<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
REGISTRATION NO. 333-[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ATRIUM COMPANIES, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------------------
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<S> <C> <C>
DELAWARE 3442 75-2642488
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
</TABLE>
--------------------------
1341 W. MOCKINGBIRD LANE, SUITE 1200W
DALLAS, TEXAS 75247
(214) 630-5757
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
--------------------------
JEFF L. HULL
ATRIUM COMPANIES, INC.
1341 W. MOCKINGBIRD LANE, SUITE 1200W
DALLAS, TEXAS 75247
(214) 630-5757
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
COPIES TO:
JOEL M. SIMON, ESQ.
MARIE CENSOPLANO, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 318-6000
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE CHART
<TABLE>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED PER NOTE PRICE(1)
<S> <C> <C> <C>
10 1/2% Senior Subordinated Notes due 2009...... $175,000,000 100% $175,000,000
Guarantees of 10 1/2% Senior Subordinated Notes
due 2009....................................... $175,000,000 (2) (2)
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
10 1/2% Senior Subordinated Notes due 2009...... $48,650
Guarantees of 10 1/2% Senior Subordinated Notes
due 2009....................................... (2)
</TABLE>
(1) Calculated pursuant to Rule 457(f).
(2) No additional consideration for the Guarantees of 10 1/2% Senior
Subordinated Notes due 2009. Pursuant to Rule 457(n), no separate fee is
payable therefor.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
TABLE OF OTHER REGISTRANTS
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PRIMARY
STATE OR OTHER STANDARD
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
EXACT NAME OF REGISTRANT AS INCORPORATION CLASSIFICATION IDENTIFICATION
SPECIFIED IN ITS CHARTER OR ORGANIZATION CODE NUMBER NO.
- --------------------------------------------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Atrium Door and Window Company-West Coast...................... Texas 3089 75-2382008
Atrium Door and Window Company of the Northeast................ Connecticut 3089 06-0735384
Atrium Door and Window Company of New York..................... Connecticut 3089 06-1351269
Atrium Door and Window Company of Arizona...................... Delaware 3442 74-2812044
Atrium Door and Window Company of New England, Inc............. Connecticut 3089 06-1251035
Door Holdings, Inc............................................. Delaware 2431 73-3959511
R. G. Darby Company, Inc....................................... Alabama 2431 63-0931046
R. G. Darby Company-South...................................... Delaware 2431 52-2137145
Total Trim, Inc................................................ Alabama 2431 63-1078042
Total Trim, Inc.-South......................................... Delaware 2431 59-3564586
Wing Industries Holdings, Inc.................................. Delaware 2431 13-3965160
Wing Industries, Inc........................................... Texas 2431 75-0664162
Heat, Inc...................................................... Delaware 3089 65-0430120
H.I.G. Vinyl, Inc.............................................. Delaware 3089 65-0917008
Champagne Industries, Inc...................................... Colorado 3089 84-1022004
Thermal Industries, Inc........................................ Delaware 3089 23-2903452
Best Built, Inc................................................ Delaware 3089 91-1813049
</TABLE>
i
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PRELIMINARY PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN ORDER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION DATED JULY 15, 1999
[LOGO]
OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE 2009, SERIES A
FOR
10 1/2% SENIOR SUBORDINATED NOTES DUE 2009, SERIES B
OF
ATRIUM COMPANIES, INC.
TERMS OF EXCHANGE OFFER
- Expires 5:00 p.m., New York City time, , 1999, unless extended.
- We will not receive any proceeds from the exchange offer.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is July 15, 1999.
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for our 10 1/2% senior subordinated notes
due 2009, or outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on , 1999 and ending on
the close of business , 2000 we will make this prospectus available
to any broker-dealer for use in connection with any such resale.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 15
Forward-looking Statements................................................................................. 21
Use of Proceeds............................................................................................ 21
The Exchange Offer......................................................................................... 22
Capitalization............................................................................................. 33
Selected Consolidated Historical Financial Data of Atrium (after the 1998 recapitalization)................ 34
Selected Consolidated Historical Financial Data of Atrium (previous registrant)............................ 36
Unaudited Pro Forma Consolidated Financial Statements...................................................... 37
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 47
Business................................................................................................... 58
Management................................................................................................. 71
Certain Relationships and Related Transactions............................................................. 78
Beneficial Ownership....................................................................................... 81
Description of Certain Indebtedness........................................................................ 82
Description of the Exchange Notes.......................................................................... 84
Book-Entry; Delivery and Form.............................................................................. 118
Certain United States Federal Income Tax Considerations.................................................... 121
Legal Matters.............................................................................................. 125
Experts.................................................................................................... 125
Available Information...................................................................................... 125
Index to Financial Statements.............................................................................. F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS EXCHANGE OFFER.
IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU IN
MAKING A DECISION TO EXCHANGE THE OUTSTANDING NOTES. FOR A MORE COMPLETE
UNDERSTANDING OF THIS EXCHANGE OFFER, WE ENCOURAGE YOU TO READ THIS ENTIRE
DOCUMENT.
THE EXCHANGE OFFER
On May 17, 1999, we completed a private offering of $175,000,000 aggregate
principal amount of our 10 1/2% senior subordinated notes due 2009, or the
outstanding notes. On the same day, we entered into a registration rights
agreement with the initial purchaser of the outstanding notes agreeing, among
other things, to deliver to you this prospectus and to use our best efforts to
complete this exchange offer within 210 days of the issuance of the outstanding
notes. You should read the discussion under the headings "Summary Description of
the Exchange Notes" and "Description of the Exchange Notes" for further
information regarding the registered notes.
THE COMPANY
We are one of the largest manufacturers and distributors of residential
windows and doors in the United States based on 1998 pro forma net sales. We
offer a complete product line including aluminum, vinyl and wood windows and
doors to our customers, which include leading national homebuilders and home
center retailers. We have grown rapidly through a combination of internal growth
and complementary acquisitions. Our acquisitions of Heat, Inc. and Champagne
Industries, Inc. and their subsidiaries are a continuation of our strategy to
become the largest nationwide manufacturer and distributor of residential
windows and doors. The Heat acquisition strengthens our vinyl product offering,
enhances our nationwide presence and provides access to a proprietary
distribution network of 22 distribution centers. The Champagne acquisition
enhances our presence in the vinyl markets of Colorado, Kansas and Nebraska. Pro
forma for the transactions described in "Unaudited Pro Forma Consolidated
Financial Statements", we would have had net sales and adjusted EBITDA of $123.3
million and $10.3 million, respectively, for the three months ended March 31,
1999.
We were founded in 1948 and we believe we are one of the two largest
manufacturers and distributors of residential non-wood windows and the third
largest manufacturer and distributor of residential doors in the United States
based on 1998 pro forma net sales. Our portfolio of products includes some of
the industry's most recognized brand names including ATRIUM-TM- and
WING-Registered Trademark-. Our full product line of aluminum, vinyl and wood
windows and doors enables us to differentiate ourselves from our competition,
leverage our multi-channel distribution system and be well positioned to benefit
from shifts in product preferences. Regional product preferences exist for
aluminum, vinyl and wood windows and doors, and a full product line is important
to serve our national customer base effectively. We pride ourselves on our
ability to provide to our nationwide customers the most suitable material based
on varying regional product preferences.
We have 53 manufacturing facilities and distribution centers strategically
located in 24 states to service customers on a nationwide basis. We distribute
through multiple channels including direct distribution to large homebuilders
and independent contractors, one-step distribution through home centers and
lumberyards and two-step distribution to wholesalers and dealers who
subsequently resell to lumberyards, contractors and retailers. We believe that
our multi-channel distribution network allows us to reach the greatest number of
end customers and provide nationwide service to those customers.
1
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COMPETITIVE STRENGTHS
We believe that we have a competitive advantage in our markets due to our
following competitive strengths:
- our leading market positions;
- our strong brand name recognition;
- our complete, high-quality product offering;
- our multi-channel distribution network;
- our established and diversified customer base; and
- our low cost, vertically integrated manufacturing operations.
BUSINESS STRATEGY
Our goal is to increase revenue growth and profitability and to strengthen
our leadership position in the residential window and door industry through the
following initiatives:
- enhance our nationwide presence;
- extend and cross-sell our product offerings;
- capitalize on the ATRIUM brand name;
- continue to pursue operational efficiencies; and
- make selective strategic acquisitions.
THE ATRIUM TRANSACTIONS
On May 17, 1999, we acquired Heat and its subsidiaries for approximately
$85.0 million, including $0.7 million of assumed indebtedness, and Champagne for
approximately $3.6 million, excluding $0.5 million to be paid upon the
achievement of certain operational targets. Additionally, a post closing
adjustment of $3.5 million was paid on May 17, 1999 related to working capital
delivered in excess of the target defined in the Heat stock purchase agreement.
On March 27, 1998 we purchased substantially all of the assets of Masterview
Window Company, LLC. On January 27, 1999, we purchased substantially all of the
assets of Delta Millwork, Inc. The Heat and Champagne acquisitions, the
transactions described in "--The 1998 Recapitalization," the Delta and
Masterview acquisitions, the offering of the outstanding notes, and the
application of the net proceeds from the offering of the outstanding notes are
referred to in this prospectus as the "Atrium transactions."
THE 1998 RECAPITALIZATION
On October 2, 1998, GE Investment Private Placement Partners II, a Limited
Partnership, or GEIPPPII, which was formed by GE Investment Management
Incorporated, a wholly-owned subsidiary of General Electric Company, and
Ardshiel, Inc., a private equity firm, and certain of its affiliates, acquired
Atrium in a transaction valued at $225.0 million. In connection with the Atrium
acquisition, GEIPPPII and an affiliate of Ardshiel recapitalized Wing and Darby
and combined them with Atrium. As part of the recapitalization, GEIPPPII and
Ardshiel contributed to Atrium $50.0 million from the sale of common stock of
Atrium's ultimate parent and approximately $52.0 million in the implied value of
the Wing and Darby businesses. In addition, the proceeds from the issuance of
$45.0 million of discount debentures of Atrium Corporation to GEIPPPII and an
affiliate of Ardshiel were used to fund in part the acquisition of Atrium and
the repurchase of a portion of our existing senior subordinated notes. The
remaining sources of funds included a $205.0 million senior secured credit
facility consisting of a $30.0 million revolver, of
2
<PAGE>
which $2.0 million was drawn at closing, a $75.0 million term loan B, and a
$100.0 million term loan C, of which approximately $29.1 million was repaid 36
days after closing. The revolving credit facility, term loan B and term loan C
mature in June 2004, June 2005 and June 2006, respectively. The transactions
described in this paragraph are referred to in this prospectus as the "1998
recapitalization."
EXPLANATORY NOTE
The term "Wing" refers to Wing Industries, Inc. and its direct parent, Wing
Industries Holdings, Inc., as a combined entity and the term "Darby" refers to
R.G. Darby Company, Inc., R.G. Darby Company, Inc.-South, Total Trim, Inc.,
Total Trim, Inc.-South and their direct parent, Door Holdings, Inc., as a
combined entity, which entities were either contributed to Atrium and became our
subsidiaries in connection with the 1998 recapitalization or were formed
subsequent to the 1998 recapitalization.
3
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
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THE EXCHANGE OFFER................ We are offering to exchange $1,000 principal amount of
exchange notes for each $1,000 principal amount of
outstanding notes. Outstanding notes may only be
exchanged in $1,000 principal amount increments. In
order to be exchanged, an outstanding note must be
properly tendered and accepted. All outstanding notes
that are validly tendered and not validly withdrawn will
be exchanged.
RESALES........................... We believe that you may resell or otherwise transfer
exchange notes issued pursuant to the exchange offer
without compliance with the registration and prospectus
delivery provisions of the Securities Act, however,
there are exceptions to this general statement. You may
not freely transfer the exchange notes if:
- you are an "affiliate" of ours within the meaning
of Rule 405 under the Securities Act;
- you are a broker-dealer who acquired the
outstanding notes directly from us without
compliance with the registration and prospectus
delivery provisions of the Securities Act;
- you did not acquire the exchange notes in the
ordinary course of your business; or
- you have engaged in, intend to engage in, or have
an arrangement or understanding with any person to
participate in the distribution of the exchange
notes.
By tendering your notes you will be making
representations to this effect.
Any recipient of exchange notes that is subject to any
of the exceptions above and each participating
broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer in exchange for
outstanding notes that were acquired as a result of
market-making, must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with the resale of the exchange notes.
You may incur liability under the Securities Act, if our
belief is inaccurate and you transfer any exchange note
issued to you in the exchange offer without delivering a
prospectus meeting the requirements of the Securities
Act or without an exemption from registration of your
exchange notes from such requirements. We do not assume
or indemnify you against any such liability.
EXPIRATION OF EXCHANGE OFFER...... 5:00 p.m., New York City time, on ________________,
1999, unless we extend the exchange offer, in which case
the term "expiration date" means the latest date and
time to which the exchange offer is extended.
</TABLE>
4
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INTEREST ON THE EXCHANGE NOTES AND
THE OUTSTANDING NOTES........... Each exchange note will bear interest from May 17, 1999.
If your outstanding notes are accepted for exchange, you
will not receive accrued interest on the outstanding
notes, and will be deemed to have waived the right to
receive any interest on the outstanding notes from and
after May 17, 1999.
CONDITIONS TO THE EXCHANGE
OFFER........................... The exchange offer is subject to certain customary
conditions, which we may waive, and upon compliance with
securities law.
PROCEDURES FOR TENDERING.......... If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal in accordance with its instructions and
deliver the letter of transmittal, together with the
outstanding notes and any other required documentation,
to the exchange agent at the address set forth in the
letter of transmittal.
If you hold outstanding notes through The Depository
Trust Company and wish to accept the exchange offer, you
must do so pursuant to The Depository Trust Company's
Automated Tender Offer Program, by which you will agree
to be bound by the letter of transmittal.
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... If you are a beneficial owner whose outstanding notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you
wish to tender in the exchange offer, you should contact
the person in whose name your outstanding notes are
registered promptly and instruct the person to tender on
your behalf. If you wish to tender in the exchange offer
on your own behalf, you must, prior to completing and
executing the letter of transmittal and delivering your
outstanding notes, either make appropriate arrangements
to register ownership of the outstanding notes in your
name or obtain a properly completed bond power from the
person in whose name your outstanding notes are
registered. The transfer of registered ownership may
take considerable time.
GUARANTEED DELIVERY PROCEDURES.... If you wish to tender your outstanding notes in the
exchange offer and your outstanding notes are not
immediately available or you cannot deliver your
outstanding notes, the letter of transmittal or any
other required documents or you cannot comply with the
procedures for book-entry transfer prior to the
expiration date, you may tender your outstanding notes
according to the guaranteed delivery procedures.
WITHDRAWAL RIGHTS................. Tenders may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
ACCEPTANCE OF OUTSTANDING NOTES
AND DELIVERY OF EXCHANGE
NOTES........................... We will accept for exchange any and all outstanding
notes that are properly tendered in the exchange offer
prior to the expiration date. The exchange notes issued
pursuant to the exchange offer will be delivered
promptly after the expiration date.
</TABLE>
5
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CERTAIN U.S. FEDERAL INCOME TAX
CONSEQUENCES.................... We believe with respect to the exchange of outstanding
notes for exchange notes:
- the exchange will not constitute a taxable
exchange for U.S. federal income tax purposes;
- you will not recognize gain or loss upon receipt
of the exchange notes; and
- you must include interest on the exchange notes in
gross income to the same extent as the outstanding
notes.
REGISTRATION RIGHTS AGREEMENT..... You have the right to exchange the outstanding notes
that you now hold for exchange notes with substantially
identical terms. This exchange offer is intended to
satisfy this right. If you do not tender your
outstanding notes in the exchange offer, you will not
have any further exchange or registration rights with
respect to your outstanding notes. All untendered
outstanding notes will continue to be subject to
restrictions on transfer under the Securities Act.
EXCHANGE AGENT.................... State Street Bank and Trust Company is serving as our
exchange agent in connection with the exchange offer.
</TABLE>
6
<PAGE>
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The form and terms of the exchange notes will be substantially the same as
the form and terms of the outstanding notes except that:
(1) the exchange notes have been registered under the Securities Act and
will not bear legends restricting the transfer of the exchange notes; and
(2) the holders of the exchange notes, except for limited instances,
will not be entitled to further registration rights under the registration
rights agreement.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefit of the indenture under which the outstanding
notes were issued.
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EXCHANGE NOTES OFFERED............ $175.0 million aggregate principal amount of 10 1/2%
senior subordinated notes due 2009.
MATURITY DATE..................... The exchange notes will mature on May 1, 2009.
INTEREST.......................... We will pay interest on the exchange notes at the rate
of 10 1/2% per year on May 1 and November 1 of each
year, beginning on November 1, 1999.
GUARANTEES........................ Each of our subsidiaries fully and unconditionally
guarantees the outstanding notes on a senior
subordinated basis. Future subsidiaries also may be
required to guarantee the outstanding notes on a senior
subordinated basis.
RANKING........................... The exchange notes will be unsecured senior subordinated
obligations of Atrium and will be subordinated to all of
our existing and future senior indebtedness. The
exchange notes will rank equally with all our other
existing and future senior subordinated indebtedness and
will rank senior to all our subordinated obligations.
The guarantees will be unsecured senior subordinated
obligations and will be subordinated to all existing and
future senior indebtedness of the guarantors. The
guarantees will rank equally with all of the guarantors'
other existing and future senior subordinated
indebtedness and will rank senior to all of the
guarantors' subordinated obligations.
SINKING FUND...................... None.
OPTIONAL REDEMPTION............... We may not redeem the exchange notes prior to May 1,
2004, except as described below. After May 1, 2004, we
may redeem the exchange notes, in whole or in part, at
any time prior to maturity.
At any time on or prior to May 1, 2002, we may redeem up
to 35% of the exchange notes with the net cash proceeds
of certain equity offerings.
CHANGE OF CONTROL................. If we experience certain change of control events, you
will have the right to require us to repurchase all or a
portion of your exchange notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
</TABLE>
7
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CERTAIN COVENANTS................. The indenture governing the exchange notes will limit
our ability and the ability of certain of our
subsidiaries to, among other things,
- incur additional indebtedness,
- pay dividends on, redeem or repurchase our capital
stock,
- make investments,
- sell assets,
- in the case of certain of our subsidiaries,
guarantee indebtedness, without guaranteeing the
exchange notes,
- engage in transactions with affiliates, and
- consolidate, merge or transfer all or
substantially all of our assets or the assets of our
subsidiaries on a consolidated basis.
These covenants are subject to important exceptions and
qualifications.
EXCHANGE OFFER; REGISTRATION
RIGHTS.......................... To remove the transferability restrictions on the
outstanding notes, we and the guarantors have agreed:
- to file the registration statement of which this
prospectus is a part with the Commission to exchange
the outstanding notes for the exchange notes
within 60 days after the original issuance of the
outstanding notes;
- to use our best efforts to cause the registration
statement to be declared effective by the Commission
within 180 days after the original issue date of
the outstanding notes;
- to consummate the exchange offer no later than the
30th day after the registration statement is
declared effective; and
- use our best efforts to file a shelf registration
statement for the resale of the outstanding notes if
we cannot effect an exchange offer within the time
periods listed above and in certain other
circumstances.
The interest rate on the outstanding notes will increase
if we do not comply with our obligations under the
registration rights agreement.
USE OF PROCEEDS................... We will not receive any cash proceeds from the exchange
offer.
</TABLE>
8
<PAGE>
RISK FACTORS
You should carefully consider all of the information in this prospectus
before deciding whether to invest in the exchange notes. In particular, you
should evaluate the specific risk factors under "Risk Factors."
9
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
Prior to October 2, 1998, Atrium's consolidated historical financial
statements as filed with the Commission included its operations and the
operations of its subsidiaries. On October 2, 1998, pursuant to the 1998
recapitalization, the stock of Wing and Darby were contributed to Atrium.
As Wing was determined to be the accounting acquiror in a "reverse
acquisition", the consolidated historical financial statements of Atrium, prior
to October 3, 1998, were replaced with the consolidated historical financial
statements of Wing. The summary consolidated historical income statement and
other data for 1998 include the operations of Wing from January 1 through
December 31 and the operations of Atrium and Darby from October 3 through
December 31. The summary consolidated historical income statement and other data
for the three months ended March 31, 1999 include the operations of Atrium, Wing
and Darby. The summary consolidated historical income statement data and other
data for the years ended December 31, 1994, 1995 and 1997, the three months
ended March 31, 1998 and the periods ended October 25, 1996 and December 31,
1996 only include the operations and accounts of Wing and its predecessor.
Wing was acquired by its present controlling shareholders on October 25,
1996. The December 31, 1998 summary consolidated historical balance sheet data
includes the accounts of Atrium, Wing and Darby. The December 31, 1994, 1995,
1996 and 1997 and October 25, 1996 summary consolidated historical balance sheet
data only include the accounts of Wing and its predecessor. The references in
the "Summary Consolidated Historical Financial Data of Atrium (after the 1998
recapitalization)" to the periods ended December 31, 1996 and October 25, 1996,
refer to the periods October 26, 1996 through December 31, 1996 and January 1,
1996 through October 25, 1996, respectively.
The summary consolidated historical financial data of Atrium (previous
registrant) are provided for information purposes only. These include the
summary consolidated historical income statement data and other data for the
years ended December 31, 1994, 1995, 1996 and 1997, the nine months ended
September 30, 1997 and the period from January 1, 1998 to October 2, 1998, and
the summary consolidated historical balance sheet data as of December 31, 1994,
1995, 1996 and 1997, September 30, 1997 and October 2, 1998.
10
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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(AFTER THE 1998 RECAPITALIZATION)
The summary consolidated historical income statement and other data set
forth below for the year ended December 31, 1995, the periods ended October 25,
1996 and December 31, 1996 and the years ended December 31, 1997 and 1998, and
the summary consolidated historical balance sheet data at December 31, 1995,
1996, 1997 and 1998 and October 25, 1996 were derived from Atrium's (after the
1998 recapitalization) audited consolidated financial statements. The summary
consolidated historical financial data as of and for the year ended December 31,
1994 and the three months ended March 31, 1998 and 1999, were derived from
Atrium's (after the 1998 recapitalization) unaudited consolidated financial
statements, which in the opinion of management reflect all adjustments necessary
for a fair presentation of results for such periods. The summary consolidated
historical financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements, related notes and other financial information included
elsewhere in this prospectus.
<TABLE>
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PREDECESSOR
-----------------------------------
THREE
MONTHS
YEAR ENDED PERIOD YEAR ENDED DECEMBER ENDED
DECEMBER 31, ENDED PERIOD ENDED 31, -----------
---------------------- OCTOBER 25, DECEMBER 31, -------------------- MARCH 31,
1995 1996 1996 1997 1998 1998
--------- ----------- ------------- --------- --------- -----------
1994
-----------
(UNAUDITED) (DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................ $ 72,496 $ 68,481 $ 62,880 $ 13,200 $ 99,059 $ 211,059 $ 39,450
Gross profit..................... 12,945 15,461 15,569 3,273 20,789 51,919 8,986
Selling, delivery, general and
administrative expenses........ 14,032 13,931 13,271 2,242 15,671 39,754 6,606
Interest expense................. 909 1,039 509 374 2,953 9,081 992
Income (loss) before income
taxes.......................... 179 491 1,789 532 1,391 (2,239) 1,242
Net income (loss)................ 35 279 1,119 303 696 (2,819) 686
BALANCE SHEET DATA (END OF
PERIOD):
Total assets..................... $ 20,740 $ 18,515 $ 19,966 $ 36,404 $ 55,383 $ 359,869 $ 57,514
Total debt....................... 10,296 8,522 8,154 20,489 32,238 179,227 33,385
OTHER DATA:
EBITDA(1)........................ $ 1,777 $ 2,374 $ 3,014 $ 1,166 $ 5,836 $ 14,732 $ 2,702
Depreciation and amortization.... 689 844 716 260 1,492 7,950 468
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
INCOME STATEMENT DATA:
Net sales........................ $ 106,842
Gross profit..................... 32,134
Selling, delivery, general and
administrative expenses........ 23,151
Interest expense................. 4,346
Income (loss) before income
taxes.......................... 1,018
Net income (loss)................ 190
BALANCE SHEET DATA (END OF
PERIOD):
Total assets..................... $ 366,766
Total debt....................... 185,260
OTHER DATA:
EBITDA(1)........................ $ 8,301
Depreciation and amortization.... 2,937
</TABLE>
- ------------------------------
(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, special charges, stock option
compensation expense and certain non-recurring expenses related to
acquisitions. While we do not intend for EBITDA to represent cash flow from
operations as defined by GAAP and we do not suggest that you consider it 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, we
include it herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We believe EBITDA provides investors
and analysts in the building materials industry the necessary information to
analyze and compare our historical results on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
However, as EBITDA is not defined by GAAP, it may not be calculated on the
same basis as other similarly titled measures of other companies within the
building materials industry.
