplemented
or modified Investor Debt Document is less onerous to Atrium Holdings and its
Subsidiaries and the Lenders than such Investor Debt Security Document on the
date hereof, the foregoing clause (i) shall be satisfied) and (ii) the
entering into by Atrium Holdings of a registration rights agreement providing
for registration rights with respect to the Investor Debt Securities
customary for an offering of securities exempt from registration pursuant to
Rule 144A under the Securities Act in form and substance satisfactory to the
Lead Arranger.
9.26. CASUALTY AND CONDEMNATION. Each Obligor will furnish to the
Administrative Agent and the Lenders prompt written notice of any casualty or
other insured damage to any material portion of the Collateral or the
commencement of any action or proceeding for the taking of any material
portion of the Collateral or any part thereof or interest therein under power
of eminent domain or by condemnation or similar proceeding.
9.27. TAX SHARING ARRANGEMENTS. Neither Parent nor any Company
shall enter into or permit to exist any amendment to the Tax Sharing
Agreement or any other tax sharing agreement or similar arrangement unless
the same shall have been reviewed by, and consented to, by the Lead Arranger
and the Majority Lenders.
9.28. CHANGE OF CONTROL OFFER. (a) On a date not later than the
fifth succeeding Business Day after the Closing Date, Borrower shall commence
the Change of Control Offer pursuant to the Change of Control Offer
Documents, which shall be substantially identical to the Change of Control
Offer Documents provided to the Lenders pursuant to Section 7.01(i)(11).
Borrower shall comply with all terms of the Existing Notes Indenture and
applicable laws in connection with the Change of Control Offer.
(b) Unless consented to by the Lead Arranger, the Majority Lenders
and the Majority Tranche C Term Loan Lenders, the consummation date of the
Change of Control Offer shall not be later than the 30th day after the date
of commencement of the Change of Control Offer, except as otherwise required
by applicable law, rule or regulation.
(c) Borrower shall not amend or supplement the Change of Control
Offer without the prior written consent of the Lead Arranger and Majority
Lenders and the Majority Tranche C Term Loan Lenders, except as otherwise
required by applicable law, rule or regulation.
Section 10. EVENTS OF DEFAULT. If one or more of the following
events (herein called "EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) Borrower shall default in the payment when due (whether at
stated maturity upon prepayment or repayment or acceleration or otherwise)
of any principal of any Loan or Reimbursement Obligation, or (ii) Borrower
shall default in the payment when due of interest on any Loan or any
Reimbursement Obligation or any fee or any other amount payable by it
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hereunder or under any other Credit Document when due and such default
under this clause (ii) shall have continued unremedied for three or more
Business Days; or
(b) Any Company shall default in the payment when due of any
principal of or interest on any of its Indebtedness (other than the Loans)
aggregating $3.5 million or more, beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created, after giving effect to any consents or waivers relating thereto
obtained before the expiration of any such period of grace; or any event
specified in any note, agreement, indenture or other document evidencing
or relating to any Indebtedness aggregating $3.5 million or more if the
effect of such event (after giving effect to any consents or waivers
relating thereto obtained before the expiration of any such period of
grace) is to cause, or (with the giving of any notice or the lapse of time
or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity; PROVIDED, HOWEVER, that the $3.5 million threshold in this
paragraph (b) shall be increased to $5.0 million so long as no Company has
outstanding any Indebtedness that would permit any holder thereof to
declare such Indebtedness due and payable prior to its stated maturity
upon the occurrence of a default or event of default with respect to any
one or more issues of other Indebtedness of any Company aggregating $6.0
million or less; or
(c) Any representation or warranty made or deemed made in any Credit
Document (or in any modification or supplement thereto) by any Obligor or
in any certificate furnished to any Creditor pursuant to the provisions
thereof, shall prove to have been false or misleading as of the time made,
deemed made or furnished in any material respect; or
(d) Any Obligor shall default in the performance of any of its
obligations under any of Sections 9.01(f), 9.06 through 9.13, 9.15 through
9.25, 9.27 and 9.28; or any Obligor shall default in the performance of
any of its obligations under Section 5.02 of the Security Agreement; or
Borrower shall default in the performance of its obligations under Section
9.01(e) or (k) and such default shall continue unremedied for five
Business Days; or any Obligor shall default in the performance of any of
its other obligations in this Agreement, the Security Documents or the
Letter of Credit Documents and such default shall continue unremedied for
a period of thirty days after written notice thereof to such Obligor or
Borrower by the Administrative Agent or any Lender; or
(e) Any Company shall not, or shall admit in writing its inability
to, or be generally unable to, pay its debts as such debts become due; or
(f) Any Company or Parent shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
Property, (ii) make a general assignment for the benefit of its creditors,
(iii) commence or consents to any Insolvency Proceeding, (iv) file a
petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or
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composition or readjustment of debts, (v) fail to controvert within 60
days or in a timely and appropriate manner, or acquiesce in writing to,
any petition filed against it in an involuntary Insolvency Proceeding,
or (vi) take any corporate action for the purpose of effecting any of
the foregoing; or
(g) (i) Any Insolvency Proceeding is commenced or filed against any
Company or Parent, or any writ, judgment, warrant of attachment, execution
or similar process is issued or levied against any Company or Parent, and
either (1) such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall
not be released, vacated or fully bonded, within 60 days after
commencement, filing or levy or (2) such proceeding shall not be actively
contested by such Company; (ii) any Company or Parent admits the material
allegations of a petition against it in any Insolvency Proceeding, or an
order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; (iii) any Company or Parent acquiesces in the
appointment of a receiver, receiver and manager, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor), or
other similar person for itself or a substantial portion of its Property
or business; or (iv) an order of relief against any Company shall be
entered in any involuntary Insolvency Proceeding; or
(h) A final judgment or judgments for the payment of money in excess
of $3.5 million in the aggregate (exclusive of judgment amounts to the
extent covered by insurance) shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Company and the same shall not be discharged (or provision shall not be
made for such discharge), vacated or bonded pending appeal, or a stay of
execution thereof shall not be procured, within 60 days from the date of
entry thereof and such Company shall not, within said period of 60 days,
or such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; PROVIDED, HOWEVER, that the $3.5 million threshold in
this paragraph (h) shall be increased to $5.0 million so long as no
Company has outstanding any Indebtedness that would permit any holder
thereof to declare such Indebtedness due and payable prior to its stated
maturity upon the occurrence of any judgment rendered by one or more
courts, administrative tribunals or bodies having jurisdiction against any
Company for the payment of money of $6.0 million or less in the aggregate;
or
(i) An ERISA Event or noncompliance with respect to foreign plans
shall have occurred that, when taken together with all other ERISA Events
and noncompliance with respect to foreign plans that have occurred, is
reasonably likely to result in liability of any Company in an aggregate
amount exceeding $5.0 million; or
(j) Any Change of Control shall occur; or
(k) Any Security Document after delivery thereof by any Obligor at
any time shall cease to be in full force and effect or shall for any
reason fail to create or cease to maintain a valid and duly perfected
first priority security interest in and Lien upon (subject to Prior Liens
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and other Liens expressly permitted by the terms of the applicable
Security Document) any material portion of the Collateral; or