11
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(PREVIOUS REGISTRANT)
The summary consolidated historical financial data set forth below as of and
for each of the four years in the four-year period ended December 31, 1997 and
as of and for the period from January 1, 1998 to October 2, 1998 were derived
from Atrium's (previous registrant) audited consolidated financial statements.
The summary consolidated historical financial data as of and for the period
ended September 30, 1997 were derived from Atrium's (previous registrant)
unaudited consolidated financial statements, which in the opinion of management
reflect all the adjustments necessary for fair presentation of results for such
periods. The summary consolidated historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, related notes and other
financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, --------------------------
-------------------------------------------- OCTOBER 2,
1994 1995 1996 1997 1998
----------- --------- --------- --------- -----------
SEPTEMBER 30,
1997
-------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $ 123,571 $ 135,478 $ 156,269 $ 186,764 $ 139,793 $ 167,418
Gross profit............................. 37,999 41,503 53,928 65,463 50,137 58,183
Selling, delivery, general and
administrative expenses................ 26,895 29,303 34,815 44,486 33,114 37,704
Interest expense......................... 355 2,753 4,786 11,523 8,542 9,545
Income (loss) before income taxes........ 9,795 3,393 8,078 10,235 9,353 (2,069)
Net income (loss)........................ 9,191 1,849 4,203 6,167 5,868 (4,862)
BALANCE SHEET DATA (END OF PERIOD):
Total assets............................. $ 58,507 $ 48,569 $ 74,750 $ 83,375 $ 91,823 $ 121,703
Total debt............................... 6,786 49,000 100,000 100,000 102,962 118,985
OTHER DATA:
EBITDA(1)................................ $ 16,094 $ 17,070 $ 21,463 $ 25,842 $ 20,279 $ 22,055
Depreciation and amortization............ 1,678 2,087 5,228 3,585 2,384 3,246
</TABLE>
- ------------------------------
(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, special charges, stock option
compensation expense and certain non-recurring expenses related to
acquisitions. While we do not intend for EBITDA to represent cash flow from
operations as defined by GAAP and we do not suggest that you consider it 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, we
include it herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We believe EBITDA provides investors
and analysts in the building materials industry the necessary information to
analyze and compare our historical results on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
However, as EBITDA is not defined by GAAP, it may not be calculated on the
same basis as other similarly titled measures of other companies within the
building materials industry.
12
<PAGE>
UNAUDITED SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
We present below the unaudited summary pro forma consolidated financial data
for Atrium. The unaudited summary pro forma consolidated financial data are
derived from the audited and unaudited historical financial statements listed in
the Index to Financial Statements on page F-1 and certain unaudited historical
financial statements of other acquired businesses. The unaudited summary pro
forma consolidated income statement and other data for the year ended December
31, 1998 give effect to the Atrium transactions as if they had occurred on
January 1, 1998. The unaudited summary pro forma consolidated income statement
and other data for the three months ended March 31, 1999 gives effect to the
acquisitions of Delta, Heat and Champagne and the offering of the outstanding
notes and our use of the proceeds as if they occurred on January 1, 1999. The
unaudited pro forma consolidated balance sheet data gives effect to the Heat and
Champagne acquisitions and the offering of the outstanding notes and our use of
the proceeds as if they had occurred on March 31, 1999.
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 Atrium
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 "Risk Factors-- Substantial Leverage and Debt Service,"
"Unaudited Pro Forma Consolidated Financial Statements," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the financial statements, related notes and other financial information included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, 1999 DECEMBER 31, 1998
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................................... $ 123,287 $ 493,079
Gross profit................................................................ 37,362 156,367
Selling, delivery, general and administrative expenses...................... 29,506 106,445
Income from operations...................................................... 4,065 33,117
Income (loss) before income taxes........................................... (3,736) 983
OTHER DATA:
EBITDA(1)................................................................... $ 9,336 $ 55,214
Adjusted EBITDA(2).......................................................... 10,347 59,255
Depreciation and amortization............................................... 5,202 13,072
Stock option compensation expense........................................... -- 9,257
Cash interest expense....................................................... 7,393 29,894
Capital expenditures........................................................ 1,330 10,283
Ratio of adjusted EBITDA to cash interest expense........................... 1.4x 2.0x
Ratio of total debt to adjusted EBITDA...................................... -- 5.1x
<CAPTION>
AS OF MARCH 31, 1999
---------------------------------
ACTUAL PRO FORMA
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(3).......................................................... $ 67,820 $ 78,628
Total assets................................................................ 366,766 474,372
Total debt.................................................................. 185,260 308,656
Stockholder's equity........................................................ 133,253 110,417
</TABLE>
- ------------------------
(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, special charges, stock option
compensation expense and certain non-recurring expenses
13
<PAGE>
related to acquisitions. While we do not intend for EBITDA to represent cash
flow from operations as defined by GAAP and we do not suggest that you
consider it 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, we include it herein to provide additional information with
respect to our ability to meet our future debt service, capital expenditures
and working capital requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." We believe EBITDA
provides investors and analysts in the building materials industry the
necessary information to analyze and compare our results on a comparable
basis with other companies on the basis of operating performance, leverage
and liquidity. However, as EBITDA is not defined by GAAP, it may not be
calculated on the same basis as other similarly titled measures of other
companies within the building materials industry.
(2) Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
EBITDA.............................................................. $ 9,336 $ 55,214
Elimination of non-recurring transaction costs and certain general
and administrative expenses of Heat............................... 130 520
Cost savings related to new supply agreements on raw materials of
Heat.............................................................. 298 1,190
Cost savings related to new supply agreements on raw materials of
Champagne......................................................... 85 341
Cost savings related to the consolidation of Atrium's wood
operations, including raw material and logistics savings and the
elimination of certain general and administrative expenses........ 498 1,990
----------- ------------
Adjusted EBITDA..................................................... $ 10,347 $ 59,255
----------- ------------
----------- ------------
</TABLE>
While we do not intend for adjusted EBITDA to represent cash flow from
operations as defined by GAAP and we do not suggest that you consider it 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, we
include it herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) Computed as current assets less current liabilities, excluding current
portion of notes payable.
14
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE EXCHANGE NOTES INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE EXCHANGE NOTES.
OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE COULD ADVERSELY AFFECT OUR FINANCIAL
HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
We have a significant amount of debt. On a pro forma basis, after giving
effect to the Heat and Champagne acquisitions and the offering of the
outstanding notes and our use of the proceeds, at March 31, 1999, we would have
had approximately $308.7 million of consolidated debt outstanding, of which
approximately $136.3 million would have been senior indebtedness (exclusive of
unused commitments under our revolving credit facility), which includes
approximately $1.3 million of senior indebtedness of our subsidiaries (exclusive
of their guarantee of approximately $135.0 million of our senior indebtedness)
and our total consolidated debt, as a percentage of capitalization, would have
been approximately 74%.
Our high level of indebtedness could have important consequences to you. For
example, it could:
- limit our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service requirements
or other purposes;
- limit our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service requirements;
- increase our vulnerability to interest fluctuations because, on a pro
forma basis, after giving effect to the Heat and Champagne acquisitions
and the offering of the outstanding notes and our use of the proceeds,
approximately $71.5 million of our debt would have been at variable
interest rates as of March 31, 1999;
- limit our ability to compete with others who are not as highly leveraged
as we are; and
- limit our ability to react to changing market conditions, changes in our
industry and economic downturns.
Our ability to meet our debt service obligations and to satisfy our other
obligations will depend upon our future operating performance. If in the future
we cannot generate sufficient cash from operations to make scheduled payments on
the exchange notes or to meet our other obligations, we will need to refinance
our debt, obtain additional debt or equity financing or sell assets. To the
extent we need to sell significant assets to make scheduled payments on the
exchange notes or meet our other obligations, such sales would have a material
adverse effect on our business, operating results or financial condition.
OUR EXISTING DEBT AGREEMENTS IMPOSE SIGNIFICANT RESTRICTIONS ON US.
The operating and financial restrictions and covenants in our existing debt
agreements, including the indenture governing the exchange notes and our credit
facility, and any future financing agreements may adversely affect our ability
to finance future operations or capital needs or to engage in other business
activities. A breach of any of these restrictions or covenants could cause a
default under our debt, including the exchange notes. Such a default may trigger
defaults under our other debt instruments that contain cross-acceleration or
cross-default provisions. A significant portion of our indebtedness then may
become immediately due and payable. We are not certain whether we would have, or
be able to obtain, sufficient funds to make these accelerated payments,
including payments on the exchange notes.
15
<PAGE>
WE MAY NOT BE ABLE TO INTEGRATE SUCCESSFULLY THE HEAT AND CHAMPAGNE BUSINESSES
AND OTHER BUSINESSES THAT WE MAY ACQUIRE IN THE FUTURE.
Our future performance will depend heavily on our ability to integrate the
Heat and Champagne businesses and other businesses that we may acquire in the
future. In order to integrate the newly acquired businesses into our business,
we must integrate manufacturing facilities, extend our financial and management
controls and operating, administrative and information systems in a timely
manner and on satisfactory terms and conditions. We cannot assure you that we
will be able to integrate the Heat and Champagne businesses or other businesses
that we may acquire in the future or that we will be able to realize projected
cost savings and synergies in connection with such acquisitions on the timetable
contemplated or at all.
Furthermore, the costs of the acquisitions of Heat and Champagne and of
acquisitions of other businesses that we may consummate in the future could have
an adverse effect on short-term operating results. Such costs could include:
- restructuring charges associated with the acquisitions; and
- other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees,
investment banking fees, recognition of transaction-related obligations
and various other acquisition-related costs.
The integration of the Heat and Champagne businesses or other newly acquired
companies may also lead to diversion of management attention from other ongoing
business concerns. In addition, we may need to recruit additional managers to
supplement the incumbent management of newly acquired companies but we may not
have the ability to recruit additional managers with the skills necessary to
enhance the management of the acquired companies.
THE EXCHANGE NOTES WILL BE SUBORDINATE TO ALL OF OUR EXISTING AND FUTURE SENIOR
INDEBTEDNESS AND THE GUARANTEES WILL BE SUBORDINATE TO ALL EXISTING AND FUTURE
SENIOR INDEBTEDNESS OF THE GUARANTORS.
The exchange notes will be subordinate to all of our existing and future
senior indebtedness. The guarantees will be subordinate to all existing and
future senior indebtedness of the guarantors. On a pro forma basis, after giving
effect to the Heat and Champagne acquisitions and the offering of the
outstanding notes and our use of the proceeds, at March 31, 1999, we would have
had approximately $136.3 million of senior indebtedness outstanding, exclusive
of unused commitments under our revolving credit facility, and the guarantors
would have had approximately $1.3 million of senior indebtedness outstanding,
exclusive of their guarantee of approximately $135.0 million of our senior
indebtedness.
In the event of our bankruptcy, liquidation or dissolution, our assets would
be available to pay obligations on the exchange notes only after all payments
had been made on our senior indebtedness. Similarly, in the event of bankruptcy,
liquidation or dissolution of any guarantor, its assets would be available to
pay obligations on the exchange notes only after all payments had been made on
its senior indebtedness. We cannot assure you that sufficient assets will remain
to make any payments on the exchange notes. In addition, certain events of
default under our and the guarantors' senior indebtedness would prohibit us and
the guarantors from making any payments on the exchange notes or the guarantees.
WE MAY BE UNABLE TO PASS ON TO CUSTOMERS FLUCTUATIONS IN RAW MATERIAL COSTS AND
SUPPLY, AND INTERRUPTIONS OF OPERATIONS AT ANY OF OUR MANUFACTURING FACILITIES
OR SUPPLIERS' DELAYS MAY ADVERSELY AFFECT OUR BUSINESS.
We purchase aluminum, vinyl, wood, glass and other raw materials from
various suppliers. While all of these materials are available from numerous
independent suppliers, commodity raw materials are subject to fluctuations in
price. We cannot assure you that severe shortages of such materials will not
occur in the future, which could increase the cost of, or delay the shipment of,
our products and have a material adverse effect on our operating results. In
addition, we may be unable to pass on to customers gradual increases in
16
<PAGE>
raw material prices. Moreover, 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 our short-term financial performance.
In addition, loss of or interruptions of operations at any of our
manufacturing facilities or suppliers experiencing delays or generating higher
costs could have an adverse effect on our business, operating results or
financial condition.
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
We compete with other national and regional manufacturers in our markets,
including Reliant Building Products, Inc., Nortek Inc., Andersen Corporation,
American Architectual Products Company and Pella Corporation in the window
market, and Premdor, Inc. and Jeld-Wen in the door market. Certain of our
principal competitors may be less highly-leveraged than we are and have greater
financial resources than we do. Accordingly, such competitors may be better able
to withstand changes in conditions within the industries in which we operate and
may have significantly greater operating and financial flexibility than we do.
As a result of the competitive environment in the markets in which we
operate, we face and will continue to face pressure on sales prices of our
products from competitors, as well as from large customers. As a result of such
pricing pressures, we may in the future experience reductions in the profit
margins on sales, or may be unable to pass future raw material price or labor
cost increases on to our customers which would also reduce profit margins. We
cannot assure you that we will not encounter increased competition in the future
which could have a material adverse effect on our business, operating results or
financial condition.
WE HAVE BEEN, AND MAY IN THE FUTURE BE, SUBJECT TO CLAIMS AND LIABILITIES UNDER
ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS.
Our past and present operations and assets 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. We do not expect to make any
expenditures with respect to ongoing compliance with or remediation under these
environmental laws and regulations that would have a material adverse effect on
our business, operating results or financial condition. However, the applicable
requirements under the law may change at any time.
The nature of our past and present operations and assets expose us to the
risk of claims under these environmental, health and safety laws and
regulations. We cannot assure you that material costs or liabilities will not be
incurred in connection with such claims. We have been subject to such claims in
the course of our operations, and have made expenditures to address these known
conditions in a manner consistent with applicable laws and regulations. Based on
our experience to date, we do not believe that these existing claims will have
any further material adverse effect on our business, operating results or
financial condition. We cannot assure you, however, that the discovery of
presently unknown environmental conditions, changes in environmental, health,
and safety laws and regulations or other unanticipated events will not give rise
to claims that may involve material expenditures or liabilities.
Prior to 1993 we received correspondence in which we were named as
potentially responsible parties at two Superfund sites, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended or comparable state statutes. In one instance, we have entered into a
settlement and in the other instance, the group of potentially responsible
parties has negotiated a proposed remediation plan which has been approved by
the relevant state agency and is being reviewed by the United States
Environmental Protection Agency. Based on the actions taken to date and our
current insurance coverage, we believe that any liability associated with the
Superfund sites does not currently have and will not have a material adverse
effect on our business, operating results or financial condition.
17
<PAGE>
However, because the Comprehensive Environmental Response, Compensation and
Liability Act provides for strict, and sometimes joint and several liability, we
cannot assure you that the liabilities in question will not result in material
expenditures in the future.
TRENDS IN THE HOUSING SECTOR AND IN GENERAL ECONOMIC CONDITIONS DIRECTLY IMPACT
OUR FINANCIAL PERFORMANCE.
Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity. For the year ended December 31,
1998, we estimate that approximately 42% of our pro forma net sales were related
to new home construction. Trends in the housing sector directly impact our
financial performance. Accordingly, the strength of the U.S. economy, the age of
existing home stock, job growth, interest rates, consumer confidence and the
availability of consumer credit, as well as demographic factors such as the
migration into the United States and migration of the population within the
United States have a direct impact on our business. Cyclical declines in new
housing starts may have a material adverse effect on our business, operating
results or financial condition.
OUR BUSINESS WOULD BE SERIOUSLY IMPAIRED IF WE LOST OUR CURRENT RELATIONSHIP
WITH THE HOME DEPOT.
We have a significant relationship with The Home Depot, one of the largest
home center retailers. The Home Depot accounted for approximately 23% of our pro
forma net sales for the year ended December 31, 1998. Our operating and
financial performance is currently dependent, in part, upon our relationship
with this customer. We cannot assure you that we will be able to maintain such
relationship consistent with historic levels or at all.
OUR BUSINESS IS SUBJECT TO SEASONALITY.
Markets for our building-related products are seasonal. Historically, our
window business has 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 our door products,
particularly our interior doors. We cannot assure you that these seasonal trends
will not have a material adverse effect on our business, operating results or
financial condition.
THE LOSS OF CERTAIN KEY OFFICERS OR EMPLOYEES OR INABILITY TO FIND A CHIEF
EXECUTIVE OFFICER COULD ADVERSELY EFFECT US.
The success of our business is materially dependent upon the continued
services of certain of our key officers and employees. The loss of such key
personnel could have a material adverse effect on our business, operating
results or financial condition. While we have non-competition agreements with
certain key officers and employees, we cannot assure you that a court will find
such agreements enforceable under applicable state law.
In addition, we are currently engaged in a search for a chief executive
officer. We cannot assure you that we will find a suitable candidate in the near
future or that such candidate will be able to effectively manage our business,
but we believe that our current management structure is sufficient to operate
our business.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY POTENTIAL LABOR DISPUTES.
Approximately 36% of our hourly employees are covered by three-year
collective bargaining agreements which expire in 2001. We cannot assure you that
we will not experience work stoppages or slowdowns in the future. In addition,
we cannot assure you that our non-union facilities will not become subject to
labor union organizing efforts or that labor costs will not materially increase.
18
<PAGE>
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS OR REGISTER OUR SIGNIFICANT
MARKS.
We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality and non-disclosure agreements and other contractual
provisions to protect our proprietary rights, measures that provide only limited
protection. We cannot assure you that our means of protecting our proprietary
rights will be adequate or that competitors will not independently develop
similar technologies.
We have applied to register certain of our trademarks. We cannot assure you
that we will obtain registrations of principal marks in key markets. Failure to
obtain registrations could compromise our ability to protect our trademarks and
brands and could increase the risk of challenge from third parties to our use of
our trademarks and brands. Our failure to enforce and protect our intellectual
property rights or obtain from third parties the right to use necessary
intellectual property could have a material adverse effect on our business,
operating results or financial condition.
THE YEAR 2000 PROBLEM WILL REQUIRE SIGNIFICANT EXPENDITURES AND COULD DISRUPT
OUR OPERATIONS, IMPACTING OUR REVENUES.
We are assessing the impact of the Year 2000 problem and have or intend to
modify portions of our hardware and software so that our computer systems will
function properly with respect to dates in the Year 2000 and thereafter. Much of
our assessment efforts have involved and depends on inquiries with our major
suppliers and customers as to their Year 2000 compliance. Substantially all of
our major suppliers and customers have indicated that their Year 2000 testing
and remediation programs are complete or will be complete by the end of the
third quarter of 1999. We have not, however, tested or independently verified
the Year 2000 compliance of our major suppliers and customers.
We face certain risks related to the Year 2000 problem including potential
disruptions in our operations due to Year 2000 problems with our systems,
potential disruptions in material supply due to Year 2000 problems with our
suppliers' systems and potential loss of sales or delayed cash collections in
the event of Year 2000 problems with our customers' systems. Although we have
not formalized a contingency plan to address the problems associated with these
risks, there are several factors that we believe may mitigate potential Year
2000 problems. Because our business has only recently been computerized, we
believe we can run our business without significant interruptions using manual
labor and "paper" systems in the event of a Year 2000 problem with our systems.
In addition, because we source our materials from several suppliers, we believe
we have decreased the likelihood that a Year 2000 disruption at one of our
suppliers will materially interrupt our material supply. Although we believe
these factors mitigate our Year 2000 risks, we cannot assure you that problems
arising from these risks will not have a material adverse effect on our
business, operating results or financial condition.
Although we believe that the Year 2000 problem will not pose significant
operational problems for us, we cannot assure you that our computer systems or
the computer systems of companies we acquire or the computer systems of other
companies with whom we conduct business will be Year 2000 compliant prior to
December 31, 1999. Furthermore, we cannot assure you that the inability of any
such systems to process accurately Year 2000 data will not have a material
adverse effect on our business, operating results or financial condition.
WE MAY NOT HAVE SUFFICIENT FUNDS TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED
BY THE INDENTURE OR OTHER AMOUNTS PAYABLE UPON A CHANGE OF CONTROL.
Upon the occurrence of a change of control, we will be required to offer to
purchase all of the outstanding exchange notes. Furthermore, a change of control
will result in an event of default under our credit facility, permitting the
lenders to accelerate all unpaid amounts, in which case such indebtedness would
be required to be repaid in full before repurchase of the exchange notes. We
cannot assure you we will have funds available to pay the accelerated amounts
and to repurchase the exchange notes.
19
<PAGE>
In addition, a change of control under our indenture will also constitute a
change of control for purposes of the indenture governing the discount
debentures issued by our parent, Atrium Corporation. In such case, Atrium
Corporation will be required to repurchase the discount debentures.
GEIPPPII AND ARDSHIEL, OUR CONTROLLING STOCKHOLDERS, HAVE A SIGNIFICANT
INFLUENCE OVER OUR MANAGEMENT AND POLICIES AND THEIR INTERESTS MAY DIFFER FROM
THE INTERESTS OF HOLDERS OF THE EXCHANGE NOTES.
GEIPPPII and Ardshiel own approximately 97% of the outstanding shares of
common stock of our ultimate parent, D and W Holdings, Inc. As a result of this
ownership and the provisions of the stockholders agreement executed by the
stockholders of D and W Holdings, GEIPPPII and Ardshiel are able to direct the
election of 8 of the 9 members of the Board of Directors of D and W Holdings and
therefore direct our management and policies. The interests of GEIPPPII and
Ardshiel may differ from the interests of holders of the exchange notes. The
stockholders agreement also provides that we cannot take certain actions without
obtaining the prior written consent of GEIPPPII and that D and W Holdings will
cause us to make dividend payments to make interest and principal payments on,
or to repurchase, redeem or repay, the discount debentures.
AN ACTIVE TRADING PUBLIC MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES CAUSING
DIFFICULTIES FOR YOU IF YOU TRY TO RESELL THE EXCHANGE NOTES.
There is no established trading market for the exchange notes or the
outstanding notes. Although the initial purchaser of the outstanding notes has
informed us that it intends to make a market in the outstanding notes and the
exchange notes, it has no obligation to do so and may discontinue making a
market at any time without notice. Furthermore, we do not intend to apply for
listing of the exchange notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System.
The liquidity of and trading market for the exchange notes depends upon the
number of holders of the exchange notes, our performance, the market for similar
securities, the interest of securities dealers in making a market in the
exchange notes, and other factors. As a result, we cannot assure you as to the
development of a liquid trading market for the exchange notes.
UNDER CERTAIN CIRCUMSTANCES, A COURT COULD SUBORDINATE OR AVOID ANY OF THE
GUARANTEES.
Although laws differ among various jurisdictions, in general, under federal
bankruptcy laws and comparable provisions of state fraudulent conveyance laws,
under certain circumstances a court could subordinate or avoid any of the
guarantees.
If a court avoided a guarantee as a result of fraudulent conveyance, or held
it unenforceable for any other reason, holders of the exchange notes would cease
to have a claim against the relevant guarantor and would be solely creditors of
Atrium and the other guarantors.
We believe that the guarantees are being incurred for proper purposes and in
good faith. This belief is based on our analysis of internal cash flow
projections and estimated values of assets and liabilities of the guarantors at
the time of this offering. We cannot assure you, however, that a court passing
on these issues would make the same determination.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. We caution prospective investors that forward-looking statements
are not guarantees of future performance. These forward-looking statements are
subject to risks, uncertainties, and assumptions about us, including, among
other things:
- our anticipated growth strategies;
- our ability to integrate acquired businesses, including, but not limited
to, Heat and Champagne;
- our intention to introduce new products;
- anticipated trends in our businesses and the economy, including trends in
the markets for windows and doors, the availability of consumer credit,
interest rates, employment, levels of consumer confidence, consumer
preferences, new housing starts, raw material costs and pricing pressures;
- our future capital expenditures; and
- our ability to continue to control costs and maintain quality.
Many of these factors are beyond our control, and our actual results could
differ materially from those discussed in these statements. In light of these
risks, uncertainties and assumptions, you should not place undue reliance on
these forward-looking statements. We undertake no obligation to update or revise
any forward-looking statements or the reasons why actual results may differ,
whether as a result of new information, future events or otherwise.
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement entered in connection with the offering of the
outstanding notes. We will not receive any cash proceeds from the exchange
offer. In consideration for issuing the exchange notes, we will receive
outstanding notes in like principal amount. We will cancel all outstanding notes
surrendered in exchange for the exchange notes. Accordingly, issuance of the
exchange notes will not result in any change in our indebtedness.
In addition to financing the acquisitions of Heat and Champagne, we used the
$172.4 million of net proceeds from the offering of the outstanding notes to:
- repay certain of our borrowings under our credit facility, including
accrued interest through date of repayment,
- retire our remaining existing senior subordinated notes including accrued
interest through the date of repayment and repurchase premium,
- fund a distribution to Atrium Corporation to repurchase a portion of the
discount debentures, including accreted discount through the date of
repurchase, held by GEIPPPII and an affiliate of Ardshiel, and
- pay transaction fees and expenses.
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THE EXCHANGE OFFER
The following discussion summarizes the material terms of the exchange
offer, including those set forth in the letter of transmittal distributed with
this prospectus. This summary is qualified, in its entirety by reference to the
full text of the documents underlying the exchange offer, including the
indenture and the registration rights agreement governing the exchange notes,
which are exhibits to the exchange offer registration statement of which this
prospectus is a part.
GENERAL
In connection with the sale of the outstanding notes to the initial
purchaser, we entered into a registration rights agreement, dated May 17, 1999,
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated as
initial purchaser.
The registration rights agreement requires among other things that we:
- file with the Commission within 60 days after the original issue date of
the outstanding notes a registration statement under the Securities Act in
connection with the issue of the exchange notes;
- use our best efforts to cause the registration statement relating to such
registered exchange offer to become effective under the Securities Act
within 180 days after the original issue date of the outstanding notes;
- use our best efforts to have the registration statement relating to the
exchange offer to remain effective until the closing of the exchange
offer;
- use our best efforts to commence the exchange offer and cause such
exchange offer to be consummated within 210 days after the original issue
date of the outstanding notes; and
- upon the effectiveness of the exchange offer registration statement,
commence the exchange offer and keep the exchange offer open for not less
than 20 business days, or longer if required by applicable law.
If we consummate this exchange offer within the required time periods, we
will satisfy our obligations under the registration rights agreement. This
prospectus, together with the letter of transmittal, is being sent to all
beneficial holders of the outstanding notes known to us.
In addition, we agreed, under the registration rights agreement, to file a
shelf registration statement pursuant to Rule 415 under the Securities Act, if:
- applicable law or the Commission's policy do not permit us to effect the
exchange offer;
- for any other reason the exchange offer is not consummated within 210 days
after the original issuance date of the outstanding notes;
- any holder of outstanding notes notifies us within 20 business days after
the commencement of the exchange offer that (1) due to a change in
applicable law or the Commission's policy it is not entitled to
participate in the exchange offer or it may not resell the exchange notes
without delivering a prospectus and the appropriate prospectus is not
available or (2) is a broker-dealer and owns outstanding notes acquired
directly from us or one of our affiliates; or
- the holders of a majority of outstanding notes may not resell the exchange
notes without restriction under the Securities Act and under applicable
blue sky or state securities law.
We have agreed to use our best efforts to cause such shelf registration
statement to become effective under the Securities Act as soon as practicable
but in no event later than 60 days after the filing of the shelf registration
statement. In addition, we agreed to use our best efforts to keep such shelf
registration
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statement continually effective, supplemented and amended for a period of at
least two years following the effective date of the shelf registration
statement, or such shorter period as will terminate when all outstanding notes
covered by such shelf registration statement have been sold.
Except as we have described, this prospectus may not be used for any offer
to resell, resale or other transfer of exchange notes.
Except as described above, after consummation of the exchange offer, holders
of outstanding notes will have no registration or exchange rights under the
registration rights agreement.
REGISTRATION DEFAULTS; LIQUIDATED DAMAGES
If either of the following registration defaults occur, we have agreed to
pay liquidated damages to each affected holder of outstanding notes:
- the registration statement related to the exchange offer or shelf
registration statement is not timely filed or declared effective or ceases
to be effective or fails to be usable for its intended purpose without
being succeeded immediately by an additional registration statement
covering all outstanding notes that is filed and is declared effective, or
- if the exchange offer has not been consummated on or prior to the 30th day
after the effective date.
Liquidated damages will accrue and become payable on the outstanding notes
as follows:
- with respect to the first 90-day period while a registration default is
continuing immediately following the occurrence of such registration
default, in an amount equal to 0.25% per annum of the principal amount of
the outstanding notes; and
- the amount of liquidated damages will increase by an additional 0.25% per
annum of the principal amount of the outstanding notes for each subsequent
90-day period while a registration default is continuing until all
registration defaults have been cured, up to an aggregate maximum amount
of 1.00% per annum of the principal amount of the outstanding notes.
Liquidated damages shall be computed based on the actual number of days
elapsed during which any such registration default exists. Following the cure of
a registration default, the accrual of liquidated damages with respect to such
registration default will cease.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall mean 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the exchange
offer, in which case the expiration date will be the latest date and time to
which the exchange offer is extended.
To extend the exchange offer, we will notify the exchange agent of any
extension by oral or written notice, followed by a public announcement thereof
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. In no event will the expiration date be
extended to a date more than 30 days after effectiveness of the registration
statement.
We reserve the right, in our reasonable judgment:
(1) to delay accepting any outstanding notes, to extend the exchange
offer or to terminate the exchange offer if any of the conditions described
below have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent, or
(2) to amend the terms of the exchange offer in any manner.
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Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by a public announcement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders of the outstanding notes may tender some or all of their
outstanding notes pursuant to the exchange offer.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture. The form and terms of the
exchange notes are substantially the same as the form and terms of the
outstanding notes, except that:
- the exchange notes have been registered under the Securities Act and thus
will not bear legends restricting their transfer; and
- holders of the exchange notes generally will not be entitled to certain
rights under the registration rights agreement or liquidated damages,
which rights generally will terminate after consummation of the exchange
offer.
Holders of outstanding notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the indenture in connection with
the exchange offer. We intend to conduct the exchange offer in accordance with
the applicable requirements of the Securities Exchange Act, as amended and the
rules and regulations of the Commission thereunder, including Rule 14e-1.
We shall be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders pursuant to the
exchange agent agreement for the purpose of receiving the exchange notes from
us.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, the certificates for any such unaccepted outstanding
notes will be returned, without expense, to the tendering holder as promptly as
practicable after the expiration date.
Holders who tender their outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes in connection with the exchange of
outstanding notes in the exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange offer. See "--Fees and Expenses."
INTEREST ON EXCHANGE NOTES
Each exchange note will bear interest from May 17, 1999. Holders of the
outstanding notes whose outstanding notes are accepted for exchange will not
receive:
- accrued interest on such outstanding notes for any period from and after
the last interest payment date to which interest has been paid for on such
outstanding notes prior to the original issue date of the exchange notes,
or
- if no such interest has been paid, will not receive any accrued interest
on such outstanding notes, and will be deemed to have waived the right to
receive any interest on such outstanding notes accrued from and after such
interest payment date, or if no such interest has been paid or duly
provided for, from and after May 17, 1999.
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Interest on the exchange notes will be payable semi-annually on May 1 and
November 1 of each year, commencing November 1, 1999.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Only holders of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures guaranteed if required by the letter of transmittal,
and
- mail or otherwise deliver such letter of transmittal or such facsimile,
together with the outstanding notes and any other required documents, to
the exchange agent so as to be received by the exchange agent at the
address set forth below prior to 5:00 p.m., New York City time, on the
expiration date.
Delivery of the outstanding notes may be made by book-entry transfer of such
outstanding notes into the exchange agent's account at The Depository Trust
Company in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the exchange agent prior to the
expiration date.
By executing the letter of transmittal, each holder will make to us the
representation described below in the first paragraph under the heading
"--Resale of Exchange Notes."
The tender by a holder and our acceptance will constitute an agreement
between the holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.
The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is at the election and
risk of the holder. Instead of delivery by mail, it is recommended that holders
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the exchange agent before the expiration date.
No letter of transmittal or outstanding notes should be sent to us. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect the above transactions on their behalf.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Signatures on the letter of transmittal or a notice of withdrawal must be
guaranteed by an "eligible institution", which is defined below, unless the
outstanding notes tendered:
- are signed by the registered holder, unless such holder has completed the
box entitled "Special Exchange Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
- are tendered for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, such guarantee must be by a member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States, or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Securities Exchange Act. Any of the
entities described in the prior sentence is an eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed in that letter, the outstanding notes
must be endorsed or accompanied by a properly completed bond power, signed by
such registered holder as such registered holder's name appears on such
outstanding notes, with the signature guaranteed by an eligible institution.
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If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by us,
evidence satisfactory to us of its authority to so act must be submitted with
the letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all outstanding notes not properly tendered or any outstanding notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
outstanding notes must be cured within such time as we shall determine. Although
we intend to notify holders of outstanding notes of defects or irregularities
with respect to tenders of outstanding notes, neither we nor the exchange agent
or any other person shall incur any liability for failure to give such
notification. Tenders of outstanding notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any outstanding
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
BOOK-ENTRY DELIVERY PROCEDURES
Promptly after the date of this prospectus, the exchange agent will
establish accounts with respect to the outstanding notes at The Depository Trust
Company, which will be the book-entry transfer facility for purposes of the
exchange offer. Any financial institution that is a participant in the
book-entry transfer facility systems may make book-entry delivery of the
outstanding notes by causing The Depository Trust Company to transfer such
outstanding notes into the exchange agent's account at such book-entry transfer
facility in accordance with such book-entry transfer facility's procedures for
such transfer. Timely book-entry delivery of outstanding notes pursuant to the
exchange offer, however, requires receipt of a confirmation of a book-entry
transfer prior to the expiration date. In addition, although delivery of
outstanding notes may be effected through book-entry transfer into the exchange
agent's account at the book-entry transfer facility, the letter of transmittal
or a manually signed facsimile of the letter of transmittal, together with any
required signature guarantees and any other required documents, or an agent's
message, which is defined below, in connection with a book-entry transfer, must
be delivered or transmitted to and received by the exchange agent at its address
set forth on the cover page of the letter of transmittal prior to the expiration
date to receive exchange notes for tendered outstanding notes, or the guaranteed
delivery procedure described below must be complied with. Tender will not be
deemed made until such documents are received by the exchange agent. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the exchange agent.
TENDER OF OUTSTANDING NOTES HELD THROUGH THE DEPOSITORY TRUST COMPANY
The exchange agent and The Depository Trust Company have confirmed that the
exchange offer is eligible for The Depository Trust Company's Automated Tender
Offer Program. Accordingly, participants in The Depository Trust Company's
Automated Tender Offer Program may, instead of physically completing and signing
the applicable letter of transmittal and delivering it to the exchange agent,
electronically transmit their acceptance of the exchange offer by causing The
Depository Trust Company to transfer outstanding notes to the exchange agent in
accordance with The Depository Trust Company's Automated
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Tender Offer Program procedures for transfer. The Depository Trust Company will
then send an agent's message to the exchange agent.
The term agent's message means a message transmitted by The Depository Trust
Company, received by the exchange agent and forming part of the book-entry
confirmation, which states that The Depository Trust Company has received an
expressed acknowledgment from a participant in The Depository Trust Company's
Automated Tender Offer Program that is tendering outstanding notes which are the
subject of such book-entry confirmation, that such participant has received and
agrees to be bound by the terms of the applicable letter of transmittal or, in
the case of an agent's message relating to guaranteed delivery, that such
participant has received and agrees to be bound by the applicable notice of
guaranteed delivery, and that we may enforce such agreement against such
participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and:
(1) whose outstanding notes are not immediately available;
(2) who cannot deliver their outstanding notes, the letter of
transmittal or any other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date, may effect a tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed notice
of guaranteed delivery by facsimile transmission, mail or hand delivery
setting forth the name and address of the holder, the certificate
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered, stating that the tender is being made and
guaranteeing that, within three (3) New York Stock Exchange trading days
after the expiration date, the letter of transmittal or facsimile of the
letter of transmittal, together with the certificate(s) representing the
outstanding notes or a book-entry confirmation transfer of such
outstanding notes into the exchange agent's account at The Depository
Trust Company and all other documents required by the letter of
transmittal, will be deposited by the eligible institution with the
exchange agent; and
(c) such properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all
tendered outstanding notes in proper form for transfer or a book-entry
confirmation transfer of such outstanding notes into the exchange agent's
account at The Depository Trust Company and all other documents required
by the letter of transmittal, are received by the exchange agent within
three (3) New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
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To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number(s) and principal amount of such outstanding notes, or, in the case
of outstanding notes transferred by book-entry transfer, the name and
number of the account at The Depository Trust Company to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the indenture
register the transfer of such outstanding notes into the name of the
person withdrawing the tender; and
- specify the name in which any such outstanding notes are to be registered,
if different from that of the depositor.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. Any outstanding notes so withdrawn will be deemed not to
have been validly tendered for purposes of the exchange offer and no exchange
notes will be issued unless the outstanding notes so withdrawn are validly
retendered. Any outstanding notes which have been tendered but which are not
accepted for exchange will be returned to such holder without cost as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn outstanding notes may be retendered by following one
of the procedures described above at any time prior to the expiration date.
CONDITIONS
Despite any other term of the exchange offer, we shall not be required to
accept for exchange any outstanding notes, and may terminate or amend the
exchange offer as provided herein before the acceptance of such outstanding
notes, if:
(a) in the reasonable opinion of our counsel, the exchange offer or any
of its parts violates any applicable law or any applicable policy of the
Commission;
(b) any action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer or any material adverse
development has occurred in any such action or proceeding with respect to
us;
(c) any governmental approval has not been obtained, which approval we
shall deem necessary for the consummation of the exchange offer as
contemplated hereby; or
(d) none of the outstanding notes have been duly tendered in accordance
with the terms of the exchange offer.
EXCHANGE AGENT
State Street Bank and Trust Company will act as exchange agent for the
exchange offer with respect to the outstanding notes.
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Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal for the outstanding notes and
requests for copies of the notice of guaranteed delivery should be directed to
the exchange agent, addressed as follows:
By registered or certified mail or overnight courier:
State Street Bank and Trust Company
Corporate Trust Division
P.O. Box 778
Boston, MA 02102-0078
Attn: Kellie Mullen
By facsimile (for eligible institutions only): (617) 664-5290
Confirm by telephone: (617) 664-5587
Kellie Mullen
FEES AND EXPENSES
We will pay the expenses of soliciting outstanding notes for exchange. The
principal solicitation is being made by mail by the exchange agent. However,
additional solicitations may be made by telephone, facsimile or in person by our
officers and regular employees and our affiliates and by persons so engaged by
the exchange agent.
We will pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses and pay
other registration expenses, including fees and expenses of the trustee under
the indenture, filing fees, blue sky fees and printing and distribution
expenses.
We will pay all transfer taxes applicable to the exchange of the outstanding
notes pursuant to the exchange offer. If, however, certificates representing the
exchange notes or the outstanding notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the outstanding notes
tendered, or if tendered outstanding 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 exchange of the outstanding notes
pursuant to the exchange offer, then the amount of any such transfer taxes,
whether imposed on the registered holder or any other person, will be payable by
the tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is the aggregate principal amount or accrued value, as
applicable, of the outstanding notes, as reflected in our accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized in connection with the exchange offer. The expenses of the
outstanding notes offering and the exchange offer will be amortized over the
term of the exchange notes.
RESALE OF EXCHANGE NOTES
Based on these interpretations by the staff of the Commission, we believe
that holders of the exchange notes issued pursuant to this exchange offer in
exchange for outstanding notes may offer for resale, resell and otherwise
transfer the exchange notes, other than such a holder who is a broker-dealer,
without further compliance with the registration and prospectus delivery
requirements of the Securities Act. This is true as long as such exchange notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate in
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a distribution within the meaning of the Securities Act of such exchange notes.
Despite the above, any holder of outstanding notes may be subject to separate
restrictions if it:
- is our "affiliate" within the meaning of Rule 405 under the Securities
Act;
- does not acquire such exchange notes in the ordinary course of its
business;
- intends to participate in the exchange offer for the purpose of
distributing exchange notes; or
- is a broker-dealer who purchased such outstanding notes directly from us.
Holders of outstanding notes falling into any of the categories above:
- will not be able to rely on the interpretations of the staff of the
Commission set forth in the above-mentioned interpretive letters;
- will not be permitted or entitled to tender such outstanding notes in the
exchange offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such
outstanding notes unless such sale is made pursuant to an exemption from
such requirements.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where those outstanding notes were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such exchange notes. The Commission has taken the position that
broker-dealers may fulfill their prospectus delivery requirements with respect
to exchange notes, other than a resale of an unsold allotment from the original
sale of the outstanding notes, with this prospectus. Under the registration
rights agreement, we are required during the period required by the Securities
Act to allow broker-dealers and other persons with similar prospectus delivery
requirements to use this prospectus in connection with the resale of such
exchange notes.
In addition, as described below, if any broker-dealer holds outstanding
notes acquired for its own account, then such broker-dealer may be deemed a
statutory "underwriter" within the meaning of the Securities Act and must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such exchange notes.
Each holder of outstanding notes and each initial purchaser who is required
to deliver a prospectus in connection with sales or market making activities, by
acquisition of outstanding notes, agrees that, upon a receipt of notice from us
that:
(1) the issuance by the Commission of any stop order suspending the
effectiveness of the exchange offer registration statement under the
Securities Act or of the suspension by any state securities commission of
the qualification of the outstanding notes from offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, or
(2) the existence of any fact or the happening of any event that makes
any statement of a material fact made in the registration statement or this
prospectus, or any amendment or supplement to it or any document
incorporated by reference herein untrue, or that requires the making of any
additions or changes in the registration statement or this prospectus in
order to make the statements in this prospectus, in light of the
circumstances under which they were made, not misleading,
such holder or person shall discontinue disposition of the outstanding notes
pursuant to this prospectus until such holder or person has received copies of
the supplemented or amended prospectus or such holder or person is advised in
writing by us that use of the prospectus may be resumed and has received copies
of any additional or supplemental filings that are incorporated by reference in
the prospectus.
30
<PAGE>
In addition, each holder or person will be deemed to have agreed that it
will either:
(1) destroy any prospectuses, other than permanent file copies, then in
such holder or person's possession which have been replaced by us with more
recently dated prospectuses; or
(2) deliver to us, at our expense, all copies, other than permanent file
copies, then in such holder's or person's possession of the prospectus
covering such outstanding notes that was current at the time of receipt of
the suspension notice regarding the happening of any event described in part
(2) of the prior paragraph.
We shall extend the time period regarding the effectiveness of the registration
statement by a number of days equal to the number of days in the period from and
including the date of delivery of the suspension notice regarding the happening
of any event described in part (2) of the prior paragraph to the date of
delivery of the supplement or amendment.
CONSEQUENCES OF FAILURE TO EXCHANGE
Any outstanding notes tendered and exchanged in the exchange offer will
reduce the aggregate principal amount of outstanding notes. Following the
consummation of the exchange offer, holders who did not tender their outstanding
notes generally will not have any further registration rights under the
registration rights agreement, and such outstanding notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such outstanding notes could be adversely affected.
The outstanding notes are currently eligible for sale pursuant to Rule 144A
through Private Offerings, Resales and Trading through Automated Linkages
(PORTAL). Because we anticipate that most holders will elect to exchange such
outstanding notes for exchange notes in the exchange offer due to the absence of
restrictions on the resale of exchange notes, except for applicable restrictions
on any holder of exchange notes who is our affiliate or is a broker-dealer which
acquired the outstanding notes directly from us, under the Securities Act, we
anticipate that the liquidity of the market for any outstanding notes remaining
after the consummation of the exchange offer may be substantially limited.
As a result of the making of this exchange offer, we will have fulfilled
certain of our obligations under the registration rights agreement, and holders
who do not tender their outstanding notes, with certain exceptions, will not
have any further registration rights under the registration rights agreement or
rights to receive liquidated damages for failure to register. Accordingly, any
holder that does not exchange its outstanding notes for exchange notes will
continue to hold the untendered outstanding notes and will be entitled to all
the rights and subject to all the applicable limitations under the indenture.
The outstanding notes that are not exchanged for exchange notes pursuant to
the exchange offer will remain restricted securities within the meaning of the
Securities Act. Accordingly, such outstanding notes may be resold only:
- to us or any of our subsidiaries;
- inside the United States to a qualified institutional buyer in compliance
with Rule 144A under the Securities Act;
- inside the United States to an institutional "accredited investor", which
term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act, an "accredited investor" that, prior to such transfer, furnishes or
has furnished on its behalf by a U.S. broker-dealer to the trustee under
the indenture a signed letter containing certain representations and
agreements relating to the restrictions on transfer, the form of which
letter can be obtained from such trustee;
- outside the United States in compliance with Rule 904 under the Securities
Act;
- pursuant to the exemption from registration provided by Rule 144 under the
Securities Act, if available; or
- pursuant to an effective registration statement under the Securities Act.
31
<PAGE>
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the outstanding notes from the initial
purchaser will be required to sign a letter confirming that such person is an
accredited investor under the Securities Act and that such person acknowledges
the transfer restrictions summarized in this prospectus.
OTHER
Participation in the exchange offer is voluntary and holders of outstanding
notes should carefully consider whether to accept the offer to exchange their
outstanding notes. Holders of outstanding notes are urged to consult their
financial and tax advisors in making their own decision on what action to take
with respect to the exchange offer. We may in the future seek to acquire
untendered outstanding notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. We have no
present plans to acquire any outstanding notes that are not tendered in the
exchange offer or to file a registration statement to permit resales of any
untendered outstanding notes.
32
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization as of March
31, 1999 on an actual and a pro forma basis. You should refer to our unaudited
pro forma consolidated financial statements and the financial statements,
related notes and other financial information included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
ACTUAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt......................................................... $ 2,206 $ 2,206
Long-term debt, excluding current maturities:
Revolving credit facility............................................................... 10,700 5,098
Term loans.............................................................................. 142,930 127,930
Existing senior subordinated notes...................................................... 29,070 --
Other................................................................................... 354 1,054
Outstanding notes (net of unamortized debt discount of $2,632).......................... -- 172,368
---------- -----------
Total long-term debt.................................................................. $ 185,260 $ 308,656
---------- -----------
Stockholder's equity:
Common stock, par value $.01 per share; 3,000 shares authorized; 100 shares
outstanding........................................................................... $ -- $ --
Additional paid-in capital.............................................................. 134,852 134,852
Accumulated deficit..................................................................... (1,630) (24,466)
Accumulated other comprehensive income.................................................. 31 31
---------- -----------
Total stockholder's equity............................................................ 133,253 110,417
---------- -----------
Total capitalization................................................................ $ 318,513 $ 419,073
---------- -----------
---------- -----------
</TABLE>
33
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(AFTER THE 1998 RECAPITALIZATION)
The selected consolidated historical income statement and other data set
forth below for the year ended December 31, 1995, the periods ended October 25,
1996 and December 31, 1996 and the years ended December 31, 1997 and 1998, and
the selected consolidated historical balance sheet data at December 31, 1995,
1996, 1997 and 1998 and October 25, 1996 were derived from the audited
consolidated financial statements described below. The selected consolidated
historical financial data as of and for the year ended December 31, 1994 and the
three months ended March 31, 1998 and 1999, were derived from Atrium's (after
the 1998 recapitalization) unaudited consolidated financial statements, which in
the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. 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 the financial
statements, related notes and other financial information included elsewhere in
this prospectus.