(l) Any Guarantee ceases to be in full force and effect or any of
the Guarantors repudiates or attempts to repudiate, any of its obligations
under any of the Guarantees; or
(m) Any Credit Document or any material provision thereof shall at
any time and for any reason be declared by a court of competent
jurisdiction to be null and void, or a Proceeding shall be commenced by
any Obligor, or by any Governmental Authority, seeking to establish the
invalidity or unenforceability thereof (exclusive of questions of
interpretation of any provision thereof), or any Obligor shall repudiate
or deny that it has any liability or obligation for the payment of
principal or interest or other obligations purported to be created under
any Credit Document; or
(n) Any non-monetary judgment, order or decree is entered against
any Company which is reasonably likely to have a Material Adverse Effect,
and there shall be any period of 60 consecutive days during which a stay
of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(o) The Merger or Contributions shall not be consummated in all
material respects in accordance with this Agreement and the Merger
Agreement or Contribution Agreements, as applicable, substantially
concurrently with the making of the initial extensions of credit hereunder
or the Merger or Contributions shall be unwound, reversed or otherwise
rescinded in whole or in any material part for any reason; or
(p) The subordination provisions relating to the Existing Notes or
any other Subordinated Debt (the "SUBORDINATION PROVISIONS") shall fail in
any material respect to be enforceable by the Lenders (which have not
effectively waived the benefits thereof) in accordance with the terms
thereof, or any Obligation shall fail to constitute Senior Debt (as
defined in any Subordinated Debt), or any Obligor shall, directly or
indirectly, disavow or contest in any manner any of the Subordination
Provisions;
THEREUPON: (1) in the case of an Event of Default other than one referred to
in clause (f) or (g) with respect to Borrower of this Section 10, the
Administrative Agent may, and upon written direction of the Majority Lenders
shall, by notice to Borrower, terminate the Commitments and/or declare the
principal amount then outstanding of, and the accrued interest on, the Loans,
the Reimbursement Obligations and all other amounts payable by Borrower
hereunder and under the Notes (including any amounts payable under Section
5.05 or 5.06) to be forthwith due and payable, whereupon such amounts shall
be immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by
Borrower, reduce any claim to judgment, take any other action permitted by
law and/or take any action permitted to be taken by the Security Documents
during the existence of an Event of Default; and (2) in the case of the
occurrence of an Event of Default referred to in clause (f) or (g) of this
Section 10 with respect to Borrower, the Commitments shall automatically be
terminated and the principal amount then outstanding of, and the ac-
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crued interest on, the Loans, the Reimbursement Obligations and all other
amounts payable by Borrower hereunder and under the Notes (including any
amounts payable under Section 5.05 or 5.06) shall automatically become
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by Borrower.
In addition, Borrower agrees, upon the occurrence and during the
continuance of any Event of Default if the Administrative Agent has declared
the principal amount then outstanding of, and accrued interest on, the
Revolving Credit Loans, and all other amounts payable to the Revolving Credit
Lenders hereunder and under the Notes evidencing such Loans to be due and
payable, it may and shall, if requested by the Majority Revolving Credit
Lenders through the Administrative Agent (and, in the case of any Event of
Default referred to in clause (f) or (g) of this Section 10 with respect to
Borrower, forthwith, without any demand or the taking of any other action by
the Administrative Agent or such Lenders) provide cover for the Letter of
Credit Liabilities by paying to the Administrative Agent immediately
available funds in an amount equal to the then aggregate undrawn face amount
of all Letters of Credit, which funds shall be held by the Administrative
Agent in the Collateral Account as collateral security in the first instance
for the Letter of Credit Liabilities and be subject to withdrawal only as
provided in the Security Agreement.
Section 11. THE AGENTS.
11.01. GENERAL PROVISIONS. Each of the Lenders and the Issuing
Lender hereby irrevocably appoints the Administrative Agent as its agent and
authorizes the Administrative Agent to take such actions on its behalf and to
exercise such powers as are delegated to the Administrative Agent by the
terms hereof and the Security Documents, together with such actions and
powers as are reasonably incidental thereto. The Administrative Agent agrees
to give promptly to each Lender a copy of each notice or other document
received by it pursuant to any Credit Document (other than any that are
required to be delivered to the Lenders by any Credit Party).
The Lender or other financial institution serving as any Agent or
Issuing Lender hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though
it were not such Agent or Issuing Lender, and such bank and its Affiliates
may accept deposits from, lend money to and generally engage in any kind of
business with any Company or other Affiliate thereof as if it were not such
Agent or Issuing Lender hereunder.
No Agent or Issuing Lender shall have any duties or obligations
except those expressly set forth herein. Without limiting the generality of
the foregoing, (a) no Agent or Issuing Lender shall be subject to any
fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) no Agent or Issuing Lender shall have any
duty to take any discretionary action or exercise any discretionary powers,
except discretionary rights and powers expressly contemplated hereby that
such Agent or Issuing Lender is required to exercise in writing by the
Majority Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 12.04), and (c)
except as expressly set forth herein, no Agent or Issuing Lender shall have
any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to any Company that is communicated to or obtained
by the financial institution
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serving as such Agent or Issuing Lender or any of its Affiliates in any
capacity. No Agent or Issuing Lender shall be liable for any action taken or
not taken by it with the consent or at the request of the Majority Lenders
(or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 12.04) or in the absence of
its own gross negligence or willful misconduct. No Agent shall be deemed to
have knowledge of any Default or Event of Default unless and until written
notice thereof is given to the Administrative Agent and such Agent by
Borrower or a Lender, and no Agent or Issuing Lender shall be responsible for
or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other
Credit Document, (ii) the contents of any certificate, report or other
document delivered hereunder or under any other Credit Document or in
connection herewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth herein, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement or
any other Credit Document or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Section 7 or elsewhere
herein, other than to confirm receipt of items expressly required to be
delivered to such Agent.
Each Agent and Issuing Lender shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
believed by it to be genuine and to have been signed or sent by the proper
Person. Each Agent and Issuing Lender also may rely upon any statement made
to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon. Each Agent
and Issuing Lender may consult with legal counsel (who may be counsel for
Borrower), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or experts. Each Agent and
Issuing Lender may deem and treat the payee of any Note as the owner thereof
for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with such Agent or Issuing Lender.
Each Agent and Issuing Lender shall be fully justified in failing or refusing
to take any action under this Agreement or any other Credit Document unless
it shall first receive such advice or concurrence of the Majority Lenders
(or, if so specified by this Agreement, all Lenders) as it deems appropriate
or it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action (it being understood that this
provision shall not release the Administrative Agent from performing any
action with respect to Borrower expressly required to be performed by it
pursuant to the terms hereof) under this Agreement. Each Agent and Issuing
Lender shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Credit Documents in accordance
with a request of the Majority Lenders (or, if so specified by this
Agreement, all Lenders), and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Loans.