Prior to October 2, 1998, Atrium's consolidated historical financial
statements as filed with the Commission included its operations and the
operations of its subsidiaries. On October 2, 1998, pursuant to the 1998
recapitalization, the stock of Wing and Darby were contributed to Atrium.
As Wing was determined to be the accounting acquiror in a "reverse
acquisition," the consolidated historical financial statements of Atrium, prior
to October 3, 1998, were replaced with the consolidated historical financial
statements of Wing. As a result, the selected consolidated historical income
statement and other data for 1998 includes the operations of Wing from January 1
through December 31 and the operations of Atrium and Darby from October 3
through December 31. The selected consolidated historical income statement and
other data for the three months ended March 31, 1999 include the operations of
Atrium, Wing and Darby for the three months ended March 31, 1999 and Delta since
January 27, 1999. Wing was acquired by its present controlling shareholders on
October 25, 1996. The selected consolidated historical income statement and
other data for the years ended December 31, 1994, 1995 and 1997, the three
months ended March 31, 1998 and the periods ended October 25, 1996 and December
31, 1996 only include the operations and accounts of Wing and its predecessor.
The December 31, 1998 selected consolidated historical balance sheet data
includes the accounts of Atrium, Wing and Darby. The December 31, 1994, 1995,
1996 and 1997, and October 25, 1996 selected consolidated historical balance
sheet data only include the accounts of Wing and its predecessor.
The references in the selected consolidated historical financial data to the
periods ended December 31, 1996 and October 25, 1996, refer to the periods
October 26, 1996 through December 31, 1996 and January 1, 1996 through October
25, 1996, respectively.
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------
YEAR ENDED DECEMBER
PERIOD PERIOD YEAR ENDED DECEMBER THREE MONTHS ENDED
31, ENDED ENDED 31, ------------------------
---------------------- OCTOBER 25, DECEMBER 31, -------------------- MARCH 31, MARCH 31,
1995 1996 1996 1997 1998 1998 1999
--------- ----------- ------------- --------- --------- ----------- -----------
1994
-----------
(UNAUDITED)
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $ 72,496 $ 68,481 $ 62,880 $ 13,200 $ 99,059 $ 211,059 $ 39,450 $ 106,842
Gross profit................. 12,945 15,461 15,569 3,273 20,789 51,919 8,986 32,134
Selling, delivery, general
and administrative
expenses................... 14,032 13,931 13,271 2,242 15,671 39,754 6,606 23,151
Interest expense............. 909 1,039 509 374 2,953 9,081 992 4,346
Income (loss) before income
taxes...................... 179 491 1,789 532 1,391 (2,329) 1,242 1,018
Net income (loss)............ 35 279 1,119 303 696 (2,819) 686 190
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------
YEAR ENDED DECEMBER
PERIOD PERIOD YEAR ENDED DECEMBER THREE MONTHS ENDED
31, ENDED ENDED 31, ------------------------
---------------------- OCTOBER 25, DECEMBER 31, -------------------- MARCH 31, MARCH 31,
1995 1996 1996 1997 1998 1998 1999
--------- ----------- ------------- --------- --------- ----------- -----------
1994
-----------
(UNAUDITED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................. $ 20,740 $ 18,515 $ 19,966 $ 36,404 $ 55,383 $ 359,869 $ 57,514 $ 366,766
Total debt................... 10,296 8,522 8,154 20,489 32,238 179,227 33,385 185,260
OTHER DATA:
EBITDA(1).................... $ 1,777 $ 2,374 $ 3,014 $ 1,166 $ 5,836 $ 14,732 $ 2,702 $ 8,301
Depreciation and
amortization............... 689 844 716 260 1,492 7,980 468 2,937
Ratio of earnings to fixed
charges(2)(3).............. 1.16x 1.37x 3.32x 2.23x 1.36x -- N/A 1.21x
</TABLE>
- ------------------------
(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, special charges, stock option
compensation expense and certain non-recurring expenses related to
acquisitions. While we do not intend for EBITDA to represent cash flow from
operations as defined by GAAP and we do not suggest that you consider it 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, we
include it herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditures and working
capital requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." We believe EBITDA provides investors
and analysts in the building materials industry the necessary information to
analyze and compare our historical results on a comparable basis with other
companies on the basis of operating performance, leverage and liquidity.
However, as EBITDA is not defined by GAAP, it may not be calculated on the
same basis as other similarly titled measures of other companies within the
building materials industry.
(2) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes, extraordinary charge
and fixed charges. Fixed charges consist of (1) interest, whether expensed
or capitalized; (2) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized; and (3) that
portion of rental expense considered to represent interest cost (assumed to
be one-third). For the year ended December 31, 1998, earnings were
insufficient to cover fixed charges by $2,329 which includes the effects of
$3,851 of non-cash stock option compensation expense.
(3) On a pro forma basis, for the year ended December 31, 1998, earnings were
insufficient to cover fixed charges by $166 and for the period ended March
31, 1999 the ratio of earnings to fixed charges was 1.35x.
35
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ATRIUM
(PREVIOUS REGISTRANT)
The selected consolidated historical financial data set forth below for each
of the four years in the four-year period ended December 31, 1997 and as of and
for the period from January 1, 1998 to October 2, 1998, were derived from
Atrium's (previous registrant) audited consolidated financial statements. The
selected consolidated historical financial data as of and for the period ended
September 30, 1997 were derived from Atrium's (previous registrant) unaudited
consolidated financial statements, which in the opinion of the management affect
all the adjustments necessary for the fair presentation of results for such
period. 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 the financial statements, related notes and other
financial information included elsewhere in this prospectus.
Prior to October 2, 1998, Atrium's historical financial statements as filed
with the Commission, included its operations and the operations of its
subsidiaries. On October 2, 1998, pursuant to the 1998 recapitalization, the
stock of Wing and Darby were contributed to Atrium.
As Wing was determined to be the accounting acquiror in a "reverse
acquisition," the historical financial statements of Atrium (prior to October 3,
1998) were replaced with the historical financial statements of Wing. Therefore,
the selected consolidated historical financial data of Atrium (the previous
registrant) are provided for information purposes only.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31, --------------------------
------------------------------------------ SEPTEMBER 30, OCTOBER 2,
1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) (UNAUDITED)
INCOME STATEMENT DATA:
Net sales.................................... $ 123,571 $ 135,478 $ 156,269 $ 186,764 $ 139,793 $ 167,418
Gross profit................................. 37,999 41,503 53,928 65,463 50,137 58,183
Selling, delivery, general and administrative
expenses................................... 26,895 29,303 34,815 44,486 33,114 37,704
Interest expense............................. 355 2,753 4,786 11,523 8,542 9,545
Income (loss) before income taxes............ 9,795 3,393 8,078 10,235 9,353 (2,069 )
Net income (loss)............................ 9,191 1,849 4,203 6,167 5,868 (4,862 )
BALANCE SHEET DATA (END OF PERIOD):
Total assets................................. $ 58,507 $ 48,569 $ 74,750 $ 83,375 $ 91,823 $ 121,703
Total debt................................... 6,786 49,000 100,000 100,000 102,962 118,985
OTHER DATA:
EBITDA(1).................................... $ 16,094 $ 17,070 $ 21,463 $ 25,842 $ 20,279 $ 22,055
Depreciation and amortization................ 1,678 2,087 5,228 3,585 2,384 3,246
</TABLE>
- ------------------------------
(1) EBITDA represents income before interest, income taxes, extraordinary
charge, depreciation and amortization, stock option compensation expense,
special charges and certain non-recurring expenses related to acquisitions.
While we do not intend for EBITDA to represent cash flow from operations as
defined by GAAP and we do not suggest that you consider it 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, we include it herein to
provide additional information with respect to our ability to meet our
future debt service, capital expenditures and working capital requirements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations." We believe EBITDA provides investors and analysts in the
building materials industry the necessary information to analyze and compare
our historical results on a comparable basis with other companies on the
basis of operating performance, leverage and liquidity. However, as EBITDA
is not defined by GAAP, it may not be calculated on the same basis as other
similarly titled measures of other companies within the building materials
industry.
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Our unaudited pro forma consolidated financial statements are derived from
the audited and unaudited historical financial statements listed in the Index to
Financial Statements on page F-1 and certain unaudited financial statements of
other acquired businesses.
Our unaudited pro forma consolidated financial statements have been prepared
to give effect to the transactions described below. As a result of the 1998
recapitalization, Wing is deemed to be the "accounting acquiror" in a reverse
acquisition transaction for financial statement purposes. As a result, our
historical consolidated statement of operations for the year ended December 31,
1998 includes Wing's operations for the entire year and only includes operations
for Atrium (previous registrant) and Darby from October 3, 1998 through December
31, 1998. The historical consolidated financial statements of operations for the
period ended March 31, 1999 includes the operations of Atrium for the three
months ended March 31, 1999, and the operations of Delta since it was acquired
on January 27, 1999.
Our unaudited pro forma consolidated balance sheet as of March 31, 1999 has
been prepared to give effect to the Heat and Champagne acquisitions and the
offering of the outstanding notes and our use of the proceeds as if they
occurred on March 31, 1999. The assets and liabilities acquired have been
recorded at their estimated fair market values. Our unaudited pro forma
consolidated statement of operations for the year ended December 31, 1998 gives
effect to the Atrium transactions as if they occurred on January 1, 1998. Our
unaudited pro forma consolidated statement of operations for the three months
ended March 31, 1999 gives effect to the acquisitions of Delta, Heat and
Champagne and the offering of the outstanding notes and our use of the proceeds
as if they occurred on January 1, 1999.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that we believe are reasonable. Our unaudited pro forma
consolidated 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
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. Our
unaudited pro forma consolidated financial statements are not indicative of
either future results of operations or the results that might have occurred if
the Atrium transactions had been consummated on the indicated dates.
37
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- -------------------------
ATRIUM HEAT CHAMPAGNE ADJUSTMENTS CONSOLIDATED
---------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ -- $ 1,143 $ 25 $ (1,168)(a) $ --
Equity securities-available for sale........... 144 144
Accounts receivable, net....................... 50,718 5,227 1,505 -- 57,450
Inventories.................................... 49,973 6,710 1,108 -- 57,791
Prepaid expenses and other current
assets....................................... 8,020 966 146 -- 9,132
Deferred tax asset............................. 1,249 915 -- -- 2,164
---------- --------- ----------- ----------- ------------
Total current assets......................... 110,104 14,961 2,784 (1,168) 126,681
Property, plant and equipment, net............... 26,907 8,339 338 35,584
Goodwill, net.................................... 213,902 16,563 -- 57,244(b) 287,709
Deferred financing costs, net.................... 10,740 1,427 -- 4,673(c) 16,840
Other assets..................................... 5,113 673 33 1,739(d) 7,558
---------- --------- ----------- ----------- ------------
Total assets................................. $ 366,766 $ 41,963 $ 3,155 $ 62,488 $ 474,372
---------- --------- ----------- ----------- ------------
---------- --------- ----------- ----------- ------------
Current liabilities:
Current portion of notes payable............... $ 2,206 $ 3,568 $ 450 $ (4,018)(c) $ 2,206
Accounts payable............................... 23,703 1,775 941 -- 26,419
Accrued liabilities............................ 18,581 3,975 365 (1,287)(e) 21,634
---------- --------- ----------- ----------- ------------
Total current liabilities.................... 44,490 9,318 1,756 (5,305) 50,259
Long-term liabilities:
Notes payable.................................. 183,054 20,468 194 102,734(c) 306,450
Deferred tax liability......................... 1 468 -- -- 469
Other liabilities.............................. 5,968 309 -- 500(f) 6,777
---------- --------- ----------- ----------- ------------
Total long-term liabilities.................. 189,023 21,245 194 103,234 313,696
---------- --------- ----------- ----------- ------------
Total liabilities............................ 233,513 30,563 1,950 97,929 363,955
Stockholder's equity:
Common stock................................... -- 13 125 (138)(g) --
Paid-in-capital................................ 134,852 5,239 -- (5,239)(h) 134,852
Retained earnings (accumulated deficit)........ (1,630) 6,002 1,080 (29,918)(i) (24,466)
Accumulated other comprehensive income......... 31 -- -- -- 31
Outstanding warrants........................... -- 146 -- (146)(j) --
---------- --------- ----------- ----------- ------------
Total stockholder's equity................... 133,253 11,400 1,205 (35,441) 110,417
---------- --------- ----------- ----------- ------------
Total liabilities and stockholder's
equity..................................... $ 366,766 $ 41,963 $ 3,155 $ 62,488 $ 474,372
---------- --------- ----------- ----------- ------------
---------- --------- ----------- ----------- ------------
</TABLE>
38
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
(a) Represents adjustments to cash of $1,168 in connection with the acquisitions of Heat and
Champagne.
Cash not purchased in the acquisition of Champagne................. $ (25)
Cash purchased in the acquisition of Heat utilized to pay down a
portion of the revolving credit facility borrowed to purchase
such cash........................................................ (1,143)
---------
Net eliminated cash................................................ $ (1,168)
---------
---------
Represents the excess of cost over the fair value of the net assets in the acquisitions
(b) of Heat and Champagne.
Purchase price for Heat acquisition................................ $ 85,000
Book value of the net assets of Heat, which approximates fair value
(net assets excludes cash and deferred financing fees to be
retired and all current and long-term notes payable)............. 15,603
---------
Excess of cost over fair value of assets acquired.................. $ 69,397
Purchase price for Champagne acquisition (includes $0.5 million to
be paid upon achievement of certain operational targets)......... 4,144
Book value of the net assets of Champagne, which approximates fair
value (net assets excludes cash and all current and long-term
notes payable)................................................... 1,824
---------
Excess of cost over fair value of assets acquired.................. 2,320
Fees and expenses related to the Heat and Champagne acquisitions... 2,090
---------
Total excess of cost over fair value of assets acquired in the
acquisitions of Heat and Champagne............................... 73,807
Elimination of existing goodwill at Heat........................... (16,563)
---------
Net increase to goodwill........................................... $ 57,244
---------
---------
Represents the issuance of the outstanding notes, including related deferred financing
(c) costs, repayment of existing debt and the write-off of deferred financing costs.
Issuance of the outstanding notes, net of unamortized debt discount
of $2,632........................................................ $ 172,368
---------
LESS: EXISTING DEBT REPAYMENTS
Atrium's revolving credit facility................................. $ 5,602
Atrium's term loan B............................................... 15,000
Atrium's existing senior subordinated notes........................ 29,070
---------
(49,672)
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C> <C>
ELIMINATION OF EXISTING INDEBTEDNESS OF ACQUIRED COMPANIES
(LONG-TERM PORTION ONLY)
Heat............................................................... 19,768
Champagne.......................................................... 194
---------
(19,962)
---------
Net increase to notes payable...................................... $ 102,734
---------
---------
ELIMINATION OF CURRENT PORTION OF INDEBTEDNESS OF ACQUIRED
COMPANIES
Heat............................................................... 3,568
Champagne.......................................................... 450
---------
Net decrease in current portion of notes payable................... $ 4,018
---------
---------
DEFERRED FINANCING COSTS
Financing cost related to this offering............................ $ 6,995
Write-off of financing costs and expenses related to debt to be
retired:
Atrium's pro rata portion of term loan B........................... (895)
Heat notes payable................................................. (1,427)
---------
(2,322)
---------
Net increase in deferred financing costs........................... $ 4,673
---------
---------
Represents the tax benefit of $1,739 resulting from (1) the accreted discount paid on the
Atrium Corporation discount debentures of $570, (2) the extraordinary charge related to
the repurchase premium on the existing senior subordinated notes of $828 and (3) the
(d) extraordinary charge related to the write-off of deferred financing costs of $341.
Represents the elimination of accrued interest related to the retirement of a portion of
(e) Atrium's term loan B and retirement of Atrium's existing senior subordinated notes.
Term loan B accrued interest....................................... $ 134
Existing senior subordinated notes accrued interest................ 1,153
---------
Net decrease to accrued interest................................... $ 1,287
---------
---------
Represents contingent portion of Champagne purchase price of $500, to be paid in 1999
(f) related to the achievement of certain operational targets.
(g) Represents the elimination of the historical common stock of Heat and Champagne of $138.
(h) Represents the elimination of the historical additional paid-in capital of Heat of
$5,239.
Represents the elimination of the historical retained earnings of Heat and Champagne, a
distribution to Atrium Corporation to repurchase $20,000 of the discount debentures,
elimination of deferred finance charges related to the repayment of existing debt and an
(i) extraordinary charge related to a repurchase premium on the retirement of existing senior
subordinated notes.
Heat retained earnings............................................. 6,002
Champagne retained earnings........................................ 1,080
---------
Total eliminated historical retained earnings...................... 7,082
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C> <C>
Distribution to Atrium Corporation to repurchase a portion of
discount debentures.............................................. 20,000
Distribution to Atrium Corporation to pay accreted discount on
discount debentures (net of tax)................................. 930
Extraordinary charge related to a tender premium on retirement of
existing senior subordinated notes (net of tax).................. 1,352
---------
22,282
Write-off of financing costs and expenses related to a pro rata
portion of Atrium's term loan B (net of tax)..................... 554
---------
Net decrease to retained earnings.................................. $ 29,918
---------
---------
Represents the elimination of outstanding warrants at Heat retired in connection with the
(j)
acquisition of Heat.
</TABLE>
41
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREVIOUS
ATRIUM AS REGISTRANT
REPORTED ATRIUM MASTERVIEW DARBY
JAN. 1, JAN. 1, JAN. 1, 1998 JAN. 1, DELTA
1998 TO 1998 TO TO 1998 TO YEAR ENDED
DEC. 31, OCT. 2, MARCH 27, OCT. 2, DECEMBER 31, PRO FORMA PRO FORMA
1998 1998 1998 1998 1998 ADJUSTMENTS(1) ATRIUM(1)
----------- ----------- ------------- ----------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 211,059 $ 167,418 $ 6,219 $ 16,081 $ 8,832 -- $ 409,609
Cost of goods sold........... 159,140 109,235 4,687 9,679 6,039 -- 288,780
----------- ----------- ------ ----------- ------ ------- -----------
Gross profit............... 51,919 58,183 1,532 6,402 2,793 -- 120,829
Operating expenses:
Selling, delivery, general
and administrative
expenses................. 39,754 36,310 646 2,430 2,539 (409)(a) 81,270
Amortization expense....... 2,133 1,394 188 586 -- 1,068(c) 5,369
Special charges............ -- 7,452 -- -- -- (7,452)(e) --
Stock option compensation
expense.................. 3,851 5,265 -- 141 -- -- 9,257
----------- ----------- ------ ----------- ------ ------- -----------
45,738 50,421 834 3,157 2,539 (6,793) 95,896
----------- ----------- ------ ----------- ------ ------- -----------
Income (loss) from
operations............. 6,181 7,762 698 3,245 254 6,793 24,933
Interest expense............. 9,081 9,545 158 1,277 155 (4,222)(f) 15,994
Other income (expense),
net........................ 571 (286) (173) 8 (108) 171(i) 183
----------- ----------- ------ ----------- ------ ------- -----------
Income before income
taxes.................. (2,329) (2,069) 367 1,976 (9) 11,186 9,122
Provision (benefit) for
income taxes............... (149) (732) -- 995 -- 4,529(j) 4,643
Extraordinary items.......... 639 3,525 -- 116 -- (4,280)(k) --
----------- ----------- ------ ----------- ------ ------- -----------
Net income (loss)............ $ (2,819) $ (4,862) $ 367 $ 865 $ (9) $ 10,937 $ 4,479
----------- ----------- ------ ----------- ------ ------- -----------
----------- ----------- ------ ----------- ------ ------- -----------
<CAPTION>
HEAT CHAMPAGNE
YEAR ENDED YEAR ENDED ATRIUM AFTER
DECEMBER 31, DECEMBER 31, PRO FORMA ATRIUM
1998 1998 ADJUSTMENTS TRANSACTIONS
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................... $ 73,458 10,012 -- $ 493,079
Cost of goods sold........... 41,780 6,152 -- 336,712
------------- ------------- ----------- ------------
Gross profit............... 31,678 3,860 -- 156,367
Operating expenses:
Selling, delivery, general
and administrative
expenses................. 21,680 3,295 200(b) 106,445
Amortization expense....... 685 -- 1,494(d) 7,548
Special charges............ -- -- -- --
Stock option compensation
expense.................. -- -- -- 9,257
------------- ------------- ----------- ------------
22,365 3,295 1,694 123,250
------------- ------------- ----------- ------------
Income (loss) from
operations............. 9,313 565 (1,694) 33,117
Interest expense............. 2,330 59 11,787(g) 31,902
1,732(h)
Other income (expense),
net........................ (415) -- -- (232)
------------- ------------- ----------- ------------
Income before income
taxes.................. 6,568 506 (15,213) 983
Provision (benefit) for
income taxes............... 2,519 173 (5,213)(j) 2,122
Extraordinary items.......... -- -- -- --
------------- ------------- ----------- ------------
Net income (loss)............ $ 4,049 $ 333 $ (10,000) $ (1,139)
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>
- ------------------------------
(1) Prior to the Heat and Champagne acquisitions and the offering of the
outstanding notes.
42
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ATRIUM HEAT
THREE THREE CHAMPAGNE
MONTHS DELTA MONTHS THREE MONTHS
ENDED FROM JANUARY 1, ENDED ENDED ATRIUM AFTER
MARCH 31, 1999 TO JANUARY MARCH 31, MARCH 31, PRO FORMA ATRIUM
1999(1) 27, 1999 1999 1999 ADJUSTMENTS TRANSACTIONS
----------- --------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 106,842 $ 508 $ 13,642 $ 2,295 $ -- $ 123,287
Cost of goods sold.................. 74,708 417 8,970 1,830 -- 85,925
----------- ----- ----------- ------ ------------- ------------
Gross profit...................... 32,134 91 4,672 465 -- 37,362
Operating expenses:
Selling, delivery, general and
administrative expenses......... 23,151 118 5,769 484 (16)(b) 29,506
Amortization expense.............. 1,889 -- 182 12 1,708(d) 3,791
Special charges................... 1,762 -- -- -- (1,762)(e) --
----------- ----- ----------- ------ ------------- ------------
26,802 118 5,951 496 (70) 33,297
----------- ----- ----------- ------ ------------- ------------
Income (loss) from operations... 5,332 (27) (1,279) (31) 70 4,065
Interest expense.................... 4,346 12 530 16 2,489(g) 7,870
477(h) --
Other income (expense), net......... 32 -- 29 8 -- 69
----------- ----- ----------- ------ ------------- ------------
Income before income taxes...... 1,018 (39) (1,780) (39) (2,896) (3,736)
Provision (benefit) for income
taxes............................. 828 -- (660) -- (451)(j) (283)
----------- ----- ----------- ------ ------------- ------------
Net income (loss)................... $ 190 $ (39) $ (1,120) $ (39) $ (2,445) $ (3,453)
----------- ----- ----------- ------ ------------- ------------
----------- ----- ----------- ------ ------------- ------------
</TABLE>
- ------------------------------
(1) Prior to the Heat and Champagne acquisitions and the offering of the
outstanding notes.
43
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
Represents the adjustment of $409 of certain general and administrative expenses that
were eliminated in connection with the 1998 recapitalization related to insurance,
(a) professional fees and transportation costs.
Represents the net change in management fees payable by Atrium as a result of the
(b) acquisition of Heat and Champagne.
Represents the net increase in amortization expense relating to goodwill for Atrium as
(c) a result of the 1998 recapitalization:
Amortization of $214,749 of goodwill being amortized over
40 years............................................... $ 5,369
Elimination of historical goodwill amortization:
Atrium................................................... $ 2,133
Atrium (previous registrant)............................. 1,394
Masterview............................................... 188
Darby.................................................... 586
-------
Total.................................................... (4,301)
-----------
Net increase in goodwill amortization expense as a result
of the 1998 recapitalization........................... $ 1,068
-----------
-----------
Represents increase in amortization expense on goodwill associated with the acquisition
(d) of Delta, Heat and Champagne.
THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
--------------- -----------
Amortization over 40 years of goodwill associated with
the Delta, Heat and Champagne acquisitions............. $ 1,903 $ 1,845
Elimination of historical goodwill amortization of
Heat................................................... (409) (137)
------- -----------
Net increase in amortization of goodwill................. $ 1,494 $ 1,708
------- -----------
------- -----------
Represents decrease in special charges from one-time expenses for management bonuses,
(e)
transaction expenses and non-compete fees as a result of the 1998 recapitalization, as
follows:
THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
--------------- -----------
Management bonuses....................................... $ 3,885 $ --
Transaction expenses..................................... 2,780 --
Write-off of non-compete fees............................ 787 --
Severance benefits....................................... -- 1,762
------- -----------
Net decrease in special charges.......................... $ 7,452 $ 1,762
------- -----------
------- -----------
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C> <C>
Represents the adjustment to interest expense had Atrium's December 31, 1998 capital
structure been in place as of January 1, 1998, and the elimination of Darby, Delta and
(f) Masterview historical interest expense.
Interest expense resulting from the borrowing of $29,070
at 10.500% on Atrium's existing senior subordinated
notes.................................................. $ 3,052
Interest expense resulting from the borrowing of $4,118
at 9.125% on Atrium's revolving credit facility........ 376
Interest expense resulting from the borrowing of $74,750
at 8.499% on Atrium's term loan B...................... 6,353
Interest expense resulting from the borrowing of $70,680
at 8.708% on Atrium's term loan C...................... 6,155
Interest expense resulting from the borrowing of $609 at
9.500% on other notes payable.......................... 58
-------
Total pro forma interest expense on capital structure as
of December 31, 1998................................... $ 15,994
Elimination of historic interest expense of Atrium,
Darby, Delta and Masterview............................ (20,216)
-----------
Net decrease to interest expense as a result of the 1998
Recapitalization....................................... $ (4,222)
-----------
-----------
Represents net increase in interest expense resulting from the offering of the
(g) outstanding notes and the repayment of existing debt.
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
--------------- -----------
<S> <C> <C> <C>
Interest expense resulting from the borrowing of $175,000
at 10.500% on the outstanding notes.................... $ 18,375 $ 4,594
Interest expense resulting from the borrowing of $59,750
and $59,500 at 8.624% and 8.085%, respectively, on
Atrium's term loan B................................... 5,152 1,202
Interest expense resulting from the borrowing of $70,680
and $70,430 at 8.833% and 8.345%, respectively, on
Atrium's term loan C................................... 6,243 1,469
Interest expense resulting from the borrowing of $1,309
and $6,358 at 9.500% and 8.053%, respectively, on other
notes payable.......................................... 124 128
------- -----------
Total pro forma interest expense......................... 29,894 7,393
Elimination of Atrium pro forma interest expense before
Atrium transactions.................................... (15,994) (4,346)
Elimination of historic interest expense of Delta, Heat
and Champagne.......................................... (2,113) (558)
------- -----------
Net increase in interest expense as a result of the
Atrium transactions.................................... $ 11,787 $ 2,489
------- -----------
------- -----------
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
Represents increase in amortization expense on deferred finance costs associated with
the acquisition of Heat and Champagne and the retirement of the existing senior
(h) subordinated notes and a portion of the term loan B.
<CAPTION>
THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED MARCH
1998 31, 1999
--------------- -----------
<S> <C> <C> <C>
Amortization of deferred finance costs associated with
the Heat and Champagne acquisitions.................... $ 700 $ 175
Amortization of unamortized debt discount on the
outstanding notes...................................... 157 39
Amortization of historical deferred finance costs not
written off............................................ 1,151 308
Amortization of historical Heat deferred finance costs... (276) (45)
------- -----------
Net increase in amortization expense of deferred finance
costs.................................................. $ 1,732 $ 477
------- -----------
------- -----------
Represents decrease in other expense through the elimination of one-time bonuses and
associated payroll taxes, totaling $171, paid to certain members of senior management
(i) of Masterview in connection with the Masterview acquisition on March 27, 1998.
Represents the income tax effect of the pro forma adjustments reflected above assuming
an effective income tax rate of 38%, adjusting for additional goodwill which is not
(j) deductible for tax purposes.
Represents the decrease in extraordinary credit charges incurred in connection with the
write-off of deferred finance costs on the retirement of certain credit facilities in
(k) the 1998 recapitalization as follows:
ATRIUM (PREVIOUS REGISTRANT)
Revolving credit facility and certain term loans
deferred finance costs............................... $ 955
Existing senior subordinated notes deferred finance
costs.................................................. 4,022
Repurchase premium on existing senior subordinated
notes.................................................. 709
Tax effect at 38%........................................ (2,161)
-------
$ 3,525
WING
Existing notes payable-deferred finance costs............ 1,031
Tax effect at 38%........................................ (392)
-------
639
DARBY
Existing notes payable deferred finance costs............ 190
Tax effect at 38%........................................ (74)
-------
116
-----------
Net decrease to extraordinary charges.................... $ 4,280
-----------
-----------
</TABLE>
46
<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 (after the 1998 recapitalization)
and Atrium (previous registrant) which appear elsewhere in this prospectus.
OVERVIEW
GENERAL
Atrium's (after the 1998 recapitalization) results are generally impacted by
the level of activity in the residential new construction and repair and
remodeling market segments 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,
inter/intra U.S. migration and consumer confidence.
BACKGROUND
Atrium was formed through a series of transactions and acquisitions. The
following summary should be considered in conjunction with reading the
information presented below:
September 1, 1996--Atrium purchased certain assets of Keller Aluminum
Products of Texas, a division of Keller Building Products, which was owned by
Keller Industries, Inc. The assets were recorded at cost.
September 30, 1996--Atrium Corporation acquired Atrium Door and Window
Company of the Northeast, formerly known as Bishop Manufacturing Company,
Incorporated, a manufacturer of vinyl replacement windows and doors for the
residential market in the northeast region of the United States. Atrium
Corporation contributed the capital stock of Atrium Door and Window Company of
the Northeast to Atrium. The transaction was recorded under the purchase method
of accounting.
October 25, 1996--Wing Industries Holdings, Inc. acquired 100% of the
outstanding common stock of Wing Industries, Inc. and Wing Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Wing
Industries Holdings, was merged with and into Wing Industries, Inc. with Wing
Industries, Inc. being the surviving corporation. Wings Industries Holdings did
not have any significant activity prior to the acquisition of Wing. Wing
Industries, Inc. was founded in 1924 and incorporated in 1941. The acquisition
was accounted for under the purchase method of accounting.
November 27, 1996--Atrium was effectively recapitalized in a transaction in
which affiliates of Hicks Muse Tate & Furst Incorporated purchased approximately
82% of Atrium Corporation's newly issued common stock and redeemed the equity
interests of selling security holders of Atrium. The redemption payments were
funded through the issuance of the existing senior subordinated 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, 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 Industries Holdings purchased certain assets of the
Door Division of Super Millwork, Inc. in a transaction accounted for under the
purchase method of accounting. The Door Division of Super Millwork, located in
Melville, New York, is engaged in the distribution, manufacture and sale of
doors and other millwork.
47
<PAGE>
January 8, 1998--Door acquired all of the outstanding common stock of R.G.
Darby Company, Inc. in a transaction accounted for under the purchase method of
accounting.
March 27, 1998--Atrium purchased substantially all of the assets of
Masterview, a privately held window and door company located in Phoenix, Arizona
in a transaction accounted for under the purchase method of accounting.
October 2, 1998--GEIPPPII, which was formed by GE Investment Management
Incorporated, a wholly-owned subsidiary of General Electric Company, and
Ardshiel, a private equity firm, and certain of its affiliates, acquired Atrium
in a transaction valued at $225,000. In connection with the Atrium acquisition,
GEIPPPII and an affiliate of Ardshiel recapitalized Wing and Darby and combined
them with Atrium.
Prior to October 2, 1998, Atrium's historical financial statements as filed
with the Commission included its operations and the operations of its
subsidiaries. On October 2, 1998, pursuant to the 1998 recapitalization, the
stock of Wing and Darby were contributed to Atrium.
As Wing was determined to be the accounting acquiror in a "reverse
acquisition," the historical financial statements of Atrium, prior to October 3,
1998, were replaced with the historical financial statements of Wing. As a
result, the statement of operations for 1998 includes the operations of Wing
from January 1 through December 31 and the operations of Atrium and Darby from
October 3 through December 31. The statements of operations for the years ended
December 31, 1994, 1995 and 1997 and the periods ended October 25, 1996 and
December 31, 1996 only include the operations and accounts of Wing and its
predecessor. Wing was acquired by its present controlling shareholders on
October 25, 1996.
January 27, 1999--Atrium acquired certain assets of Delta, a privately held
door manufacturing and installation business located in Orlando, Florida. The
acquisition was accounted for under the purchase method of accounting.
May 17, 1999--Atrium acquired Heat for approximately $85,000, including $700
of assumed indebtedness and Champagne for approximately $3,500, excluding $500
to be paid upon the achievement of certain operational results. The acquisition
was accounted for under the purchase method of accounting. Additionally, a post
closing adjustment of $3.5 million was paid on May 17, 1999 related to working
capital delivered in excess of the target defined in the Heat stock purchase
agreement.
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 our results of
operations. We purchase 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 our operating margins. We historically mitigated the effects of these
fluctuations over the long-term by passing through price increases to our
customers and through other means. For example, we enter into forward
commitments for aluminum billet to hedge against price changes. See the
footnotes to our consolidated financial statements for the year ended December
31, 1998. The primary raw materials used in the production of our 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. See "Risk Factors--Fluctuations in Raw
Materials Costs and Supply; Reliance on Manufacturing Facilities and Suppliers."
48
<PAGE>
ATRIUM (AFTER THE 1998 RECAPITALIZATION)
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, information
derived from Atrium's consolidated statements of operations expressed as a
percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED DECEMBER 31
ENDED MARCH 31, ENDED MARCH 31, -------------------------------
1999 1998 1998 1997 1996
----------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 69.9 77.2 75.4 79.0 75.2
----- ----- --------- --------- ---------
Gross profit.................................... 30.1 22.8 24.6 21.0 24.8
Selling, delivery, general and administrative
expenses...................................... 21.7 16.7 18.8 15.8 20.4
Amortization expense............................ 1.8 0.4 1.0 0.8 0.2
Stock option compensation expense............... -- -- 1.8 -- --
Special charges................................. 1.6 -- -- -- --
----- ----- --------- --------- ---------
Income from operations.......................... 5.0 5.6 2.9 4.4 4.2
Interest expense................................ 4.1 2.5 4.3 3.0 1.2
Other income, net............................... 0.1 -- 0.3 -- --
----- ----- --------- --------- ---------
Income (loss) before income taxes and
extraordinary charge.......................... 1.0 3.1 (1.1) 1.4 3.1
Provision (benefit) for income taxes............ 0.8 1.4 (0.1) 0.7 1.2
----- ----- --------- --------- ---------
Income (loss) before extraordinary charge....... 0.2 1.7 (1.0) 0.7 1.9
Extraordinary charge, net of income tax
benefit....................................... -- -- 0.3 -- --
----- ----- --------- --------- ---------
Net income (loss)............................... 0.2% 1.7% (1.3)% 0.7% 1.9%
----- ----- --------- --------- ---------
----- ----- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES. Net sales increased by $67,392 from $39,450 during the first
quarter of 1998 to $106,842 during the first quarter of 1999. The increase was
primarily due to a combined increase in net sales of $65,400 from the addition
of Atrium and Darby in connection with the 1998 recapitalization and the
acquisition of Delta Millwork, Inc.
COST OF GOODS SOLD. Cost of goods sold decreased from 77.2% of net sales
during the first quarter of 1998 to 69.9% of net sales during the first quarter
of 1999. The decrease was due largely to the addition of Atrium and Darby, as
these divisions operate at higher gross profit margins than Wing.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $16,545 from $6,606 (16.7% of net
sales during the first quarter of 1998) to $23,151 (21.7% of net sales during
the first quarter of 1999). The increase was primarily due to the inclusion of
selling, delivery, general and administrative expenses of Atrium and Darby.
Additionally, delivery and selling expenses increased due to the increase in
sales.
SPECIAL CHARGE. We recorded a one-time charge of $1,762 for severance
benefits incurred in connection with the separation agreement entered into by
Atrium and the former President and Chief Executive Officer.
INTEREST EXPENSE. Interest expense increased $3,354 from $992 during the
first quarter of 1998 to $4,346 during the first quarter of 1999. The increase
in interest expense was due primarily to an increase in
49
<PAGE>
average outstanding debt related to the issuance of term loan B and term loan C,
and the outstanding notes assumed in connection with the 1998 recapitalization.
In addition, interest expense included the amortization of deferred financing
costs recorded in connection with the 1998 recapitalization.
INCOME TAXES. Our 1998 effective tax rate increased from 44.8% to 81.3% due
largely to non-deductible goodwill amortization expense of approximately $1,150.
Excluding non-deductible amortization expense, our effective tax rate would have
been approximately 38.2%.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales increased by $112,000 from $99,059 in 1997 to $211,059
in 1998. The increase was due primarily to a combined increase in net sales of
$87,909 from the addition of Atrium and Darby in connection with the 1998
recapitalization in October 1998 and the acquisition of Super Millwork in
November 1997. Additionally, net sales at Wing increased 24.3% due to an
increase in sales to home center retail chains.
COST OF GOODS SOLD. Cost of goods sold decreased from 79.0% of net sales
during 1997 to 75.4% of net sales during 1998. The decrease was due largely to
the addition of Atrium and Darby in the fourth quarter of 1998, as these
divisions operate at higher margins than Wing.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $24,083 from $15,671 (15.8% of net
sales during 1997) to $39,754 (18.8% of net sales during 1998). The increase was
primarily due to the inclusion of selling, delivery, general and administrative
expenses of Super Millwork for twelve months and Atrium and Darby for three
months. Additionally, selling and delivery expenses increased due to the
increase in net sales.
AMORTIZATION EXPENSE. Amortization expense increased $1,359 from $774
during 1997 to $2,133 during 1998. The increase was largely due to the
amortization of goodwill recorded in connection with the 1998 recapitalization.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $3,851 from $0 during 1997 to $3,851 during 1998. Stock option
compensation expense consisted of $2,813 representing the difference between the
fair market value of common stock of D and W Holdings and the exercise price
associated with a warrant granted to our executive in connection with the 1998
recapitalization, charges associated with previously issued stock options at
exercise prices below the fair value of the underlying common stock and charges
associated with certain variable options.
INTEREST EXPENSE. Interest expense increased $6,128 from $2,953 during 1997
to $9,081 during 1998. The increase in interest expense was due primarily to an
increase in average outstanding debt related to the loans issued and senior
subordinated notes assumed in connection with the 1998 recapitalization. In
addition, interest expense included the amortization of deferred financing costs
recorded in connection with the 1998 recapitalization.
EXTRAORDINARY CHARGE. Extraordinary charge increased $639 from $0 during
1997 to $639 during 1998. Extraordinary charge represents the write-off of
certain deferred financing costs incurred in the placement of Wing's debt, which
was repaid in connection with the 1998 recapitalization. This amount is net of
income tax benefit of $392.
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. The two largest home center retailers, which are
Wing's top two customers, have experienced sales growth in excess of 25%.
Additionally, the increase included $4,140 from the Super Millwork acquisition
in November 1997.
50
<PAGE>
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 acquisition to the Allentown facility.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $158 from $15,513 (20.4% of sales
during 1996) to $15,671 (15.8% 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.
AMORTIZATION EXPENSE. Amortization expense increased $649 from $125 during
1996 to $774 during 1997. The increase was due primarily to the amortization of
goodwill recorded in connection with the October 1996 acquisition of Wing.
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 Wing credit facility. Interest
expense during 1996 and 1997 includes amortization of related deferred financing
costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations and availability under the revolving facility
are our principal sources of liquidity. During 1998, cash was primarily used in
connection with the 1998 recapitalization and for capital expenditures. Net cash
used in operating activities was $8,024 during 1998 compared to cash provided by
operations of $1,148 during 1997. The increase in cash used in operations was
primarily attributable to a decrease in net income and an increase in
inventories. Cash used for investing activities increased from $11,763 in 1997
to $125,184 in 1998. This increase was primarily the result of $120,977 for the
acquisition of Atrium. Cash flows from financing activities increased from cash
provided of $10,609 during 1997 to $133,174 during 1998. The increase was due
primarily to borrowings and contributions from Atrium Corporation made in
connection with the 1998 recapitalization.
During the first quarter of 1999, cash was primarily used for increases in
working capital, capital expenditures and scheduled principal payments. Net cash
provided by operating activities was $680 during first quarter of 1999 compared
to cash used in operating activities of $486 during the first quarter of 1998.
The increase in cash provided by operating activities is largely due to an
increase in income before depreciation and amortization. Net cash used in
investing activities during the first quarter of 1999 was $3,363 compared to
$630 during the first quarter of 1998. The increase in cash used in investing
activities was due primarily to the acquisition of Delta and increased capital
expenditures. Cash provided by financing activities during the first quarter of
1999 and $2,683 compared to $1,363 during the first quarter of 1998, primarily
due to increased borrowings under the revolving credit facility.
OTHER CAPITAL RESOURCES
In connection with the 1998 recapitalization, we entered into a credit
facility providing for a revolving credit facility in the amount of $30,000, of
which $5,000 is available under a letter of credit sub-facility. The revolving
credit facility has a maturity date of June 30, 2004. At March 31, 1999, we had
$16,691 of availability under the revolving credit facility, net of borrowings
of $10,700 and outstanding letters of credit totaling $2,609. We used a portion
of the net proceeds of the offering of the outstanding notes to repay
approximately $8,100 outstanding under our revolving credit facility. In
connection with this offering, we increased the size of our revolving credit
facility from $30,000 to up to $40,000.
51
<PAGE>
CAPITAL EXPENDITURES
We had cash capital expenditures, exclusive of the 1998 recapitalization, of
$2,221 during 1998, compared to $1,355 and $1,083 during 1997 and 1996,
respectively. The increase is largely due to the addition of Atrium and Darby
for the last three months of 1998. We expect capital expenditures, exclusive of
acquisitions, in 1999 to be approximately $9,500, however, actual capital
requirements may change, particularly as a result of acquisitions we may make.
Capital expenditures exclude costs related to the implementation of our new
management information system which include internally capitalized costs.
We had cash capital expenditures of $1,059 during the first quarter of 1999
compared to $287 during the first quarter of 1998. The increase is largely due
to capital expenditures at Atrium and Darby. Actual capital expenditures during
the first quarter of 1999 exclude $158 in capitalized costs related to the
implementation of our new management information system.
Our ability to meet our debt service and working capital obligations and
capital expenditure requirements is dependent, however, upon our and our
subsidiaries' future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control. As of March 31, 1999, we had $16,691 available for
borrowings under the revolving facility, net of borrowings of $10,700 and
outstanding and undrawn letters of credit totaling $2,609.
AFTER THE ATRIUM TRANSACTIONS
Historically, we have utilized internally generated funds and borrowings
under credit facilities to meet ongoing working capital and capital expenditure
requirements. In connection with the offering of the outstanding notes, we
incurred new indebtedness aggregating $172,368, net of $2,632 of unamortized
debt discount. The net proceeds of such indebtedness were used to finance the
acquisitions of Heat and Champagne, repay certain of our borrowings under our
credit facility (including accrued interest through date of payment), retire our
remaining existing senior subordinated notes (including accrued interest through
the date of repayment and repurchase premium), fund a distribution to Atrium
Corporation to repurchase a portion of the discount debentures (including
accreted discount through the date of repurchase) held by GEIPPPII and an
affiliate of Ardshiel and pay transaction fees and expenses.
As a result of the Atrium transactions, we have significantly increased cash
requirements for debt service. We will rely on internally generated funds and,
to the extent necessary, on borrowings under our revolving credit facility to
meet our liquidity needs.
Management believes that based on the current level of operations and
anticipated internal growth, cash flow from operations, together with
availability under our revolving credit facility, will be adequate to make
required payments of principal and interest on our indebtedness and to fund
anticipated capital expenditures and working capital requirements. However,
actual capital requirements may change. We may in the future seek additional
financing through the issuance of debt or equity. We cannot assure you that
additional financing, if needed, will be available to us on favorable terms, if
at all. Our ability to meet our debt service obligations and reduce our total
debt will be dependent on our future performance, which in turn, will be subject
to general economic conditions and to financial, business, and other factors,
including factors beyond our control. A portion of our debt bears interest at
floating rates; therefore, our financial condition is and will continue to be
affected by changes in prevailing interest rates. See "Risk Factors--Substantial
Leverage and Debt Service."
YEAR 2000
Many existing computer systems and applications and other control devices
are coded to use only two digits, rather than four, 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 us, are
highly dependent upon financial and
52
<PAGE>
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 errors. If not corrected, many computer
applications could fail when processing data related to the Year 2000. In
addition, two interacting systems, applications or devices, each of which has
individually been fixed so that it will individually handle the Year 2000 issue,
could nonetheless suffer integration failure because their method of dealing
with the problem is not compatible.
This Year 2000 issue impacts our owned or licensed computer systems and
equipment and the computer systems and equipment of third parties upon which we
rely. The Year 2000 problem could cause these systems to fail, err, and, in the
case of third party systems, become incompatible with our systems. Therefore, if
we, or a significant third party fail to become Year 2000 ready, or if the Year
2000 problem causes our systems to become internally incompatible or
incompatible with any key third party systems, our business could suffer
material disruptions.
We are assessing the impact of the Year 2000 problem and have or intend to
modify portions of our hardware and software so that our computer systems will
function properly with respect to date in the Year 2000 and thereafter. We have
reviewed and continue to review each operating unit for the appropriate
information system enhancements, with respect to both Year 2000 problem as well
as strategic system upgrade.
To achieve our overall operating strategy, we are enhancing our information
technology by installing new software to implement a fully integrated
manufacturing system for our operating units. This system has been certified by
the manufacturer as being Year 2000 compliant. Each operating unit was
prioritized for installation of the system based on any Year 2000 issues, with
the final phase of implementation and installation of this system scheduled to
be completed by the third quarter of 1999.
We have inquired of our major suppliers and customers as to their Year 2000
compliance. Substantially all of our major suppliers and customers have
indicated that their Year 2000 testing and remediation programs are complete or
will be complete by the end of the third quarter. We have not, however, tested
or independently verified the Year 2000 compliance of our major suppliers and
customers.
We face certain risks related to the Year 2000 problem including potential
disruptions in our operations due to Year 2000 problems with our systems,
potential disruptions in material supply due to Year 2000 problems with our
suppliers' systems and potential loss of sales or delayed cash collections in
the event of Year 2000 problems with our customers' systems. Although we have
not formalized a contingency plan to address the problems associated with these
risks, there are several factors that we believe may mitigate potential Year
2000 problems. Because our business has only recently been computerized, we
believe we can run our business without significant interruptions using manual
labor and "paper" systems in the event of a Year 2000 problem with our systems.
In addition, because we source our materials from several suppliers, we believe
we have decreased the likelihood that a Year 2000 disruption at one of our
suppliers will materially interrupt our material supply. Finally, because many
of our customers use "paper" systems, we believe a Year 2000 problem with a
customer's system would not materially impact our sales. Although we believe
these factors mitigate our Year 2000 risks, we cannot assure you that problems
arising from these risks will not have a material adverse effect on our
business, operating results or financial condition.
We believe that with our strategy and completed installations, the Year 2000
problem will not pose significant operational problems for us. We cannot assure
you, however, that our computer systems or the computer systems of companies we
acquire or the computer systems of other companies with whom we conduct 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 our business, operating results or financial condition.
53
<PAGE>
The total amount of costs to be incurred by us to address these system
enhancements is estimated at $1,500. We have expensed approximately $1,100
through March 31, 1999.
FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("FAS 130") "Reporting Comprehensive
Income." FAS 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. FAS 130 is effective for financial statement periods
beginning after December 15, 1997. We adopted FAS 130 beginning January 1, 1998.