Each Agent and Issuing Lender may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by such Agent or Issuing Lender and reasonably acceptable to
Borrower. Each Agent, Issuing Lender and any such sub-agent may perform any
and all its duties and exercise its rights and powers through their
respective Affiliates, directors, officers, employees, agents and advisors
("RELATED PARTIES"). The exculpatory provi-
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sions of the preceding paragraphs shall apply to any such sub-agent and to
the Related Parties of each Agent and Issuing Lender and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as
activities of such Agent or Issuing Lender.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, any Agent may resign at any time by notifying the
Lenders, the Issuing Lender (with respect to the Administrative Agent only)
and Borrower. Upon any such resignation, the Majority Lenders shall have the
right to appoint a successor which, so long as no Event of Default is
continuing, shall be reasonably acceptable to Borrower. If no successor
shall have been so appointed by the Majority Lenders and shall have accepted
such appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders and the
Issuing Lender, appoint a successor Agent which shall be a bank with an
office in New York, New York, or an Affiliate of any such bank which, so long
as no Event of Default is continuing, shall be reasonably acceptable to
Borrower. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The
fees payable by Borrower to a successor Agent shall be the same as those
payable to its predecessor unless otherwise agreed between Borrower and such
successor. After the Agent's resignation hereunder, the provisions of this
Section 11 shall continue in effect for the benefit of such retiring Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as such Agent.
Each Lender acknowledges that it has, independently and without
reliance upon any Agent, Issuing Lender or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent,
Issuing Lender or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon this
Agreement, any related agreement or any document furnished hereunder or
thereunder. No Agent or Issuing Lender shall be deemed a trustee or other
fiduciary on behalf of any party.
11.02. INDEMNIFICATION. Each Lender agrees to indemnify and hold
harmless each Agent and the Issuing Lender (to the extent not reimbursed
under Section 12.03, but without limiting the obligations of Borrower under
Section 12.03), ratably in accordance with the aggregate principal amount of
the respective Commitments of and/or Loans and Reimbursement Obligations held
by the Lenders (or, if all of the Commitments shall have been terminated or
expired, ratably in accordance with the aggregate outstanding amount of the
Loans and Reimbursement Obligations held by the Lenders), for any and all
liabilities (including, without limitation, pursuant to any Environmental
Law), obligations, losses, damages, fines, penalties, actions, judgments,
deficiencies, suits, costs, expenses (including reasonable attorneys' and
experts' fees) or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against such Agent or Issuing Lender
(including by any Lender) arising out of or by reason of any investigation in
or in any way relating to or arising out of any Credit Document or any other
documents contemplated by or referred to therein for
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any action taken or omitted to be taken by such Agent or Issuing Lender under
or in respect of any of the Credit Documents or other such documents or the
transactions contemplated thereby (including the costs and expenses that
Borrower is obligated to pay under Section 12.03, but excluding, unless a
Default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents; PROVIDED, HOWEVER, that no Lender shall be liable for any of the
foregoing to the extent they are determined by a court of competent
jurisdiction in a final and nonappealable judgment to have resulted from the
gross negligence or bad faith of the party to be indemnified. The agreements
set forth in this Section 11.02 shall survive the payment of all Loans and
other obligations hereunder and shall be in addition to and not in lieu of
any other indemnification agreements contained in any other Credit Document.
11.03. CONSENTS UNDER OTHER CREDIT DOCUMENTS. Except as otherwise
provided in this Agreement and the other Credit Documents, the Administrative
Agent may, with the prior consent of the Majority Lenders (but not
otherwise), consent to any modification, supplement or waiver under any of
the other Credit Documents.
11.04. COLLATERAL SUB-AGENTS. Each Lender by its execution and
delivery of this Agreement agrees, as contemplated by Section 4.03 of the
Security Agreement, that, in the event it shall hold any Permitted
Investments referred to therein, such Permitted Investments shall be held in
the name and under the control of such Lender, and such Lender shall hold
such Permitted Investments as a collateral sub-agent for the Administrative
Agent thereunder. Borrower by its execution and delivery of this Agreement
hereby consents to the foregoing.
11.05. ASSISTANCE BY LENDERS. Each of the Lenders shall provide
full assistance and cooperation to the Administrative Agent and each Lender
hereby grants express and exclusive foreclosing and mortgage enforcement
authority to the Administrative Agent with respect to the Collateral.
Section 12. MISCELLANEOUS.
12.01. WAIVER. No failure on the part of any Creditor to exercise
and no delay in exercising, and no course of dealing with respect to, any
right, power or privilege under any Credit Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under any Credit Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
12.02. NOTICES. All notices, requests and other communications
provided for herein and under the Security Documents (including any
modifications of, or waivers, requests or consents under, this Agreement)
shall be given or made in writing (including by facsimile) delivered to the
intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof (or as to any Guarantor, as so specified for
Borrower) or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided
in this
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Agreement, all such communications shall be deemed to have been duly given
when transmitted by facsimile or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
Any Notice of Borrowing or Notice of Continuation/Conversion shall be deemed
to have been received when actually received.
12.03. EXPENSES, INDEMNIFICATION, ETC. (a) The Obligors, jointly
and severally, agree to pay or reimburse:
(i) the Issuing Lender, the Lead Arranger and the Administrative
Agent for all of their reasonable out-of-pocket costs and expenses
(including the reasonable fees and expenses of one legal counsel and one
legal counsel in each applicable locality) in connection with (1) the
negotiation, preparation, execution and delivery of the Credit Documents
and the extension of credit hereunder, (2) the negotiation or preparation
of any modification, supplement or waiver of any of the terms of any
Credit Document (whether or not consummated or effective) and (3) the
syndication of the Loans and Commitments;
(ii) each of the Lenders, the Issuing Lender and the Administrative
Agent for all reasonable out-of-pocket costs and expenses of the Lenders,
the Issuing Lender and the Administrative Agent (including the reasonable
fees and expenses of legal counsel) in connection with (1) any enforcement
or collection proceedings resulting from any Default, including all manner
of participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y)
judicial or regulatory proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction contemplated thereby is consummated), (2) the enforcement of
this Section 12.03 and (3) any documentary taxes; and
(iii) the Administrative Agent for all reasonable costs, expenses,
taxes, assessments and other charges incurred in connection with any
filing, registration, recording or perfection of any security interest
contemplated by any Credit Document or any other document referred to
therein.
(b) The Obligors, jointly and severally, hereby agree to indemnify
each Creditor and their respective Affiliates, directors, trustees, officers,
employees and agents (each, an "INDEMNITEE") from, and hold each of them
harmless against, and that no Indemnitee will have any liability for, any and
all Losses incurred by any of them (including any and all Losses incurred by
the Administrative Agent, the Lead Arranger or the Issuing Lender to any
Lender, whether or not any Creditor is a party thereto) directly or indirectly
arising out of or by reason of or relating to the negotiation, execution,
delivery, performance, administration or enforcement of any Credit Document,
any of the transactions contemplated by the Credit Documents, any breach by any
Obligor of any representation, warranty, covenant or other agreement contained
in any of the Credit Documents in connection with any of the Transactions, the
use or proposed use of any of the Loans or Letters of Credit, the issuance of
or performance under any Letter of Credit or the use of any collateral security
for the Loans (including the exercise by any Creditor of the rights and
remedies or any power of attorney with respect thereto and any action or
inaction in respect thereof), but excluding (i) any such Losses to the extent
finally de-
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termined by a court of competent jurisdiction in a final and nonappealable
judgment to have arisen primarily from the gross negligence or bad faith of
the Indemnitee and (ii) claims among the Agents and the Lenders other than to
the extent arising out of or as a result of any direct or indirect act or
omission of any Obligor or any Affiliate, director, officer, employee or
agent thereof.