We had no comprehensive income for all periods presented prior to January 1,
1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants Issued Statement of Position 98-1
("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" that is effective for reporting periods beginning
after December 15, 1998, but provides for earlier application if certain
conditions are met. We have applied the provisions of SOP 98-1 in our financial
statements for the year ended December 31, 1998 and its adoption had no material
effect on our consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133") "Accounting for Derivative
Instruments and Hedging Activities" that is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. We will implement the provisions of
FAS 133 as required. The future adoption of FAS 133 in not expected to have a
material effect on our consolidated financial position or results of operations.
54
<PAGE>
ATRIUM (PREVIOUS REGISTRANT)
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, information
derived from Atrium's consolidated statements of operations expressed as
percentage of net sales.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER
-------------------------- 31
OCTOBER 2, SEPTEMBER 30, --------------------
1998 1997 1997 1996
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................ 65.2 64.1 65.0 65.5
----- ------ --------- ---------
Gross profit.............................................. 34.8 35.9 35.0 34.5
Selling, delivery, general and administrative expenses.... 22.5 23.7 23.8 22.3
Special charges........................................... 4.5 -- -- 1.9
Stock option compensation expense......................... 3.1 0.2 0.2 1.9
----- ------ --------- ---------
Income from operations.................................... 4.7 12.0 11.1 8.3
Interest expense.......................................... 5.7 6.1 6.2 3.1
Other income (expense), net............................... (0.2) 0.8 0.6 (0.1)
----- ------ --------- ---------
Income before income taxes and extraordinary charge....... (1.2) 6.7 5.5 5.2
Provision for income taxes................................ (0.4) 2.5 2.2 1.7
----- ------ --------- ---------
Income before extraordinary charge........................ (0.8) 4.2 3.3 3.4
Extraordinary charge, net of income tax benefit........... 2.1 -- -- 0.8
----- ------ --------- ---------
Net income................................................ (2.9)% 4.2% 3.3% 2.7%
----- ------ --------- ---------
----- ------ --------- ---------
</TABLE>
PERIOD ENDED OCTOBER 2, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997.
NET SALES. Net sales increased by $27,625 from $139,793 during the first
nine months of 1997 to $167,418 during the period ended October 2, 1998. The
increase was primarily due to sales from Atrium Door and Window Company-West
Coast and Atrium Door and Window Company of Arizona (Masterview), acquired in
July of 1997 and March of 1998, respectively. Additionally, Atrium (1)
experienced growth at the Atrium Wood division, which was selected to be the
supplier in a national patio door sales program beginning the third quarter of
1997, (2) the addition of a significant customer at our Atrium Wood division,
and (3) continued growth at Kel-Star Building Products.
COST OF GOODS SOLD. Cost of goods sold increased from 64.1% of net sales
during the first nine months of 1997 to 65.2% during the period ended October 2,
1998. The increase in cost of goods sold as a percentage of net sales during the
period ended October 2, 1998 was primarily due to an increase in raw material
and direct labor costs, which offset material usage improvements at Atrium Wood.
SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, delivery,
general and administrative expenses increased $4,590 from $33,114 (23.7% of net
sales) during the first nine months of 1997 to $37,704 (22.5% of net sales)
during the period ended October 2, 1998. The increase was primarily due to the
inclusion of selling, delivery, general and administrative expenses of Atrium
Door and Window Company of Arizona and Atrium Door and Window Company-West
Coast, 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
sales.
55
<PAGE>
SPECIAL CHARGES. Special charges of $7,452 during the period ended October
2, 1998 consisted of management bonuses, the write-off of certain covenants not
to compete and transaction expenses related to the 1998 recapitalization. There
were no special charges during the first nine months of 1997.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense
increased $5,010 from $255 during the first nine months of 1997 to $5,265 during
the period ended October 2, 1998. In 1998, stock option compensation expense
consisted of the amortization of deferred compensation charges related to
previously issued options, charges representing the increase in the underlying
stock value associated with certain variable options and the expense associated
with cash redemption of certain options resulting from the 1998
recapitalization. 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 Atrium.
INTEREST EXPENSE. Interest expense increased $1,003 from $8,542 during the
first nine months of 1997 to $9,545 during the period ended October 2, 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,
which took place on March 27, 1998.
OTHER INCOME (EXPENSE). Other income decreased $1,413 from other income of
$1,127 during the first nine months of 1997 to other expense of $286 during the
period ended October 2, 1998. The first nine months of 1997 includes an
insurance settlement of $1,193 from the business interruption portion of the
Company's insurance claim filed as a result of the January 1997 fire at the
Extruders facility.
EXTRAORDINARY CHARGES. Extraordinary charges of $3,525 during the period
ended October 2, 1998 represented the write-off of certain deferred financing
charges incurred in connection with the 1998 recapitalization. This amount is
net of income tax benefit of $2,164. There were no extraordinary charges during
the first nine months of 1997.
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
our Atrium Door and Window of the Northeast, Kel-Star and Woodville Extruders
businesses, all of which were acquired during the second half of 1996, and
Atrium Door and Window-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.
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 Atrium Door and Window Company of the Northeast,
Kel-Star, Woodville Extruders and Atrium Door and Window-West Coast businesses,
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 Woodville 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.
56
<PAGE>
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 Atrium. 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 Corporation 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 our existing senior
subordinated notes, which were issued in connection with the Hicks Muse
transaction, as well as borrowing under our previous 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 Woodville 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 Hicks Muse transaction, as all then outstanding debt was retired with a
portion of the proceeds from the issuance of our existing senior subordinated
notes. This amount is net of income tax benefit of $720.
57
<PAGE>
BUSINESS
THE COMPANY
We are one of the largest manufacturers and distributors of residential
windows and doors in the United States based on 1998 pro forma net sales. We
offer a complete product line including aluminum, vinyl and wood windows and
doors to our customers, which include leading national homebuilders and home
center retailers. We have grown rapidly through a combination of internal growth
and complementary acquisitions. Pro forma for the transactions described in
"Unaudited Pro Forma Consolidated Financial Statements", we would have had net
sales and adjusted EBITDA of $123.3 million and $10.3 million, respectively, for
the three months ended March 31, 1999.
Our acquisitions of Heat and Champagne are a continuation of our strategy to
become the largest nationwide manufacturer and distributor of residential
windows and doors. Heat is a leading regional manufacturer of residential vinyl
windows and patio doors, with a strong presence in the eastern and midwestern
repair and remodeling market segments and the northwestern new construction
market segment. The Heat acquisition strengthens our vinyl product offering,
enhances our nationwide presence and provides access to a proprietary
distribution network of 22 distribution centers. Champagne is a regional vinyl
window manufacturer located in Denver, Colorado. The Champagne acquisition
enhances our presence in the vinyl markets of Colorado, Kansas and Nebraska.
We have a balanced business mix, as measured by management's estimates of
the percentage of pro forma net sales derived from the different products we
sell, market segments we serve and the material types we use in our products:
<TABLE>
<CAPTION>
1998 PRO FORMA NET SALES
------------------------
(%)
($) ---
-------------
(IN
THOUSANDS)
<S> <C> <C>
Product Line
Windows............................................................... $ 271,899 55%
Doors................................................................. 194,892 40
Other................................................................. 26,288 5
---
100%
---
---
Market Segment
Repair and remodeling................................................. $ 285,798 58%
New construction...................................................... 207,281 42
---
100%
---
---
Material Type
Aluminum.............................................................. $ 178,806 36%
Wood.................................................................. 194,693 39
Vinyl................................................................. 119,580 25
---
100%
---
---
</TABLE>
Our balance between the repair and remodeling and new construction market
segments is particularly important as we estimate that sales to the repair and
remodeling market segment represented approximately 64% of window and door
industry dollar sales in 1998.
We were founded in 1948 and we believe we are one of the two largest
manufacturers and distributors of residential non-wood windows and the third
largest manufacturer and distributor of residential doors in the United States
based on 1998 pro forma net sales. Our portfolio of products includes some of
the
58
<PAGE>
industry's most recognized brand names including ATRIUM and WING. Our full
product line of aluminum, vinyl and wood windows and doors enables us to
differentiate ourselves from our competition, leverage our multi-channel
distribution system and be well positioned to benefit from shifts in product
preferences. Regional product preferences exist for aluminum, vinyl and wood
windows and doors, and a full product line is important to serve our national
customer base effectively. We pride ourselves on our ability to provide to our
nationwide customers the most suitable material based on varying regional
product preferences.
We have 53 manufacturing facilities and distribution centers strategically
located in 24 states to service customers on a nationwide basis. We distribute
through multiple channels including direct distribution to large homebuilders
and independent contractors, one-step distribution through home centers and
lumberyards and two-step distribution to wholesalers and dealers who
subsequently resell to lumberyards, contractors and retailers. We believe that
our multi-channel distribution network allows us to reach the greatest number of
end customers and provide nationwide service to those customers.
Our company is vertically integrated with operations that include:
- The extrusion of aluminum and vinyl, which is utilized internally in our
fabrication operations, or sold to third parties;
- The manufacture and assembly of window and door units, including
pre-hanging of doors, and the sale of such units to wholesalers,
lumberyards, dealers, home centers and homebuilders;
- A turn-key installation program for builders in which we supply and
install many of our products, including windows and interior and exterior
doors; and
- The sale of finished products to homebuilders, remodelers and contractors
through company-owned distribution centers located across the country.
Our organic growth has exceeded growth rates for the window and door
industry by more than two times over the last three years in large part as a
result of our strategic positioning in such high growth markets as the southern
and western United States and our significant presence in the fast-growing home
center category. We have completed seven acquisitions since 1996 and we believe
that we are well-positioned to be a leader in the consolidation of the
residential window and door industry because of our size, rapid organic growth
and our ability to integrate acquisitions successfully.
COMPETITIVE STRENGTHS
We believe that we have a competitive advantage in our markets due to our
following competitive strengths:
- LEADING MARKET POSITIONS. We are one of the largest suppliers of
residential windows and doors in the United States with a domestic market
share of approximately 5%. We believe that we have a leading market
position in the following key products based on management estimates:
<TABLE>
<CAPTION>
RANK BASED ON
1998 PRO FORMA NATIONAL MARKET
PRODUCT NET SALES SHARE
- ---------------------------------------------- 1998 ATRIUM --------------- -----------------
PRO FORMA
NET SALES
-------------
(IN
THOUSANDS)
<S> <C> <C> <C>
Non-wood windows.............................. $ 271,000 1 or 2 9%
Interior pre-hung doors....................... 75,000 1 5%
Solid wood bifold doors....................... 30,000 1 40%
Solid wood interior passage doors............. 60,000 2 20%
</TABLE>
- STRONG BRAND NAME RECOGNITION. Our brands are well recognized in the
building trade and are a distinguishing factor in customer selection. The
ATRIUM brand of windows and patio doors has been in existence for over 20
years and is recognized for its quality and value. In addition, we believe
59
<PAGE>
ATRIUM is among the most-recognized brand names in the aluminum and vinyl
window market segments. Our WING brand of wood passage and bi-fold doors
is highly recognized according to surveys of our home center customers. We
believe there are significant opportunities to leverage our existing
brands by targeting cross-selling opportunities and by re-branding certain
products.
- COMPLETE, HIGH-QUALITY PRODUCT OFFERING. We are one of the few suppliers
with a complete line of residential windows and doors in the United
States. The ability to source windows and doors from a single supplier is
a cost-saving opportunity for national homebuilders and home centers. This
distribution flexibility and nationwide presence distinguishes as a
"one-stop" solution for customers' window and door needs. Examples of our
high quality and customer service standards include our approximately 99%
order fill rate and the recognition of our WING product line by Lowe's as
Millwork Supplier of the Year for 1997.
- MULTI-CHANNEL DISTRIBUTION NETWORK. We have a multi-channel distribution
network that includes direct, one-step and two-step distribution as well
as 30 company-owned distribution centers. Our distribution strategy
maximizes our market penetration and reduces reliance upon any one
distribution channel for the sale of our products. Furthermore, as a
manufacturer and distributor of windows and doors for more than four
decades, Atrium has developed long-standing relationships with key
distributors in its markets. In each instance, we seek to secure a leading
distributor in each of our markets. If we cannot secure a top-tier
distributor in a desired geographic market, we will consider the
acquisition or start up of our own distribution center.
- ESTABLISHED AND DIVERSIFIED CUSTOMER BASE. We have developed strong
relationships with our current customer base, which includes over 5,000
active accounts. We have strong relationships with some of the leading
companies in homebuilding, including D.R. Horton, Del Webb and Centex, and
home center retailing, including The Home Depot and Lowe's. Our customers
are geographically diversified and our sales are balanced between the
repair and remodeling (approximately 58%) and new construction
(approximately 42%) market segments, which provides increased stability to
our business.
- LOW COST, VERTICALLY INTEGRATED MANUFACTURER. We believe that we are one
of the industry's lowest cost providers based on our strong operating
margins relative to our competitors. Our vertically integrated structure
enables us to control all facets of the production and sale of windows and
doors, eliminating incremental outsourcing costs. For our window and patio
door products, our integrated operations, including extrusion, fabrication
and distribution enable us to reduce inventory, improve production
scheduling and optimize quality control. For our wood door products, our
expertise in fabricating, pre-hanging and distributing wood doors provides
similar cost saving advantages and operating efficiencies.
BUSINESS STRATEGY
Our goal is to increase revenue growth and profitability and to strengthen
our leadership position in the residential window and door industry through the
following initiatives:
- ENHANCE NATIONWIDE PRESENCE. We will continue to focus our core efforts on
maintaining and developing our nationwide market share, including
enhancing our strong presence in our existing high growth markets such as
the southern and western United States. Our recent acquisitions have
helped to further our geographic coverage and, we believe, combined with
the implementation of cross-selling initiatives, will continue to
facilitate our growth. We will also seek to enhance our nationwide
capabilities by selectively starting or acquiring operations that
complement our geographic coverage and product offerings.
60
<PAGE>
- EXTEND AND CROSS-SELL PRODUCT OFFERINGS. We plan to take advantage of
cross-selling opportunities by marketing doors to our traditional window
customers and windows to our traditional door customers and adding
additional styles and designs to address specific regional product
preferences. In addition, we believe there are significant opportunities
to cross-sell products, such as our expanded vinyl and millwork offerings,
through our existing distribution channels. We also maintain training and
incentive programs in order to ensure that our divisional sales forces
market our complete product line of windows and doors.
- CAPITALIZE ON ATRIUM BRAND NAME. We will seek to continue to leverage the
strength of our nationally recognized ATRIUM brand name that has been in
existence for over 20 years. We believe that leveraging the ATRIUM name
across our products and on a nationwide scale will enhance our brand name
recognition. For example, we see a significant opportunity in transferring
the ATRIUM brand to recently acquired product lines. Further, we will
continue trade advertising initiatives to maintain Atrium's high brand
awareness in the industry.
- CONTINUE TO PURSUE OPERATIONAL EFFICIENCIES. Our team of highly
experienced managers seeks to achieve improvements by closely scrutinizing
our operations and applying best practices and continuous improvement
programs across all of our divisions. We have been successful in improving
the efficiency and productivity of our operations by automating
manufacturing processes, improving logistics, implementing a company-wide
information system, successfully integrating acquisitions and leveraging
working capital requirements. We plan to analyze additional opportunities
to improve operational efficiencies, including integrating our wood
products manufacturing facilities and aluminum extrusion operations,
increasing capacity utilization at all our manufacturing facilities and
leveraging our size to realize purchasing savings.
- MAKE SELECTIVE STRATEGIC ACQUISITIONS. We have successfully consummated
and integrated seven acquisitions since 1996, in each case lowering
operating costs. We intend to take advantage of the fragmented market for
window and door manufacturers by acquiring companies that present
identifiable cost savings opportunities and add to our existing product
lines, market share and geographic coverage. As we continue our
acquisition program, we believe we can leverage our proven expertise in
integrating acquisitions and maximizing cost savings and productivity
enhancements. Additionally, we believe our size and national presence will
be attractive to companies looking to combine with an industry leader.
INDUSTRY OVERVIEW
In 1998, new construction spending in the United States totaled over $657.0
billion. Of the total new construction spending amount, residential new housing
spending totaled approximately $212.0 billion. Additionally, residential repair
and remodeling expenditures approximated $140.0 billion in 1998. In 1998, new
housing starts in the United States ranged from approximately 1.0 million to
approximately 1.5 million, of which approximately 1.2 million were single-family
homes and approximately 0.3 million were multi-family homes. Historical
residential repair and remodeling expenditures have demonstrated consistent
growth dynamics increasing from approximately $15.0 billion to approximately
$125.3 billion during the period from 1970 to 1997 and averaging a compound
annual growth rate of 8.2%.
61
<PAGE>
HISTORICAL RESIDENTIAL REPAIR AND REMODEL EXPENDITURES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
($ IN
BILLIONS)
<S> <C>
1970 15
17
1972 19
21
1974 24
26
1976 30
33
1978 36
39
1980 42
41.5
1982 45.3
49
1984 69.8
78
1986 91.3
92
1988 91
95
1990 97
97
1992 100
105
1994 110
115
1996 120
125.3
CAGR=8.2%
</TABLE>
- --------------------------------------------------------------------------------
Source: Census Bureau--Department of Commerce
We believe that, in 1998, United States residential window and door
expenditures were approximately $10.0 billion, of which we estimate new
construction and remodel and replacement expenditures represented approximately
$3.6 billion and $6.4 billion, respectively. The individual market segments for
windows and doors are as follows:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1998 NATIONAL WINDOW MARKET
<S> <C>
$6.5 BILLION MARKET(1)
New Construction 32%
Repair & Remodeling 68%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1998 NATIONAL DOOR MARKET
<S> <C>
$3.5 BILLION MARKET(1)
New Construction 55%
Repair & Remodeling 45%
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on management estimates.
WINDOWS. The domestic window market has grown to approximately 58.2 million
in unit sales in 1998, and has outpaced the growth in the domestic building
materials industry generally. The $6.5 billion residential window industry can
be divided into two end-use segments: new construction, an estimated 18.7
million windows shipped in 1998, and repair and remodeling, approximately 39.5
million windows sold in 1998. We believe that the repair and 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.
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DOORS. According to F.W. Dodge, the U.S. residential exterior and interior
door market, which we estimate to be $3.5 billion, represents more than 58.0
million units annually. The residential door industry can be divided into two
principal market segments: new construction and repair and remodeling. We
estimate that interior doors sold to the repair and remodeling segment
constitute at least one-third of all interior door units sold in the United
States in 1998.
We believe that we and four other market leaders represent approximately 44%
of window and door industry sales, while the remaining approximately 56% of
industry sales is comprised of over 600 smaller regional companies with average
annual sales of approximately $10.0 million to approximately $20.0 million. The
door and window industry has experienced significant consolidation in the last
24 months. We believe this consolidation trend favors companies like ours, with
nationwide capabilities to service large home centers and home builders, strong
brand names, the ability to provide a complete product line and economies of
scale in manufacturing, distributing and marketing. In addition to opportunities
presented by consolidation of the industry, industry growth has been driven by
the growth in the home center retailer category. The home center industry is one
of the fastest growing retail sectors in the United States. According to
National Home Center News, the U.S. retail home improvement market is expected
to grow from over $140.0 billion in 1998 to approximately $170.0 billion by the
year 2002.
PRODUCTS
We are one of a few window and door manufacturers that offer a complete
product line that consists of a full range of aluminum, vinyl and wood windows
and doors. Our complete product line allows us to differentiate ourselves from
our competition, leverage our multi-channel distribution system and be
well-positioned to benefit from 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. We
estimate that approximately 55% of our 1998 pro forma net sales were derived
from the sale of windows, approximately 40% from the sale of doors, and
approximately 5% from the sale of other products and services.
WINDOWS. We had $271.9 million in pro forma net sales from the sale of
windows in 1998, representing approximately 4% of the total U.S. window market.
We estimate that our pro forma net sales from the sales of windows in 1998 were
comprised of approximately 55% from the sale of aluminum products, approximately
44% from vinyl products and approximately 1% from wood products. Our window
products include sliders, double hung, and casement products and are sold under
the ATRIUM and HR WINDOWS-TM- brand names. We sell our windows primarily to
building contractors and lumberyards through direct and one-step distribution.
<TABLE>
<S> <C> <C> <C>
[LOGO] [LOGO] [LOGO] [LOGO]
</TABLE>
The demand for our aluminum, vinyl and wood products vary by region:
- ALUMINUM--Aluminum windows are the product of choice in the southern
United States due to the region's warmer weather and more value-conscious
customers. Aluminum is the most appropriate fenestration material for the
region because thermal efficiency is less important and the product is
sold at a lower cost than either vinyl or wood.
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- 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 wood windows. This trend has been
strengthened as prices for vinyl windows have become more competitive with
wood products and durability and energy efficiency have improved. We
entered the vinyl window market in mid-1995 and have increased sales of
vinyl windows by leveraging the ATRIUM brand name, leveraging our
distribution channels and through acquisitions. The Heat acquisition
increased our presence in the vinyl window business from approximately 9%
to 24% of our 1998 pro forma sales.
- WOOD--Wood windows have the highest thermal efficiency and highest cost
compared to aluminum and vinyl. Accordingly, wood windows are in demand in
colder regions and in higher end homes. The ATRIUM name gained wide
recognition in the 1970s and 1980s through the success of our line of wood
patio doors. In order to capitalize on this success, we added a wood
window line in 1991 including aluminum-clad and primed wood windows and
patio doors. We have made the strategic decision to minimize our
participation in the wood window business as it is concentrated on the
higher end of the wood window market which is not part of our core focus.
DOORS. We had $194.9 million in pro forma net sales from the sale of doors
in 1998, representing approximately 6% of the total U.S. door market. We
estimate that approximately 85% of our 1998 pro forma door sales were generated
from interior doors and 15% from exterior doors. Our door products are sold
under the ATRIUM, WING and SUPER MILLWORK-REGISTERED TRADEMARK- brand names. We
sell our doors primarily to home center retailers through one-step distribution.
- INTERIOR DOORS--There are two broad categories of interior doors: bi-fold
doors and passage doors. Bi-fold doors are hinged folding doors and
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 doors are made completely of wood
while 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 pre-hung units.
Slabs refer to the door itself and pre-hung units refer to slab doors
already hinged to a door frame at the factory.
- EXTERIOR DOORS--Our exterior door product offering consists primarily of
patio doors and pre-hung steel entry doors.
<TABLE>
<S> <C> <C> <C>
[LOGO] [LOGO] [LOGO] [LOGO]
</TABLE>
We estimate that approximately 45% of our 1998 door pro forma sales were
generated from the sale of pre-hung doors, 30% from solid wood doors, 10% from
hollow core doors and 15% from patio doors. We estimate that approximately 60%
of all passage doors sold through home center retailers in 1998 were sold as
pre-hung units, mainly because of the ease of installation for the
do-it-yourself consumer. We are one of the few vertically-integrated companies
that both manufactures and pre-hangs doors. We believe that sales of our
pre-hung door line will continue to grow and will represent a larger portion of
our total door sales in the future due to the increased demand from
do-it-yourself consumers.
OTHER PRODUCTS AND SERVICES. We had $26.3 million in pro forma net sales
from the sale of other products and services in 1998. Our other products include
cafe doors, columns and shutters. We manufacture 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.
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We also offer a turn-key total installation program for builders in which we
supply and install interior doors, exterior doors, mouldings, locks, hardware
and other products. This concept allows a developer to transfer the risk
associated with retaining reliable work crews and provides protection from cost
overruns. We believe that developers view this as a value added service and are
willing to pay a premium price for it.
As a part of the Heat operations, we began selling vinyl decking and patio
enclosures sun rooms. These products are sold through our existing distribution
channels and are manufactured similarly to our existing products. Demand for
both products is growing and we expect to expand the product line in the future.
SALES, MARKETING AND DISTRIBUTION
One of the key components of our marketing strategy is to capitalize on the
complementary nature of our distribution channels. Historically, the majority of
our window production has been sold to remodelers, homebuilders, lumberyards and
wholesalers, while home center retailers represented the primary distribution
channel for doors. We plan to broaden our product offerings principally by
marketing doors to our traditional window customers and windows to our
traditional door customers.
We have a multi-channel distribution network that includes direct, one-step
and two-step distribution as well as 30 company-owned distribution centers. Our
distribution strategy maximizes our market penetration and reduces reliance upon
any one distribution channel for the sale of our products. Furthermore, as a
manufacturer and distributor of windows and doors for more than four decades, we
have developed long-standing relationships with key distributors in each of our
markets. In each instance, we seek to secure the leading distributors in each
market. If we cannot secure a top-tier distributor in a desired geographic
market, we will consider the acquisition or start up of our own distribution
center.
We also sell windows to major home center retailers and smaller
regional-based retail centers. Although home centers have become more important
to us because they target the repair and remodeling market segment, they still
accounted for less than 20% of our total window pro forma net sales in 1998.
We utilize the following distribution channels:
- DIRECT DISTRIBUTION (34% OF OUR PRO FORMA NET SALES IN 1998). We sell our
windows and doors directly to contractors, remodelers and other
homebuilders without the use of an intermediary. By selling directly to
builders, we are able to increase our gross profits while at the same time
offering builders more favorable pricing.
- ONE-STEP DISTRIBUTION (61% OF OUR PRO FORMA NET SALES IN 1998). We sell
our finished windows 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 our 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.
We maintain company-owned distribution centers in key markets where
available independent distributors are weak or where we have been unable to
make adequate arrangements with existing distributors. Company-owned
distribution centers essentially act as one-step distributors.
- TWO-STEP DISTRIBUTION (5% OF OUR PRO FORMA NET SALES IN 1998). 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 are more common in rural areas where
customers generally do not represent sufficient volume to purchase from us
directly.
To enhance our market coverage and leverage our brand equity, we currently
market our windows and patio doors under primarily two brand names, ATRIUM and
H-R WINDOWS. Due to the fact that we enjoy such significant national name
recognition at both the building trade and consumer levels, we have chosen
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to consolidate a significant portion of our product line under the ATRIUM name.
We have completed a phase out of our SKOTTY, BISHOP and GENTEK brands. We expect
to extend the ATRIUM brand to other products, as well as to appropriate product
lines acquired in the future.
Our promotional efforts to our door and window customers are focused on
cooperative advertising programs which are offered to certain of our major
customers. This gives us exposure in our customers' local media, including
newspaper, radio and television, in order to generate sales at individual
locations. We also invest in in-store displays showing operating door units and
photographs of in-room settings in order to generate sales once customers are in
the stores. Product knowledge classes are 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. We also offer
retailers a video showing how quickly a homeowner can install a bi-fold door
using only basic hand tools.
WINDOWS. We market our window products through a sales force consisting of
approximately 75 company salaried and commissioned sales representatives and
approximately 100 independent commissioned sales representatives. Each of our
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. Our 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 our window and
door products on an exclusive basis, although they may carry other building
products from other manufacturers.
DOORS. Our ability to supply home center retailers with a complete line of
wood doors positions us to provide superior service and convenience to our
customers. The "one-stop shopping" we provide 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. Our
goal is to be the "preferred supplier" for the door aisle of home center
retailers.
For door sales we use an internal sales force. 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
our 1998 pro forma net sales of doors 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, we have a smaller, more focused sales force which is better structured
to give the home centers the attention required at the store level.
To assist our internal sales force of seven individuals and provide better
service to our customers, we have 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 us as it is a level of service that few suppliers can
offer.
OPERATIONS
We manufacture and sell our windows through a vertically integrated process
that includes:
- The extrusion of aluminum and vinyl, which is utilized internally in our
fabrication operations, or sold to third parties;
- The manufacture and assembly of window and door units, including
pre-hanging of doors, and the sale of such units to wholesalers,
lumberyards, dealers, home centers and homebuilders;
- A turn-key installation program for builders in which we supply and
install many of our products, including windows and interior and exterior
doors; and
- The sale of finished products to homebuilders, remodelers and contractors
through company-owned distribution centers located across the country.
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We realize many operational and cost benefits from our vertically integrated
window operations. By extruding aluminum and vinyl components in-house, we are
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 us more control over our manufacturing costs. We
continually work to achieve cost savings through increased capacity utilization
at our efficient facilities, adoption of best practices, reduction of cost of
materials, rationalization of product lines and reduction of inventory.
We continue to build on what we believe is our position as one of the
industry's lowest cost manufacturers. Because of the scale of our operations, we
are able to negotiate price concessions for our raw materials, including glass
and vinyl. This is an important consideration because, historically, total cost
of new materials typically comprises approximately 50% of our net sales.
We have been manufacturing wood products in Texas since 1953 and today have
three primary manufacturing facilities in the state. As home centers such as The
Home Depot and Lowe's have expanded throughout the country, we have
strategically established eight manufacturing operations nationwide in order to
serve these customers more efficiently. We believe we are 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, we will consider opening new
facilities to serve these regions.
As part of the integration of Wing and Atrium, the Atrium Wood patio door
division is merging its manufacturing, distribution and sales functions with
Wing. We are currently fitting a facility to locate all of Atrium Wood's and a
portion of Wing's manufacturing operations. Due to the fact that both divisions
sell over 80% of their products to the home centers, we believe significant
benefits can be realized from the synergies between the sales and distribution
functions of Atrium Wood and Wing. Both service the same customers and
distribute to the same retail locations. This integration is expected to be
completed during the fourth quarter of 1999.
COMPETITION
The residential window and door industry is highly fragmented. With few
exceptions, competitors are privately-owned, regional companies with sales under
$100.0 million. On a national basis we compete with a few national companies in
different regions, products, distribution channels and price points, but do not
compete against any single company across all of these areas. We compete with
various other companies in specific regions within each market.
- WINDOWS--ALUMINUM AND VINYL. Our major competitors for the sale of
aluminum windows are Reliant Building Products, Inc. and Metal Industries,
Inc. The market for vinyl windows and doors is comprised primarily of
local and regional manufacturers as no dominant manufacturer operates on a
national basis. Historically, demand for vinyl windows and doors has been
concentrated in the colder regions of the United States. Our major
competitors for the sale of vinyl windows are SilverLine Building Products
and Nortek, Inc. in the Northeast, Simonton Windows in the Mid Atlantic
and Southeast and Milgard Manufacturing Inc. in the Pacific Northwest. In
addition, we compete with a number of regional manufacturers that sell
directly to repair and remodeling contractors.
- WINDOWS AND PATIO DOORS--WOOD. In the wood window and door market segment
of the industry, two large manufacturers, Andersen Corporation and Pella
Corporation, sell premium products on a national basis. Our wood windows
and doors are sold at a medium price point and primarily through home
centers throughout the United States and direct to builders. We have many
competitors at our price point in the wood window and door market segment,
including Kolbe & Kolbe Millwork Co. Inc. and Hurd Millwork Co. Inc.
- DOORS. We estimate that approximately 60% of all interior passage doors
sold through home centers are pre-hung. We expect this percentage to grow
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 engage primarily in the assembly of doors
and who have
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annual sales of $10.0 million to $30.0 million each. We believe that these
companies are finding it increasingly difficult to compete due to their
lack of manufacturing capability. Our key competitors are Premdor, Inc.
and Jeld Wen, both of which manufacture and pre-hang doors. Other
competitors include Steves and Sons and Haley Bros.
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 first and fourth quarters.
Although this results in seasonal fluctuations in the sales of certain of our
products, the complementary nature of our window and door business' selling
seasons helps mitigate this seasonality. See "Risk Factors--Seasonality."
CYCLICALITY
Demand in the window and door manufacturing and distribution industry is
influenced by new home construction activity. For the three months ended March
31, 1999, we estimate that approximately 42% of our pro forma net sales were
related to new home construction. Trends in the housing sector directly impact
our financial performance. Accordingly, the strength of the U.S. economy, the
age of existing home stock, job growth, interest rates, consumer confidence and
the availability of consumer credit, as well as demographic factors, such as the
migration of the population within the United States, have a direct impact on
our business. Cyclical declines in new housing starts may adversely impact our
business and we cannot assure you that any such adverse effects would not be
material. See "Risk Factors--Cyclicality."
EMPLOYEES
We employ approximately 4,350 people, of whom approximately 4,300 are
employed at our manufacturing facilities and distribution centers and
approximately 50 are employed at corporate headquarters. Approximately 1,580 of
our hourly employees are covered by collective bargaining agreements. We 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 these collective bargaining agreements expire
in May, 2001. In addition, we have collective bargaining agreements with The
Sheet Metal International Association Local Union No. 54, due to expire on
September 30, 2001, for our 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 our Woodville
Extruders operations. There are no union affiliations in connection with any of
our other divisions or subsidiaries. We believe that our relationship with our
employees is good.
PROPERTIES
Our operations are conducted at the owned or leased facilities described
below:
<TABLE>
<CAPTION>
CAPACITY
LOCATION PRINCIPAL USE (SQUARE) FEET OWN/LEASE
- ---------------------------------- --------------------------------------------------- ------------- ----------
<S> <C> <C> <C>
Dallas, Texas*.................... Fabrication of aluminum windows 186,000 Lease
Fabrication of wood patio doors 266,000 Lease
Fabrication of vinyl windows 90,000 Lease
Irving, Texas..................... Fabrication of aluminum windows 147,218 Own
Extrusion die manufacturing 1,400 Own
Irving, Texas..................... Distribution of all window types 22,000 Own
Fabrication of aluminum patio doors 98,000 Own
Wylie, Texas...................... Extrusion of aluminum 100,000 Own
Carrollton, Texas................. Extrusion of vinyl 25,200 Lease
Phoenix, Arizona.................. Fabrication of aluminum windows 60,000 Own
</TABLE>
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<TABLE>
<CAPTION>
CAPACITY
LOCATION PRINCIPAL USE (SQUARE) FEET OWN/LEASE
- ---------------------------------- --------------------------------------------------- ------------- ----------
<S> <C> <C> <C>
Phoenix, Arizona.................. Distribution of aluminum windows 44,743 Lease
Las Vegas, Nevada................. Distribution of aluminum windows 30,400 Lease
Woodville, Texas.................. Fabrication of aluminum windows and storm doors 180,000 Lease
Extrusion of aluminum 120,000 Lease
San Antonio, Texas................ Distribution of aluminum windows 10,000 Lease
Anaheim, California............... Fabrication of vinyl windows 80,000 Lease
Union City, California............ Distribution of vinyl windows 10,000 Lease
Portland, Oregon.................. Distribution of vinyl windows 10,000 Lease
Salt Lake City, Utah.............. Distribution of vinyl windows 10,000 Lease
Clinton, Massachusetts............ Fabrication of vinyl windows 31,000 Own
Bridgeport, Connecticut........... Fabrication of vinyl windows 75,000 Lease
Farmingdale, New York............. Distribution of vinyl windows 6,000 Lease
Greenville, Texas................. Manufacture of solid wood and hollow core bi-fold
and passage doors; pre-hanging 180,000 Own
Greenville, Texas................. Door finishing operation; custom door manufacture 30,000 Lease
Greenville, Texas................. Fabrication of wood patio doors 300,000 Own
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
Mt. Pleasant, Texas............... Door manufacturing 110,000 Lease
Orlando, Florida.................. Door pre-hanging, warehouse 50,000 Lease
Denver, Colorado.................. Fabrication of vinyl windows 108,000 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; warehouse 60,000 Lease
Murrysville, Pennsylvania......... Fabrication of vinyl windows 166,000 Own
Pittsburgh, Pennsylvania.......... Extrusion of vinyl 65,000 Lease
Yakima, Washington................ Fabrication of vinyl windows 58,000 Lease
</TABLE>
- ------------------------------
* Leased from affiliates of certain stockholders. See "Certain Relationships
and Related Transactions--Facility Leases."
Additionally, we lease 22 distribution warehouses in 14 states for vinyl
window distribution with sites averaging 8,000 square feet.
We maintain our corporate headquarters in Dallas, Texas. The facilities
provide approximately 11,000 square feet and are leased for a seven-year term
expiring in 2004.
We believe that our manufacturing plants are generally in good operating
condition and are adequate to meet future anticipated requirements.
BACKLOG AND MATERIAL CUSTOMERS
We have no material long-term contracts. Orders are generally filled within
5 to 7 days of receipt. Our backlog is subject to fluctuation due to various
factors, including the size and timing of orders for our products and is not
necessarily indicative of the level of future sales.
Our sales are concentrated with one of the leading home center retailers,
The Home Depot. For the year ended December 31, 1998, The Home Depot accounted
for approximately 23% of our pro forma net sales. No other customer accounted
for more than 10% of our net sales.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Our past and present operations and our assets 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. We do not expect to make any
expenditures with respect to
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ongoing compliance with these environmental laws and regulations that would have
a material adverse effect on our capital expenditures, results of operations, or
competitive position. However, the applicable requirements under the law may
change at any time.
The nature of our operations and assets expose us to the risk of claims
under environmental, health and safety laws and regulations. We cannot assure
you that material costs or liabilities will not be incurred in connection with
such claims. We have been subject to such claims in the course of our
operations, and have made expenditures to address these known conditions in a
manner consistent with applicable laws and regulations. Based on our experience
to date, we do not believe that these existing claims will have any further
material adverse effect on our capital expenditures, earnings or competitive
position. We cannot assure you that the discovery of presently unknown
environmental conditions, changes in environmental claims that may involve
material, health, and safety laws and regulations or other unanticipated events
will not give rise to expenditures or liabilities.
Prior to 1993 we received correspondence in which we were named as
potentially responsible parties at two Superfund sites, pursuant to
Comprehensive Environmental Response, Compensation and Liability Act or
comparable state statutes. In one instance, we have entered into a settlement
and in the other instance, the group of potentially responsible parties has
negotiated a proposed redemption plan which has been approved by the relevant
state agency and is being reviewed by the United States Environmental Protection
Agency. Based on the actions taken to date, and our current insurance coverage,
we believe that any liability associated with the Superfund sites does not
currently have or will not have a material adverse effect on our financial
condition or the results of operations. However, because Comprehensive
Environmental Response, Compensation and Liability Act provides for strict and
sometimes joint and several liability, we cannot assure you that the liabilities
in question will not result in material expenditures in the future.
LEGAL PROCEEDINGS
We are involved from time to time in litigation arising in the ordinary
course of our business, none of which is expected, individually or in the
aggregate, to have a material adverse effect on us.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table provides information concerning our directors, executive
officers and certain key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Jeff L. Hull....................... 33 Executive Vice President, Chief Financial Officer, Treasurer, Secretary
and Director
R.L. Gilmer........................ 45 Executive Vice President, Chief Operating Officer and Director
Louis W. Simi, Jr.................. 58 Executive Vice President of Operations
Michael Quadhamer.................. 35 President of Wing
Cliff Darby........................ 34 President of Darby
Eric W. Long....................... 31 Vice President, Corporate Controller and Assistant Secretary
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
John Deterding..................... 67 Director
Nimrod Natan....................... 36 Director
</TABLE>
JEFF L. HULL has served as Executive Vice President of Atrium since April
1999 and as a Director of Atrium since October 1998. Mr. Hull has served as
Atrium's Chief Financial Officer since April 1996 and Secretary and Treasurer
since December 1996. Prior to that, Mr. Hull was Director of Asset/Liability
Management of AmVestors Financial Corporation (NYSE:AMV). From 1990 to 1995, he
was an audit manager with the accounting firm of Deloitte & Touche. Mr. Hull is
a certified public accountant.
R.L. GILMER has served as Executive Vice President of Atrium since April
1999 and as the Chief Operating Officer and Director of Atrium since October
1998. Prior to that, Mr. Gilmer served as President and Chief Executive Officer
of Wing from October 1996. From June 1993 to October 1996 he was Vice President
of Wing. Mr. Gilmer has served Wing in various capacities since 1986 including
as Controller and Manufacturing Manager. Prior to joining Wing, Mr. Gilmer was a
certified public accountant with the accounting firm of Arthur Andersen & Co.
LOUIS W. SIMI, JR. has served as Executive Vice President of Atrium since
1993 and prior thereto he served as the General Manager of the Atrium Aluminum
division. Mr. Simi also served as Director of Atrium from July 1995 to November
1996. He has served Atrium in other capacities since 1966.
MICHAEL QUADHAMER has served as President of Wing since October 1998. Prior
to that, he served as Vice President and Chief Financial Officer of Wing 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 1997. Mr. Darby has
worked for Darby since 1988. Mr. Darby has held numerous roles with Darby,
including managerial, sales and administrative positions.
ERIC W. LONG has served as Vice President of Atrium since April 1999 and as
Corporate Controller and Assistant Secretary of Atrium since April 1996. From
April 1995 to April 1996, Mr. Long was a financial
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analyst with Applebee's International, Inc. From 1991 to 1995, he was with the
accounting firm of Deloitte & Touche L.L.P. Mr. Long is a certified public
accountant.
SAM A. WING, JR. has served as Chairman Emeritus and Director of Atrium
since October 1998. 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 of Wing from 1995 until 1996 and as Chairman of Wing
from 1994 until 1995. Prior to that, Mr. Wing was Chairman and Chief Executive
Officer of Wing from 1969 to 1994.
DANIEL T. MORLEY has served as Chairman of the Board of Directors of Atrium
since October 1998. Mr. Morley has been a Managing Partner of Ardshiel since
1994. Mr. Morley has served as President of Ardshiel since 1997 and Chairman of
Wing since 1996 and Door since January 1998. Mr. Morley also serves as Chairman
of Astro Textiles, Inc. and a Director of Protein Genetics, Inc. and Avanti
Petroleum, Inc., and holds positions with several other privately held
companies.
JAMES G. TURNER has served as Vice President and Director of Atrium since
October 1998. Mr. Turner has been a principal of Ardshiel since June 1997. Mr.
Turner has also served as a Director of Wing since October 1997 and Door since
December 1997. From March 1994 until June 1997, Mr. Turner worked as an
associate for Ardshiel. Prior to joining Ardshiel, Mr. Turner worked as an
associate for Chemical Banking Corp. from 1991 to March 1994. Mr. Turner is also
a Director of Avanti Petroleum, Inc. and Protein Genetics, Inc., and serves as a
director of several other privately held companies.
ROGER A. KNIGHT has served as a Director of Atrium since October 1998. Mr.
Knight has been a principal of Ardshiel since May 1998. Prior to joining
Ardshiel, he was Managing Director and a member of the Management Committee of
Coopers & Lybrand Securities, Inc., the wholly-owned investment banking
subsidiary of Coopers & Lybrand L.L.P. (now known as PricewaterhouseCoopers
LLP).
ANDREAS HILDEBRAND has served as a Director of Atrium since October 1998.
Mr. Hildebrand is Vice President of GE Investments. Mr. Hildebrand also served
as a Director of Wing 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. and several
other privately held companies.
JOHN C. DETERDING has served as Director of Atrium since November 1998. Mr.
Deterding has been the owner of Deterding Associates, a real estate consulting
company, since June 1993. From 1975 until June 1993, he served as Senior Vice
President and General Manager of the Commercial Real Estate division of General
Electric Capital Corporation. From November 1989 to June 1993, Mr. Deterding
served as Chairman of the General Electric Real Estate Investment Company, a
privately held REIT. He served as Director of GECC Financial Corporation from
1986 to 1993. Mr. Deterding is also a Director of Patriot American Hospitality,
BlackRock Asset Investors and AMRESCO Capital Trust and a former member and
trustee of the Urban Land Institute.
NIMROD NATAN has served as a Director of Atrium since October 1998. Mr.
Natan has been a principal of Ardshiel since 1997. Mr. Natan also serves as a
director of Wing, Astro Holdings, Inc. and Protein Genetics, Inc., privately
held companies. 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 each of the years ended December 31, 1996, 1997
and 1998 concerning compensation paid or accrued by us to or on behalf of our
Chief Executive Officer and the four other most highly compensated
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persons, or the named executive officers, functioning effectively as our
executive officers whose individual combined salary and bonus exceeded $100,000
during such period:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
--------------------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION($)
- ------------------------------------ --------- ----------- --------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
*Randall S. Fojtasek................ 1998 $ 350,000 $3,140,000 $ -- 5,735,369(2) $2,542,570(5)
President and Chief Executive 1997 350,000 125,000 -- -- 308,928(6)
Officer 1996 303,865 3,075,000 -- 2,195,222(3) 221,500(5)(7)
Jeff L. Hull........................ 1998 155,000 175,000 -- 1,308,842(2) --
Executive Vice President, Chief 1997 120,000 20,000 -- 5,000(3) 15,146(6)
Financial Officer, Secretary and 1996 100,000 -- -- 100,000(3) --
Treasurer
R.L. Gilmer......................... 1998 215,000 56,250 -- 1,723,524(2) --
Executive Vice President, Chief 1997 138,679 70,000 -- -- --
Operating Officer 1996 106,113 286,889 -- 2,957(4) --
Louis W. Simi, Jr................... 1998 170,000 185,000 -- 500,000(2) 662,923(5)
Executive Vice President of 1997 125,000 250,690 -- -- 106,025(6)
Operations 1996 125,000 270,681 -- 511,237(3) 282,886(5)(7)
Cliff Darby......................... 1998 150,000 76,450 -- 1,298,415(2) --
President, R.G. Darby Company, 1997 150,000 66,000 -- -- --
Inc. and Total Trim, Inc. 1996 150,000 66,000 -- -- --
</TABLE>
- ------------------------------
* Resigned effective March 31, 1999.
(1) Perquisites related to automobile and expense allowances are excluded since
the aggregated amounts are the lesser of $50,000 or 10% of the total annual
salary.
(2) Securities underlying options to purchase the common stock of D and W.
Holdings, Messrs. Hull's and Simi's amounts include 125,000 and 250,000
options, respectively, issued under the D and W Holdings Replacement Stock
Option Plan, and Mr. Gilmer's amount includes 539,682 options in replacement
of his options to purchase common stock of Wing.
(3) Securities underlying options to purchase common stock of Atrium
Corporation.
(4) Securities underlying options to purchase common stock of Wing.
(5) In connection with a change of control transaction, certain members of
management were granted options at below fair market prices. Accordingly,
compensation expense is being recognized for financial statement purposes.
(6) Amounts represent fees received in connection with the termination of the
purchase and sale agreement to acquire PlyGem Industries, Inc.
(7) Upon completion of the 1998 recapitalization and the exercise of these
options, the compensatory portion of the options were reflected in the
individual's wages and in our financial statements.
MANAGEMENT CHANGE. On April 9, 1999, we entered into a separation agreement
with Randall S. Fojtasek, President and Chief Executive Officer. Pursuant to the
separation agreement, Mr. Fojtasek resigned effective March 31, 1999. The Board
of Directors has appointed Jeff L. Hull, Executive Vice President and Chief
Financial Officer, and Ken L. Gilmer, Executive Vice President and Chief
Operating Officer, to oversee day-to-day operations and report directly to the
Executive Committee of the Board of Directors while we search for a new chief
executive officer. We have retained a nationally recognized executive search
firm to assist us in this process. We took a charge of approximately $1.8
million in the first quarter of fiscal year 1999 for severance benefits related
to this management change.
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OPTION GRANTS DURING 1998. The following table sets forth option grants to
the named executive officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(2) POTENTIAL REALIZABLE VALUE
NUMBER OF ---------------------------------- AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------------- ------------- ------------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek......... 1,894,148 10 $ 1.00 10/02/08 $ 1,191,419 $ 3,019,272
2,841,221 15 .01 10/02/08 4,599,937 7,341,715
1,000,000 5 .01 10/02/18 2,643,298 6,717,500
Jeff L. Hull................ 1,183,842 6 1.00 10/02/08 744,637 1,887,044
125,000 * .01 10/02/08 202,362 322,968
R.L. Gilmer................. 1,183,842 6 1.00 10/02/08 744,637 1,887,044
231,136 * .01 10/02/08 374,209 597,255
154,273 * .72 10/02/08 140,234 289,108
154,273 * .82 10/02/08 124,807 273,680
Louis W. Simi, Jr........... 250,000 1 1.00 10/02/08 157,250 398,500
250,000 1 .01 10/02/08 404,750 646,000
Cliff Darby................. 466,101 2 1.00 10/02/08 293,178 742,965
832,314 4 .83 1/09/08 434,416 1,101,019
</TABLE>
- ------------------------
* Less than 1%
(1) All options are for the common stock of D and W Holdings.