Without limiting the generality of the foregoing, the Obligors,
jointly and severally, will indemnify each Creditor and each other Indemnitee
from, and hold each Creditor and each other Indemnitee harmless against, any
Losses described in the preceding sentence arising under any Environmental
Law as a result of (A) the past, present or future operations of any Company
(or any predecessor in interest to any Company), (B) the past, present or
future condition of any site or facility owned, operated, leased or used at
any time by any Company (or any such predecessor in interest), or (C) any
Release or threatened Release of any Hazardous Materials at, on, under or
from any such site or facility, including any such Release or threatened
Release that shall occur during any period when any Creditor shall be in
possession of any such site or facility following the exercise by such
Creditor of any of its rights and remedies hereunder or under any of the
Security Documents (except to the extent such release or threatened release
is caused by the actions of such Creditor); PROVIDED, HOWEVER, that the
indemnity hereunder shall be subject to the exclusions from indemnification
set forth in the preceding paragraph.
To the extent that the undertaking to indemnify and hold harmless
set forth in this Section 12.03 or any other provision of any Credit Document
providing for indemnification is unenforceable because it is violative of any
law or public policy or otherwise, the Obligors, jointly and severally, shall
contribute the maximum portion that each of them is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all
indemnified liabilities incurred by any of the Persons indemnified hereunder.
The Obligors also agree that no Indemnitee shall have any liability
(whether direct or indirect, in contract or tort or otherwise) for any Losses
to any Obligor or any Obligor's security holders or creditors resulting from,
arising out of, in any way related to or by reason of any matter referred to
in any indemnification or expense reimbursement provisions set forth in this
Agreement or any other Credit Document, except to the extent that any Loss is
determined by a court of competent jurisdiction in a final nonappealable
judgment to have resulted primarily from the gross negligence or bad faith of
such Indemnitee.
The Obligors agree that, without the prior written consent of the
Administrative Agent, the Lead Arranger and the Majority Lenders which
consent shall not be unreasonably withheld, no Obligor will settle,
compromise or consent to the entry of any judgment in any pending or
threatened Proceeding in respect of which indemnification is reasonably
likely to be sought under the indemnification provisions of this Section
12.03 (whether or not any Indemnitee is an actual or potential party to such
Proceeding), unless such settlement, compromise or consent includes an
unconditional written release of each Indemnitee from all liability arising
out of such Proceeding and does not include any statement as to an admission
of fault, culpability or failure to act by or on behalf of any Indemnitee and
does not involve any payment of money or other value by any Indemnitee or any
injunctive relief or factual findings or stipulations binding on any
Indemnitee.
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12.04. AMENDMENTS, ETC. (i) No provision of any Credit Document
may be amended, modified or supplemented except by an instrument in writing
signed by the Obligors party thereto and the Majority Lenders, or by the
Obligors party thereto and the Administrative Agent acting with the written
consent of the Majority Lenders, and no provision of any Credit Document may
be waived except by an instrument in writing signed by the Obligors party
thereto and the Majority Lenders, or by the Obligors party thereto and the
Administrative Agent acting with the written consent of the Majority Lenders;
PROVIDED, HOWEVER, that:
(a) no amendment or waiver shall, unless by an instrument signed by
all of the Lenders or by the Administrative Agent acting with the written
consent of each Lender (with Obligations directly affected in the case of
clause (I)): (I) extend the scheduled final maturity of any Loan or Note,
or extend the stated expiration date of any Letter of Credit beyond the
Revolving Credit Commitment Termination Date, or reduce the rate of
interest (other than any waiver of any increase in the interest rate
applicable to any of the Loans pursuant to clause (b) of Section 3.02) or
fees thereon, or extend the time of payment of interest or fees thereon,
or reduce the principal amount thereof, or make any change to the
definition of Applicable Margin or Applicable Revolving Credit Fee
Percentage, (II) extend the final maturity of any of the Commitments (or
reinstate any Commitment terminated pursuant to Section 10), (III) change
the currency in which any Obligation is payable, (IV) amend the terms of
this Section 12.04 or Section 4.07, 5 or 11.03, (V) reduce the percentages
specified in the definition of the term "Majority Lenders" or
"Supermajority Lenders" or amend any provision of any Credit Document
requiring the consent of all the Lenders or reduce any other percentage of
the Lenders required to make any determinations or waive any rights
hereunder or to modify any provision hereof (it being understood that,
with the consent of the Majority Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the
Majority Lenders and Supermajority Lenders without notice to or consent of
any other Lender or Agent on substantially the same basis as the
Commitments (and related extensions of credit) are included on the Closing
Date), (VI) release any Guarantor from its obligations under Section 6
(unless permitted by this Agreement), (VII) consent to the assignment or
transfer by any Obligor of any of its rights and obligations under any
Credit Document, (VIII) release all or substantially all the Collateral or
terminate the Lien under any Credit Document in respect of all or
substantially all the Collateral (except as permitted by the Credit
Documents) or agree to additional obligations (other than the Obligations
and other extensions of credit under this Agreement consented to by the
Majority Lenders) being secured by the Collateral, (IX) waive the
requirement that nine and twelve month LIBOR Interest Periods require the
consent of all Lenders or (X) amend Section 12.03 or any other
indemnification and expense reimbursement provision set forth in any
Credit Document (it being understood that any prepayment required by
Section 2.10(a) (and any corresponding reduction of the Revolving Credit
Commitments), other than pursuant to Section 2.10(a)(v), may be waived or
amended by the Majority Lenders);
(b) no such amendment, modification, supplement or waiver shall
increase the Commitments of any Lender over the amount thereof then in
effect without the consent of such Lender (it being understood that
amendments, modifications or waivers of conditions prece-
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dent, covenants, Defaults or Events of Default shall not constitute an
increase of the Commitment of any Lender);
(c) any modification or supplement of or waiver with respect to
Section 11 which affects any Agent in their respective capacities as such
shall require the consent of such Agent;
(d) no consent of any Lender need be obtained, and the
Administrative Agent is hereby authorized, to release any Lien securing
the Obligations on Property which is the subject of any Disposition
permitted by the Credit Documents and to release any Guarantee of a
Subsidiary upon the sale of all of the Equity Interests of such Subsidiary
in accordance with the Credit Documents;
(e) subject to clause (a)(I) above of this proviso to this Section
12.04(i), the consent of the Majority Tranche B Term Loan Lenders, if the
Tranche B Term Loans are directly affected, or the Majority Tranche C Term
Loan Lenders, if the Tranche C Term Loans are directly affected, shall be
required with respect to any extension of any scheduled Amortization
Payment or any reduction in the amount of any scheduled Amortization
Payment or any change to Section 3.01(b)(2) (it being understood that,
subject to clause (f) below of this Section 12.04, any prepayment required
by Section 2.10 (and any corresponding reduction of the Revolving Credit
Commitments), other than pursuant to Section 2.10(a)(v), may be modified,
supplemented or waived by the Majority Lenders);
(f) no modification, supplement or waiver shall, unless by an
instrument signed by the Supermajority Lenders of the Affected Class or by
the Administrative Agent acting with the written consent of the
Supermajority Lenders of the Affected Class, change the timing of the
receipt or the application of mandatory prepayments hereunder as among the
Tranche B Term Loans and the Tranche C Term Loans or the order in which
any such prepayment is applied to the Tranche B Term Loans or Tranche C
Term Loans (although any required prepayment set forth in Section 2.10
(and any corresponding reduction of the Revolving Credit Commitments),
other than pursuant to Section 2.10(a)(v), may otherwise be modified,
supplemented or waived by the Majority Lenders);
(g) no reduction of the percentage specified in the definition of
"Majority Revolving Credit Lenders," "Majority Tranche B Term Loan
Lenders" or "Majority Tranche C Term Loan Lenders" shall be made without
the consent of each Revolving Credit Lender, each Tranche B Term Loan
Lender or each Tranche C Term Loan Lender, respectively (it being
understood that, only the Class of such Loan to which such definition
relates need consent to any such reduction and that with the consent of
the Majority Lenders, other additional extensions of credit pursuant to
this Agreement may be included in any such definition without notice to or
consent of any other Lender or Agent on substantially the same terms as
the Commitments (and related extensions of credit) are included on the
Closing Date);
(h) no reduction of the percentage specified in the definition of
"Supermajority Lenders of the Affected Class" shall be made without the
consent of each Term Loan Lender (it
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being understood that, with the consent of the Majority Lenders,
additional extensions of credit pursuant to this Agreement may be
included in either such definition without notice to or consent of any
other Lender or Agent on substantially the same terms as the Commitments
(and related extensions of credit) are included on the Closing Date);
(i) no amendment or waiver shall make any change to Section 2.01(e)
or the definitions of "Swing Loan Commitment," "Swing Loan Maturity Date"
or "Swing Loans" or the Swing Loan Note without the consent of the Swing
Loan Lender;
(j) no amendment or waiver shall affect the rights or duties of the
Issuing Lender in its capacity as such or alter the obligation of any
Revolving Credit Lender pursuant to Section 2.03(e) or 2.03(f) without the
consent of the Issuing Lender;
(k) no consent of any Lender need be obtained to effect any
amendment of any Credit Document necessary to comply with Section 9.12 or
Section 9.20;
(l) no modification or waiver may be made to Section 2.10(a)(v) or
the timing of any prepayment required thereunder or to the definition of
"Excess Cash Flow" or any definition used therein (solely in the context
used therein but not in any other context) may be made without the consent
of the Supermajority Lenders;
(m) no amendment, modification, supplement or waiver may be made to
Section 9.28, the definition of "Tranche C Term Loan Escrow Maturity
Date", the Credit Facility Escrow Agreement or the Investor Escrow
Agreement without the consent of the Majority Lenders and the Majority
Tranche C Term Loan Lenders; and
(n) no amendment, modification, supplement or waiver may be made to
any condition precedent to any extension of credit under the Revolving
Credit Facility set forth in Section 7.02 or 7.03 without the written
consent of the Majority Revolving Credit Lenders, it being understood that
no amendment to or waiver of any representation or warranty or any
covenant contained in this Agreement or any other Credit Document, or of
any Default, shall be deemed to be effective for purposes of determining
whether the conditions precedent set forth in Section 7.02 or 7.03 to the
making of any extension of credit under the Revolving Credit Loans have
been satisfied unless the Majority Revolving Credit Lenders shall have
consented to such amendment or waiver.
(ii) If, in connection with any proposed change, waiver, discharge
or termination to any of the provisions of this Agreement as contemplated by
Section 12.04(i)(a) (other than clause (I) of such section), the consent of
the Majority Lenders is obtained but the consent of one or more of such other
Lenders whose consent is required is not obtained, then Borrower shall have
the right to replace each such non-consenting Lender or Lenders (so long as
all non-consenting Lenders are so replaced) with one or more Replacement
Lenders pursuant to Section 2.11 so long as at the time of such replacement
each such Replacement Lender consents to the proposed change, waiver,
discharge or termination; PROVIDED, HOWEVER, that Borrower shall not have the
right to replace a Lender solely as
<PAGE>
-124-
a result of the exercise of such Lender's rights (and the withholding of any
required consent by such Lender) pursuant to clause (I) of Section
12.04(i)(a).
12.05. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.06. ASSIGNMENTS AND PARTICIPATIONS. (a) No Obligor may assign
its respective rights or obligations hereunder or under the Notes or any
other Credit Document without the prior written consent of all of the Lenders.
(b) Each Lender may assign to any Eligible Person any of its
Loans, its Notes, its Letter of Credit Interests and its Commitments (but
only with the consent (which shall not be unreasonably withheld, delayed or
conditioned) of Borrower, the Lead Arranger and the Administrative Agent and,
in the case of the Revolving Credit Commitments, the Issuing Lender);
PROVIDED, HOWEVER, that (i) no such consent by Borrower, the Issuing Lender,
the Lead Arranger or the Administrative Agent shall be required in the case
of any assignment to another Lender or any Lender's Affiliate or an Approved
Fund of any Lender (in which case, the assignee and assignor Lenders shall
give notice of the assignment to the Lead Arranger and the Administrative
Agent); (ii) no consent of Borrower need be obtained if any Event of Default
shall have occurred and be continuing or if determined by the Lead Arranger
(in consultation with Borrower) to achieve a successful primary syndication;
(iii) each assignment, other than to a Lender or any Lender's Affiliate or an
Approved Fund of any Lender and other than any assignment effected by Merrill
Lynch Capital Corporation or any of its Affiliates in connection with the
syndication of the Commitments and/or Loans or otherwise, shall be in an
aggregate amount at least equal to $5.0 million unless the assigning Lender's
exposure is reduced to $0 or unless Borrower and the Lead Arranger otherwise
agree and (iv) in no event may any such assignment be made to any Obligor or
any of its Affiliates without consent of all Lenders. Any assignment of a
Loan shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide). Any
assignment or transfer of a Loan shall be registered on the Register only
upon surrender for registration of assignment or transfer of the Note
evidencing such Loan (if a Note was issued in respect thereof), accompanied
by an instrument in writing substantially in the form of EXHIBIT H, and upon
consent thereto by Borrower, the Lead Arranger, the Administrative Agent and
the Issuing Lender to the extent required above (none of which consents to be
unreasonably withheld), one or more new Notes (if requested by the new
Lender) in the same aggregate principal amount shall be issued to the
designated assignee and the old Notes shall be returned by the Administrative
Agent to Borrower marked "cancelled". Upon execution and delivery by the
assignee to Borrower, the Lead Arranger and the Administrative Agent of an
instrument in writing substantially in the form of EXHIBIT H, and upon
consent thereto by Borrower, the Lead Arranger, the Administrative Agent and
the Issuing Lender to the extent required above (none of which consents to be
unreasonably withheld), and in the case of a Loan, upon appropriate entries
being made in the Register the assignee shall have, to the extent of such
assignment (unless otherwise provided in such assignment with the consent of
the Administrative Agent), the obligations, rights and benefits of a Lender
hereunder holding the Commitment(s), Loans (or portions thereof) and Letter
of Credit Interests assigned to it (in addition to the Commitment(s), Letter
of Credit Interests and Loans, if any, theretofore held by such assignee) and
the assigning Lender shall, to the extent of such assignment, be released
<PAGE>
-125-
from the Commitment(s) (or portion(s) thereof) so assigned. Upon any such
assignment (other than to a Lender or any Affiliate of a Lender or any
Approved Fund and other than any assignment by Merrill Lynch Capital
Corporation or any of its Affiliates) the assignee Lender shall pay a fee of
$3,500 to the Administrative Agent. Upon any such assignment, certain rights
and obligations of the assigning Lender shall survive as set forth in Section
12.07. Each assignment shall be made pursuant to an agreement substantially
in the form of EXHIBIT N. At the time of each assignment pursuant to this
Section 12.06(b) to any Eligible Person that is not already a Lender
hereunder, the respective assignee Lender shall provide to Borrower and the
Administrative Agent the appropriate Internal Revenue Service forms (and, if
applicable, a Section 5.06 Certificate) described in Section 5.06(b).
(c) A Lender may sell or agree to sell to one or more other
Eligible Persons a participation in all or any part of any Loans and Letter
of Credit Interests held by it, or in its Commitments, in which event each
purchaser of a participation (a "PARTICIPANT") shall be entitled to the
rights and benefits of the provisions of Section 5 (PROVIDED, HOWEVER, that
no Participant shall be entitled to receive any greater amount pursuant to
Section 5 than the transferor Lender would have been entitled to receive in
respect of the participation effected by such transferor Lender had no
participation occurred) with respect to its participation in such Loans,
Letter of Credit Interests and Commitments as if such Participant were a
"Lender" for purposes of said Section, but, except as otherwise provided in
Section 4.07(c), shall not have any other rights or benefits under this
Agreement or any Note or any other Credit Document (the Participant's rights
against such Lender in respect of such participation to be those set forth in
the agreements executed by such Lender in favor of the Participant). All
amounts payable by Borrower to any Lender under Section 5 in respect of
Loans, Letter of Credit Interests and its Commitments shall be no greater
than the amount that would have applied if such Lender had not sold or agreed
to sell any participation in such Loans, Letter of Credit Interests and
Commitments, and as if such Lender were funding each of such Loan, Letter of
Credit Interests and Commitments in the same way that it is funding the
portion of such Loan, Letter of Credit Interests and Commitments in which no
participations have been sold. In no event shall a Lender that sells a
participation agree with the Participant to take or refrain from taking any
action hereunder or under any other Credit Document, except that such Lender
may agree with the Participant that it will not, without the consent of the
Participant, agree to any modification or amendment set forth in subclauses
(I), (II), (III) or (VIII) of clause (a) of the proviso to Section 12.04.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.06, any Lender may assign
and pledge all or any portion of its Loans and its Notes to any United States
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank and, in the case of a Lender that is an
investment fund, any such Lender may assign or pledge all or any portion of
its Loans and its Notes to its trustee in support of its obligations to its
trustee, without notice to or consent of Borrower, the Administrative Agent,
Lead Arranger or Issuing Lender. No such assignment shall release the
assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning any Company in
the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants) subject, however, to and
so long as the recipient agrees in writing to be bound by the
<PAGE>
-126-
provisions of Section 12.11. In addition, each of the Administrative Agent
and Lead Arranger may furnish any information concerning any Obligor or any
of its Affiliates in the Administrative Agent's or Lead Arranger's possession
to any Affiliate of Administrative Agent or Lead Arranger, subject, however,
to the provisions of Section 12.11. The Obligors shall assist any Lender in
effectuating any assignment or participation pursuant to this Section 12.06
(including during syndication) in whatever manner such Lender reasonably
deems necessary, including participation in meetings with prospective
transferees.
12.07. SURVIVAL. The obligations of the Obligors under Sections
5.01, 5.05, 5.06 and 12.03, the obligations of each Guarantor under Section
6.03, and the obligations of the Lenders under Sections 5.06 and 11.02, shall
survive the repayment of the Loans and Reimbursement Obligations and the
termination of the Commitments and, in the case of any Lender that may assign
any interest in its Commitments, Loans or Letter of Credit Interest
hereunder, shall (to the extent relating to such time as it was a Lender)
survive the making of such assignment, notwithstanding that such assigning
Lender may cease to be a "Lender" hereunder. In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit, herein or pursuant hereto shall be considered to have
been relied upon by the other parties hereto and shall survive the execution
and delivery of this Agreement and the Notes and the making of any extension
of credit hereunder, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or
any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty and regardless of whether any such representation
or warranty under the Merger Agreement survives the Merger.
12.08. CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any provision of this
Agreement.
12.09. COUNTERPARTS; INTERPRETATION; EFFECTIVENESS. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This
Agreement and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject
matter hereof, other than the indemnity, confidentiality, waiver of jury
trial and governing law provisions of the Commitment Letter, which are not
superseded and survive and except that if the initial extensions of credit do
not occur on the date of execution and delivery hereof the Fee Letter shall
survive until the earlier of the date of the initial extensions of credit
hereunder or the date of expiration or termination of the Commitments and any
ticking fee thereunder (if any) shall be payable up to such earlier date.
Except as provided in Section 7.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
<PAGE>
-127-
12.10. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVERS; ETC.
Each Credit Document shall be governed by, and construed in accordance with,
the law of the State of New York, without regard to the principles of
conflicts of laws thereof (except in the case of the other Credit Documents,
to the extent otherwise expressly stated therein). Each Obligor hereby
irrevocably and unconditionally: (I) submits for itself and its Property in
any Proceeding relating to any Credit Document to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Supreme Court of the State of New
York sitting in New York County, the courts of the United States of America
for the Southern District of New York, and appellate courts from any thereof;
(II) consents that any such Proceeding may be brought in any such court and
waives trial by jury and any objection that it may now or hereafter have to
the venue of any such Proceeding in any such court or that such Proceeding
was brought in an inconvenient court and agrees not to plead or claim the
same; (III) agrees that service of process in any such Proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to Borrower at its
address set forth in Section 12.02 or at such other address of which
Administrative Agent shall have been notified pursuant thereto; and (IV)
agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction.
12.11. CONFIDENTIALITY. Each Lender agrees to keep confidential
information obtained by it pursuant hereto and the other Credit Documents
confidential in accordance with such Lender's customary practices for
treatment of its confidential information and agrees that it will only use
such information in connection with the transactions contemplated by this
Agreement and not disclose any of such information other than (a) to such
Lender's employees, representatives, directors, attorneys, auditors, agents,
professional advisors, trustees or affiliates who are advised of the
confidential nature of such information or to any direct or indirect
contractual counterparty in swap agreements or such contractual
counterparty's professional advisor (so long as such contractual counterparty
or professional advisor to such contractual counterparty agrees to be bound
by the provision of this Section 12.11), (b) to the extent such information
presently is or hereafter becomes available to such Lender on a
non-confidential basis from any source of such information that is in the
public domain at the time of disclosure, (c) to the extent disclosure is
required by law (including applicable securities laws), regulation, subpoena
or judicial order or process (PROVIDED that notice of such requirement or
order shall be promptly furnished to Borrower unless such notice is legally
prohibited) or requested or required by bank, securities, insurance or
investment company regulations or auditors or any administrative body or
commission (including the Securities Valuation Office of the National
Association of Insurance Commissioners) to whose jurisdiction such Lender may
be subject, (d) to any rating agency to the extent required in connection
with any rating to be assigned to such Lender, (e) to assignees or
participants or prospective assignees or participants who agree to be bound
by the provisions of this Section 12.11, (f) to the extent required in
connection with any litigation between any Obligor and any Lender with
respect to the Loans or this Agreement and the other Credit Documents or (g)
with Borrower's prior written consent.
12.12. INDEPENDENCE OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants contained herein shall be
independent of each other and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other represen-
<PAGE>
-128-
tation, warranty or covenant contained herein unless expressly provided, nor
shall any such exception be deemed to permit any action or omission that
would be in contravention of applicable law. Notwithstanding anything herein
to the contrary, any matter identified on a Schedule to this Agreement shall
be deemed to be set forth on all other Schedules to this Agreement for
purposes of determining compliance with any of the representations,
warranties or covenants contained herein.
12.13. SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.
12.14. ACKNOWLEDGMENTS. The Obligors hereby acknowledge that: (a)
this Agreement and the other Credit Documents are the result of negotiation
and each of the Obligors has been advised by counsel in connection with the
negotiation, execution and delivery of this Agreement and the other Credit
Documents; (b) no Creditor has any fiduciary or similar relationship to any
Obligor and the relationship between the Creditors on the one hand, and the
Obligors, on the other hand, is solely that of debtor and creditor; and (c)
no joint venture exists among the Creditors or among the Obligors and the
Creditors.
[Signature Pages Follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above written.
ATRIUM COMPANIES, INC.
By:
--------------------------------------
Name:
Title:
Address for Notices:
Contact Person:
Telecopier No.:
Telephone No.:
<PAGE>
S-2
GUARANTORS:
ATRIUM CORPORATION
[ ]
By:
--------------------------------------
Name:
Title:
<PAGE>
S-3
D AND W HOLDINGS, INC., as Parent
By:
--------------------------------------
Name:
Title:
<PAGE>
S-4
BANKBOSTON, N.A.,
as Administrative Agent, Issuing Lender
and as a Lender
By:
--------------------------------------
Name:
Title:
Address for Notices:
BankBoston, N.A.
100 Federal Street
Mail Stop 01-08-05
Boston, Massachusetts 02110
Attention: Marie C. Duprey
Telecopier No.: 617-434-4929
Telephone No.: 617-434-3037
<PAGE>
S-5
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED,
as Lead Arranger, Syndication Agent and
Documentation Agent
By:
--------------------------------------
Name:
Title:
Address for Notices:
World Financial Center
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
South Tower
225 Liberty Street
New York, New York 10080-6114
Attention:
Telecopier No.: (212) 449-8230
Telephone No.: (212) 449-8221
<PAGE>
S-6
LENDERS
MERRILL LYNCH CAPITAL CORPORATION,
as a Lender
By:
--------------------------------------
Name:
Title:
Lending Office for all Loans:
World Financial Center
c/o Merrill Lynch & Co.
North Tower - 7th Floor
250 Vesey Street
New York, New York 10281-1307
Address for Notices:
World Financial Center
c/o Merrill Lynch & Co.
North Tower
250 Vesey Street
New York, New York 10281-1316
Attention: Peter Wersching
Telecopier No.: (212) 449-4972
Telephone No.: (212) 449-9435
<PAGE>
S-7
[ ],
as a Lender
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
Lending Office for all Loans:
Address for Notices:
Attention:
Telecopier No.:
Telephone No.:
<PAGE>
ANNEX A
COMMITMENTS
<TABLE>
<CAPTION>
Allocation
-----------------------------------------------------------------
Revolving Tranche B Tranche C
Credit Term Loan Term Loan
Legal Name Commitments Commitment Commitment Total
- --------------------------------------------- ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Merrill Lynch Capital Corporation $ 5,000,000 $16,456,790.16 $ 26,543,209.84 $ 48,000,000.00
BankBoston, N.A. 5,000,000 4,975,308.64 8,024,691.36 18,000,000.00
BHF-Bank Aktiengesellschaft 5,000,000 5,500,000.00 - 10,500,000.00
Balanced High-Yield Fund II Ltd 7,500,000.00 - 7,500,000.00
Greater Bay Corporate Finance, A Division of
Cupertino National Bank & Trust 3,000,000 2,679,012.35 4,320,987.65 10,000,000.00
Credit Lyonnais New York Branch 4,000,000 4,209,876.54 6,790,123.46 15,000,000.00
Heller Financial, Inc. 4,000,000 4,209,876.54 6,790,123.46 15,000,000.00
Bank One, Texas, NA 4,000,000 4,209,876.54 6,790,123.46 15,000,000.00
Massachusetts Mutual Life Insurance Company - 2,564,197.53 4,135,802.47 6,700,000.00
Massmutual High Yield Partners II, LLC 1,262,962.96 2,037,037.04 3,300,000.00
KZH Riverside LLC - 3,827,160.49 6,172,839.51 10,000,000.00
KZH ING-2 LLC - 4,592,592.59 7,407,407.41 12,000,000.00
Floating Rate Portfolio - 1,722,222.22 2,777,777.78 4,500,000.00
Medical Liability Mutual Insurance Company - 2,870,370.37 4,629,629.63 7,500,000.00
CypressTree Investment Fund, LLC - 574,074.07 925,925.93 1,500,000.00
CypressTree Institutional Fund, LLC - 574,074.07 925,925.93 1,500,000.00
KZH CypressTree - 1 LLC - 3,253,086.42 5,246,913.58 8,500,000.00
CypressTree Senior Floating Rate Fund - 95,679.01 154,320.99 250,000.00
North American Senior Floating Rate Fund - 95,679.01 154,320.99 250,000.00
Morgan Stanley Dean Witter Prime Income Trust - 3,827,160.49 6,172,839.51 10,000,000.00
----------- -------------- --------------- ---------------
Total $30,000,000 $75,000,000.00 $100,000,000.00 $205,000,000.00
</TABLE>
<PAGE>
SCHEDULE 1.01(a)
<TABLE>
<CAPTION>
LIBOR Loans ABR Loans
----------- ---------
<S> <C> <C>
Revolving Credit Loans 2.250% 1.250%
Tranche B Term Loans 2.750% 1.750%
Tranche C Term Loans 3.000% 2.000%
</TABLE>
<PAGE>
SCHEDULE 1.01(b)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
REVOLVING LOANS
- ----------------------------------------------------------------------------------------
TIER TOTAL LEVERAGE RATIO LIBOR MARGIN ABR MARGIN
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
I Greater than or equal to 4.0 2.250% 1.250%
- ----------------------------------------------------------------------------------------
II Less than 4.0 but
Greater than or equal to 3.5 2.000% 1.000%
- ----------------------------------------------------------------------------------------
III Less than 3.5 but
Greater than or equal to 3.0 1.750% 0.750%
- ----------------------------------------------------------------------------------------
IV Less than 3.0 but
Greater than or equal to 2.5 1.500% 0.500%
- ----------------------------------------------------------------------------------------
V Less than 2.5 but
Greater than or equal to 2.0 1.250% 0.250%
- ----------------------------------------------------------------------------------------
VII Less than 2.0 1.000% 0%
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.01(c)
<TABLE>
<CAPTION>
Total Leverage Ratio Applicable Revolving Credit Fee Percentage
-------------------- ------------------------------------------
<S> <C>
Greater than or equal to 3.5 0.500%
Less than 3.5 but
Greater than or equal to 2.0 0.375%
Less than 2.0 0.250%
</TABLE>
<PAGE>
SCHEDULE 1.01(d)
GUARANTORS
ATRIUM CORPORATION
Atrium Door and Window Company - West Coast
Atrium Door and Window Company of the Northeast
Atrium Door and Window Company of New York
Atrium Door and Window Company of Arizona
Atrium Door and Window Company of New England
Door Holdings, Inc.
R.L. Darby Company, Inc.
Total Trim, Inc.
Wing Industries Holdings, Inc.
Wing Industries, Inc.
<PAGE>
SCHEDULE 3.01(b)
AMORTIZATION PAYMENTS
<TABLE>
<CAPTION>
TRANCHE B TRANCHE C
DATE* TERM LOANS TERM LOANS
- --------------- ------------ ------------
<S> <C> <C>
December 1998 $ 250,000 $ 250,000
March 1999 250,000 250,000
June 1999 250,000 250,000
September 1999 250,000 250,000
December 1999 250,000 250,000
March 2000 250,000 250,000
June 2000 250,000 250,000
September 2000 250,000 250,000
December 2000 250,000 250,000
March 2001 250,000 250,000
June 2001 250,000 250,000
September 2001 250,000 250,000
December 2001 250,000 250,000
March 2002 250,000 250,000
June 2002 250,000 250,000
September 2002 250,000 250,000
December 2002 250,000 250,000
March 2003 250,000 250,000
June 2003 250,000 250,000
September 2003 250,000 250,000
December 2003 250,000 250,000
March 2004 250,000 250,000
June 2004 250,000 250,000
September 2004 250,000 250,000
December 2004 250,000 250,000
March 2005 250,000 250,000
June 2005 68,500,000 250,000
September 2005 N.A. 250,000
December 2005 N.A. 250,000
March 2006 N.A. 250,000
June 2006 N.A. 92,500,000
------------ ------------
$75,000,000 $100,000,000
------------ ------------
------------ ------------
</TABLE>
- --------------------
*Unless otherwise indicated, such date is the last Business Day of the
specified month.
<PAGE>
ATRIUM COMPANIES AND WING INDUSTRIES COMPLETE COMBINATION
WITH AN AGGREGATE VALUE OF APPROXIMATELY $325 MILLION
DALLAS, October 7, 1998--Atrium Companies, Inc., a leading domestic
manufacturer and distributor of residential windows and patio doors, today
announced that it has completed its previously announced combination with
Wing Industries, Inc., a leading manufacturer of interior door products, and
R.G. Darby Company, a premium building material installer. As a result of
the combination, G.E. Investment Private Placement Partners II, L.P. and
Ardshiel, Inc., a New York-based investment firm specializing in investing
private equity and debt in mid-sized transactions, which control Wing and
Darby, acquired a controlling stake in Atrium from Hicks, Muse, Tate & Furst
Incorporated. Members of Atrium's, Wing's and Darby's management hold an
equity stake of approximately 15% in the combined company. The aggregate
value of the transaction, including the acquisition and recapitalization of
Atrium and the recapitalizations of Wing and Darby, was approximately $325
million.
On October 9, 1998, as required under Atrium's 10-1/2% Senior Subordinated
Notes indenture, Atrium commenced a change of control offer to purchase the
Notes at 101% plus accrued and unpaid interest to the date of purchase.
The combined company will be one of the five largest door and window
companies in the United States based on revenues and one of a limited number
of national, full-service providers of door and window products. The
combined company will have access to multiple broad distribution channels
covering the entire U.S., including independent distributors and nationally
recognized home centers.
Randall S. Fojtasek, President and Chief Executive Officer of Atrium, will
hold the same position with the combined company. Mr. Fojtasek said:
"Atrium, Wing and Darby are an ideal strategic fit, with complementary
product lines and distribution channels, and with virtually no geographic
overlap. We believe the combined enterprise will be exceptionally
well-positioned to serve our customers' needs, to build brand equity and
to achieve our growth objectives."
Daniel T. Morley, President of Ardshiel, noted: "One of the key positives of
this transaction is the opportunity to combine two strong and deep management
teams. The breadth of experience across a wide range of home building
materials markets will enable the combined company to benefit from the
collective knowledge and savvy of one new combined management group."
The combination creates a national building materials company with revenues
of approximately $400 million, with more than 20 facilities throughout the
U.S. and approximately 3,000 employees. By combining Atrium's strength in
the single-family home new construction market with Wing's presence in the
repair and remodeling market and Darby's focus on the multi-family new
construction segment, the combined company will have a strong presence in all
major
<PAGE>
distribution channels for doors and windows. Additionally, numerous
cross-selling opportunities exist within each of the individual companies'
respective markets.
Atrium manufacturers aluminum, vinyl and wood windows and doors, which it
sells under the highly recognized "Atrium" and "H-R" brand names. Atrium is
one of the two largest aluminum window manufacturers in its primary markets,
which include the fast-growing southern, southeastern and southwestern
regions of the United States. Headquartered in Dallas, TX, Atrium also has
operations in Houston, TX; Phoenix, AZ; Las Vegas, NV; Portland, OR; Anaheim,
CA; Union City, CA; Clinton, MA; and Bridgeport, CT.
Wing manufactures and distributes a full range of interior solid wood and
hollow core bifold and passage doors, and also distributes exterior doors and
columns. Wing offers the broadest product line of interior wood doors in the
industry and is a leading provider of interior doors to the home center
industry in the United States. Headquartered in Greenville, TX, Wing has
operations in Mt. Pleasant, TX; Chicago, IL; Allentown, PA; and Cleveland,
OH. Wing is currently opening a facility in Charlotte, NC.
R.G. Darby, headquartered in Florence, AL, pre-hangs, distributes and
installs interior doors, and distributes and installs other products
primarily in high-end, multi-family real estate developments.