(2) Options vest ratably over the life of the respective employment contract,
except for Mr. Fojtasek, whose options are fully vested, and Messrs. Simi
and Darby, whose options vest ratably over five years.
(3) The assumed rates are compounded annually for the full terms of the options.
AGGREGATED OPTION EXERCISES AND FISCAL-YEAR-END OPTION VALUES. The
following table sets forth option exercises by the named executive officers and
value of in-the-money unexercised options held at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FY-END (#) (3) MONEY OPTIONS AT FY-END
SHARES ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE(4) UNEXERCISABLE
- --------------------------------- ------------------ ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Randall S. Fojtasek.............. -- $4,096,156(2) 3,841,221 1,894,148 $ 3,802,808 $ --
Jeff L. Hull..................... -- 12,305(2) 125,000 1,183,842 123,750 --
R.L. Gilmer...................... 883(1) 108,167 231,136 1,183,842 228,825 --
Louis W. Simi, Jr................ -- 779,770(2) 250,000 250,000 247,500 --
Cliff Darby...................... -- -- 231,136 466,101 228,824 --
</TABLE>
- ------------------------------
(1) Represents options exercised to purchase common stock of Wing Industries
Holdings, Inc.
(2) Represents net cash proceeds received in connection with the 1998
recapitalization in respect of options to purchase common stock of Atrium
Corporation.
(3) Represents options held by the named individual to purchase common stock of
D and W Holdings.
(4) Based on the fair market value of the option shares at fiscal year end of
$1.00 per share less the exercise price per share payable for such shares.
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<PAGE>
1998 STOCK OPTION PLAN
The D and W Holdings, Inc. 1998 Stock Option Plan, or the 1998 plan, which
provides for the grant of options to purchase common stock of D and W Holdings
to key employees and eligible non-employees of D and W Holdings and its
subsidiaries, was adopted by D and W Holdings in connection with the 1998
recapitalization. The 1998 plan provides for the grant of options to purchase up
to 11,991,142 shares of D and W Holdings common stock. In connection with the
1998 recapitalization, D and W Holdings granted options to purchase 3,582,353
shares of its common stock to management of Darby and Wing in exchange for
outstanding options to purchase Darby and Wing stock. Options to purchase an
additional 8,153,588 shares of D and W Holdings common stock were granted to
management of D and W Holdings and its subsidiaries contemporaneously with the
1998 recapitalization. The 1998 plan was amended in connection with the
consummation of the Heat and Champagne acquisitions to increase the number of
shares of D and W Holdings common stock issuable upon the exercise of options
under the 1998 plan by up to an additional 3,000,000 shares. Options to purchase
1,060,000 shares of D and W Holdings common stock were issued under the 1998
plan in connection with the acquisition of Heat.
All options granted thus far are non-qualified options, which do not qualify
under Section 422. Options granted under the 1998 plan generally have a term of
ten years from the date of grant and vest in equal installments annually over
three to five years dependent on continued employment. No option is exercisable
until it has vested. Options granted upon consummation of the 1998
recapitalization in exchange for outstanding options of Darby and Wing continue
to vest on the schedule applicable to the exchanged options. Of the options
granted in connection with the 1998 recapitalization, options to purchase
993,115 shares of D and W Holdings common stock will vest only in connection
with a value event, which is defined in the 1998 plan.
Options are not transferable other than in accordance with the laws of
descent and distribution. Upon termination for cause or voluntary termination by
the optionee without good reason all vested options will automatically expire.
Upon termination of employment for any other reason, the optionee will have the
right to exercise the vested portion of any option. Also, upon termination of an
optionee's employment for any reason, D and W Holdings will have the right to
purchase outstanding options and any shares of D and W Holdings common stock
held by the optionee as a result of the exercise of an option.
REPLACEMENT STOCK OPTION PLAN
In addition to the 1998 plan, D and W Holdings adopted the D and W Holdings,
Inc. Replacement Stock Option Plan, or replacement plan, relating to certain
options to purchase D and W Holdings common stock which were granted in
replacement of outstanding options of Atrium Corporation in connection with the
1998 recapitalization. Under the replacement plan, options to purchase an
aggregate of 1,575,000 shares of D and W Holdings common stock were granted in
exchange for outstanding options of Atrium Corporation which were not cashed out
in the 1998 recapitalization. These options vest ratably over a period of five
years on each anniversary date of the grant and have an exercise price of $0.01
per share. The replacement plan was amended in connection with the consummation
of the Heat and Champagne acquisitions to increase the number of shares of D and
W Holdings common stock issuable upon the exercise of options under the
replacement plan by up to an additional 1,000,000 shares. Options to purchase
675,531 shares of D and W Holdings common stock were issued under the
replacement plan in exchange for outstanding options of Heat which were not
cashed out.
Upon termination of an optionee's employment, D and W Holdings shall have
the right to repurchase from the optionee all or any portion of their
replacement options. Upon exercise of any vested portion of a replacement
option, D and W 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 are in the form of
nonqualified options, which are options that do not qualify for favored tax
treatment under Section 422 of the Internal Revenue Code.
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<PAGE>
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 other
than in accordance with the laws of descent and distribution by an optionee,
except that options may be transferred to an optionee's family members or
personal representative.
BONUS PLAN
We maintain a bonus plan providing for annual bonus awards to certain key
employees. Such bonus amounts are based on Atrium and its divisions meeting
certain performance goals established by our board of directors.
OTHER BENEFIT PROGRAMS
Our executive officers also participate in other employee benefit programs
including health insurance, group life insurance, and a savings and supplemental
retirement plan or the 401(k) Plan on the same basis as our other employees.
EMPLOYMENT AGREEMENTS
MR. HULL
Mr. Hull entered into an employment agreement with D and W Holdings pursuant
to which he serves as Chief Financial Officer of D and W Holdings. Mr. Hull's
employment agreement has a four year term, which commenced in October 1998.
Under the terms of Mr. Hull's employment agreement, he is entitled to receive an
annual base salary, as adjusted, of $225,000, subject to increase at the
discretion of the board of directors. The agreement provides that Mr. Hull may
receive an annual bonus of up to approximately $125,000, as adjusted, based on
achieving certain performance targets.
Under the agreement, Mr. Hull received options to purchase 1,183,842 shares
of D and W Holdings common stock pursuant to the new plan. The options will vest
in equal installments over four years from the date of grant. The agreement also
provides that D and W Holdings will make certain payments to Mr. Hull in the
event
- Mr. Hull is terminated by D and W Holdings without cause,
- of a change of control of D and W Holdings, or
- Mr. Hull terminates his employment for good reason.
Under the agreement, Mr. Hull agrees not to compete with D and W Holdings
and its subsidiaries for certain specified periods.
MR. GILMER
Mr. Gilmer entered into an employment agreement with D and W Holdings
pursuant to which he serves as Chief Operating Officer of D and W Holdings. Mr.
Gilmer's employment agreement has a four year term, which commenced in October
1998. Under the terms of Mr. Gilmer's employment agreement, he is entitled to
receive an annual base salary of $225,000, as adjusted, subject to increase at
the discretion of the board of directors. The agreement provides that Mr. Gilmer
may receive an annual bonus of up to approximately $125,000, based on achieving
certain performance targets.
Under the agreement, Mr. Gilmer received options to purchase 1,183,842
shares of D and W Holdings common stock upon the same terms as the options
received by Mr. Hull. The agreement also provides that, D and W Holdings will
make certain payments to Mr. Gilmer in the event
- Mr. Gilmer is terminated by D and W Holdings without cause,
- of a change of control of D and W Holdings, or
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<PAGE>
- Mr. Gilmer terminates his employment for good reason.
Mr. Gilmer agrees not to compete with D and W Holdings and its subsidiaries
for certain specified periods.
MR. SIMI
We entered into an employment agreement with Mr. Simi on January 1, 1998.
The compensation provided to Mr. Simi includes an annual base salary of
$170,000, subject to increases at the discretion of the board of directors.
Additionally, Mr. Simi is eligible for an incentive bonus based on certain
performance targets.
Mr. Simi's employment agreement terminates on December 31, 2000. If Mr.
Simi's employment is terminated by us for any reason other than for cause, we
will continue to pay his salary for 12 months, together with the annual
incentive bonus. Mr. Simi has agreed not to compete with us in certain
geographic areas for so long as we pay salary to him.
MR. DARBY
On January 9, 1998, Mr. Cliff Darby entered into an employment agreement
with Darby for a term which commenced in January, 1998. Under the terms of Mr.
Darby's employment agreement, he is entitled to receive an annual base salary of
$156,000, as adjusted, subject to increase at the discretion of the Board of
Directors of Darby. Mr. Darby is entitled to annual performance bonus payable
upon the achievement of Darby's EBITDA plan. The agreement also provides that
Darby will make certain payments to Mr. Darby in the event Mr. Darby is
terminated without cause.
Under the agreement, Mr. Darby has agreed not to compete with the business
of Darby for a period of five years from the date of the agreement. The
non-competition covenant shall apply for one year following termination without
cause by Darby regardless of the date of termination.
Upon consummation of the 1998 recapitalization, Mr. Darby received options
to purchase 466,101 shares of D and W Holdings common stock. 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 and Andreas Hildebrand serve as our compensation committee.
AUDIT COMMITTEE
James G. Turner and Roger A. Knight serve as our audit committee.
EXECUTIVE COMMITTEE
James G. Turner, Roger A. Knight, Andreas Hildebrand, R.L. Gilmer and Jeff
L. Hull serve as our executive committee.
NON-EMPLOYEE DIRECTOR COMPENSATION
Any member of our board of directors who is not an officer or employee does
not receive compensation for serving on our board of directors. We anticipate
compensating non-employee directors not affiliated with GEIPPPII or Ardshiel in
the future for their service on our board.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE STOCKHOLDERS AGREEMENT
GEIPPPII, Ardshiel, and certain major stockholders of D and W Holdings, have
entered into a stockholders agreement, dated as of October 2, 1998, which
affects their relative rights as stockholders of D and W Holdings.
Under the stockholders agreement, GEIPPPII has the right to designate one
director in the event there are less then seven directors, and two directors in
the event the board of directors consists of seven or more members. Ardshiel and
its affiliates, shall be entitled to designate up to six directors.
Subject to certain exceptions, each of the major stockholders, except for
GEIPPPII has agreed not to sell, transfer or otherwise dispose of such
stockholder's equity securities of D and W Holdings and an affiliate of Ardshiel
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 major stockholders or holders of
discount debentures will be entitled to purchase a pro rata portion of the
equity securities or discount debentures held by such major stockholder or
holder of discount debentures. However, in the event such sale, transfer or
disposition by GEIPPPII occurs within four years of the date of stockholders
agreement, the other major stockholders or holders of discount debentures, 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 (1) sell or otherwise dispose of its equity securities and discount
debentures to any person who is not an affiliate of Ardshiel or (2) purchase all
of the other major stockholders' equity securities and discount debentures. In
addition, subject to certain exceptions, GEIPPPII and/or D and W Holdings have
the right to purchase from any selling major stockholder any or all equity
securities proposed to be sold to a third party by such selling major
stockholder.
Pursuant to the terms of the stockholders agreement, D and W Holdings has
granted the major stockholders certain registration rights relating to any or
all shares of D and W Holdings common stock held by such major stockholder.
The stockholders agreement provides that the prior written consent of
GEIPPPII is required for D and W Holdings to take certain enumerated actions.
MANAGEMENT AGREEMENT
We are a party to a management agreement dated October 2, 1998, which was
amended on May 17, 1999 with D and W Holdings, Atrium Corporation and Ardshiel.
Under the management agreement, Ardshiel provides advisory services to D and W
Holdings and its subsidiaries with respect to business strategy, operations and
budgeting and financial controls in exchange for an annual fee of $1.9 million
plus expenses. Additionally, the management agreement provides that D and W
Holdings or its subsidiary must offer Ardshiel the opportunity to perform
investment banking services in connection with a sale or purchase of a business
or any financing prior to engaging another financial advisor. Ardshiel has the
right to receive a closing fee for its services in an amount not be greater than
2% of the total purchase or sale price for such business. The consent of
GEIPPPII is required prior to the payment by D and W Holdings or any of its
subsidiaries of any closing fees to Ardshiel where D and W Holdings or any of
its subsidiaries is paying similar fees to other entities for similar services.
D and W Holdings paid a closing fee of approximately $3.4 million, plus fees
and expenses, after the consummation of the 1998 Recapitalization in connection
therewith. In addition, Ardshiel received an aggregate of approximately $1.3
million in fees in connection with the Heat and Champagne acquisitions.
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The management agreement will remain in effect until October 2, 2008. The
agreement will be automatically renewed for one-year periods unless either party
gives written termination notice prior to the expiration of the initial or any
extended term.
BUY-SELL AGREEMENTS
D and W Holdings entered into buy-sell agreements with certain members of
its management under which D and W Holdings may repurchase from those persons
all or any portion of their shares of D and W Holdings common stock for a
purchase price specified in these agreements after the termination of their
employment. Each agreement also provides for certain restrictions on transfer.
In addition, the buy-sell agreements entered into with Messrs. Gilmer and
Darby provide that they will have the right to require D and W Holdings to
repurchase their shares if they are terminated for any reason other than for
cause and D and W Holdings does not exercise its right to purchase the shares.
THE DISCOUNT DEBENTURES
In 1998, Atrium Corporation issued $80.6 million aggregate principal amount
at maturity of its discount debentures to GEIPPPII and an affiliate of Ardshiel
to fund a portion of the 1998 recapitalization. The issuance represented $45.0
million in gross proceeds to Atrium Corporation, See "Description of Certain
Indebtedness--Discount Debentures." We used a portion of the net proceeds of the
offering of the outstanding notes to fund a distribution of $20.6 million to
Atrium Corporation to repurchase a portion of the discount debentures, including
accreted discount, from GEIPPPII and an affiliate of Ardshiel.
D and W Holdings has agreed to cause
- us to make dividend payments to Atrium Corporation to enable it to make
interest and principal payments on, or to repurchase, redeem or prepay the
discount debentures, as long as we have funds legally available for the
payment of such dividends and we are not prohibited from making such
dividend payments by the terms of any contract to which we are a party,
- Atrium Corporation, as long as Atrium Corporation is not prohibited from
doing so by the terms of any contract to which it or D and W 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.
GEIPPPII and an affiliate of Ardshiel that owns discount debentures may in
the future transfer discount debentures to third parties not affiliated with
Atrium Corporation.
INTERCOMPANY LOAN
In connection with the 1998 recapitalization, Atrium Corporation issued to
us a $24.0 million subordinated intercompany note and we, in turn, used a
portion of the proceeds from our term loan under our credit facility to fund the
intercompany loan to Atrium Corporation. The intercompany loan to Atrium
Corporation bore interest at a rate of 5.66% per annum computed semiannually.
The intercompany loan was repaid in November 1998 with proceeds from the
issuance of discount debentures.
INDEMNIFICATION AGREEMENTS
We entered into indemnification agreements with Jeff L. Hull and Louis W.
Simi, Jr. under which we agreed to indemnify them, if either of them becomes a
party to or other participant in any threatened, pending or completed action,
suit or proceeding relating to the fact that the person is or was our director,
officer, employee, agent or fiduciary. We expect to enter into similar
indemnification agreements with each of the remaining directors and executive
officers.
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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 leases with us with respect to our Atrium Wood's and Atrium Vinyl's
facility and our H-R Windows division's facility. 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
$1,245,281, $753,000 and $605,338 in 1998, 1997 and 1996, respectively.
Additionally, Fojtasek Interests, a Texas corporation, in which Mr. Fojtasek
owns an interest, subleases approximately 1,500 square feet of office space at
our corporate headquarters. Amounts paid to us under this lease in 1998 were
$19,588.
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 $15,400
per month, adjusted annually for inflation. The term of the lease is fifteen
years with three extension terms of five years each. Rent expense paid to Mr.
Darby in 1998 was approximately $165,000.
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BENEFICIAL OWNERSHIP
We are a wholly-owned subsidiary of Atrium Corporation, which in turn is a
wholly-owned subsidiary of D and W Holdings. The following table sets forth
certain information regarding the beneficial ownership of D and W Holdings
common stock as of June 30, 1999, by each person who beneficially owns more than
5% of the outstanding common stock of D and W Holdings and by the directors and
certain executive officers of D and W Holdings. Unless otherwise indicated
below, to our knowledge, all persons listed below have sole voting and
investment power with respect to their shares of common stock of D and W
Holdings.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENTAGE
- ---------------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
GE Investment Private Placement Partners II, a Limited Partnership................ 92,970,561 94.8%
3003 Summer Street
Stamford, CT 06984-7900
Ardshiel, Inc..................................................................... 6,643,600(1) 6.7%
230 Park Avenue, Suite 2527
New York, NY 10169
Jeff L. Hull...................................................................... -- --
R.L. Gilmer....................................................................... 490,159(2) *
Louis W. Simi, Jr................................................................. -- --
Sam A. Wing, Jr................................................................... -- --
Daniel T. Morley.................................................................. 6,643,600(3) 6.7%
James G. Turner................................................................... -- --
Roger A. Knight................................................................... -- --
Andreas Hildebrand................................................................ -- --
John Deterding.................................................................... -- --
Nimrod Natan...................................................................... -- --
All directors and executive officers as a group (11 persons)(4)................... 7,133,759 7.1%
</TABLE>
- --------------------------
* Less than 1%.
(1) Includes (1) 1,040,748 shares of D and W Holdings common stock issuable upon
exercise of warrants that are currently exercisable; (2) 1,819,033 shares of
D and W Holdings common stock held by Ardatrium L.L.C., Arddoor L.L.C.,
Ardwing L.L.C. and Wing Partners, L.P. which are under common control with
Ardshiel, and (3) 3,783,819 shares of Holdings common stock held by certain
other stockholders of D and W Holdings who have granted proxies to Ardshiel
or its affiliates to vote their shares.
(2) Includes 154,193 shares of D and W Holdings common stock issuable upon
exercise of options granted to Mr. Gilmer under the new plan. Such options
are currently exercisable.
(3) 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 L.L.C., Ardatrium L.L.C. and Ardwing L.L.C., the general partner
of Wing Partners, L.P. Accordingly, Mr. Morley may be deemed to be the
beneficial owner of these shares. Mr. Morley disclaims beneficial ownership
of these shares.
(4) The business address for these individuals is 1341 West Mockingbird Lane,
Suite 1200W, Dallas, Texas 75247.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY, AS AMENDED
The following is a description of the general terms of the credit facility
that are included in the credit agreement, dated as of October 2, 1998 as
amended as of May 5, 1999 and as further amended as of June 11, 1999, among
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as lead
arranger, syndication agent and documentation agent, BankBoston, N.A., as
administrative agent, Atrium Corporation, Atrium, the lenders, D and W Holdings
and the subsidiaries of Atrium, as guarantors. The following description does
not purport to be complete and is subject to the credit agreement and the other
documents entered into in connection with the credit agreement.
The credit agreement provides for three separate facilities consisting of
two term loans referred to as term loan B and term loan C, and a revolving
credit facility with a letter of credit sub-facility. The revolving facility
together with the term loans are referred to in this prospectus as the credit
facility loans. Term loan B and term loan C are in the amount of $75.0 million
and $100.0 million, respectively, and have maturity dates of June 30, 2005 and
June 30, 2006, respectively. We used the term loans to finance the 1998
recapitalization. We repaid $29.1 million of the term loan C after the closing
of our credit facility and approximately $15.2 million of term loan B with a
portion of the net proceeds of the offering of the outstanding notes. Principal
payments of the term loans amortize on a quarterly basis, beginning in December
1998. The revolving facility is in the amount of $40.0 million, of which $7.5
million is available under a letter of credit sub-facility. The revolving
facility has a maturity date of June 30, 2004 and is available for working
capital purposes and permitted acquisitions.
The loans bear interest at either (a) a "base rate" equal to the higher of
(i) the federal funds rate plus 0.500% per annum or (ii) the administrative
agent's prime rate, plus (A) in the case of the term loan B, 2.00%, (B) in the
case of the term loan C, 2.250% and (C) in the case of the revolving facility
1.625%, or (b) LIBOR plus (A) in the case of the term loan B, 3.00%, (B) in the
case of the term loan C, 3.250% and (C) in the case of the revolving facility,
2.625%. Beginning June 30, 1999, the revolving facility bears interest at a
variable leverage-based rate ranging from the "base rate" plus 0.375% to 1.625%
or LIBOR plus 1.375% to 2.625%.
We pay a per annum commitment fee of 0.500% of the available unused
commitment under the revolving facility. Beginning June 30, 1999, the commitment
fee is calculated at a variable leveraged-based rate ranging from 0.250% to
0.500%. Such fees are payable quarterly in arrears and upon termination of the
revolving facility.
All amounts outstanding under the credit facility are secured by (1) a
pledge of all of our and our subsidiaries' capital stock and intercompany notes
and (2) a security interest in substantially all of our, Atrium Corporation's
and our subsidiaries' properties and assets. Atrium Corporation and each of our
subsidiaries have unconditionally guaranteed all of our obligations under the
credit agreement.
We are required to make a mandatory prepayment of the credit facility loans
in an amount equal to 75% of annual excess cash flow, which percentage may,
under certain circumstances, be reduced to 50%. In addition, subject to certain
exceptions, we are required to make a mandatory prepayment of the credit
facility loans in an amount equal to (1) 100% of the net proceeds of asset sales
and other asset dispositions, (2) 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, and (3) 50% of the net proceeds from any issuance of equity
securities in any public offering or private placement or from any capital
contribution. We are also required to make a mandatory prepayment of outstanding
amounts under the revolving facility when amounts exceed the commitment for the
revolving facility. We are permitted to make voluntary prepayments of all or any
portion of the credit facility loans in accordance with the terms of the credit
agreement, without penalty or premium. In addition, we 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.
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The credit agreement requires us to comply with certain covenants, which
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, amendment of
documents relating to other indebtedness and other material documents, creation
of subsidiaries, designation of designated senior indebtedness in respect of the
outstanding notes and the exchange notes, and prepayment or repurchase of other
indebtedness. The credit agreement requires us to meet certain financial tests
pertaining to interest coverage, fixed charge coverage and leverage.
DISCOUNT DEBENTURES
In 1998, Atrium Corporation issued approximately $80.6 million aggregate
principal amount at maturity of the discount debentures to GEIPPPII and an
affiliate of Ardshiel to finance in part the 1998 recapitalization. The issuance
represented $45.0 million in gross proceeds to Atrium Corporation. The following
is a summary of the principal terms of the discount debentures.
The discount debentures were issued under an indenture, dated as of October
2, 1998 between Atrium Corporation and United States Trust Company of New York,
as Trustee.
TERMS OF THE DISCOUNT DEBENTURES. The discount debentures were issued at an
original issue discount and are unsecured senior obligations of Atrium
Corporation limited to approximately $80.6 million aggregate principal amount at
maturity. The discount debentures rank equal in right of payment with other
senior unsecured indebtedness of Atrium Corporation and senior to any
subordinated obligations of Atrium Corporation. The discount debentures will
mature on October 1, 2010. No cash interest will accrue on the discount
debentures prior to October 1, 2003. After that date, cash interest will accrue
on the discount debentures at an annual rate of 12%, payable semiannually on
April 1 and October 1 of each year. Prior to October 1, 2003, Atrium Corporation
may elect to commence the accrual of cash interest from any interest payment
date. In such case, the principal amount at maturity will be reduced to the
accreted value of the discount debentures on such date, and cash interest will
then accrue and be payable.
REDEMPTION. The discount debentures will not be redeemable at the option of
Atrium Corporation prior to October 1, 2003. After that date, the discount
debentures will be redeemable, at Atrium Corporation's option, in whole or in
part, at 106% of the accreted value of the discount debentures so redeemed,
together with accrued and unpaid interest to the redemption date. In addition,
before October 1, 2001, Atrium Corporation may redeem all of the discount
debentures at 112% of accreted value plus accrued and unpaid interest to the
redemption date, with the net proceeds of one or more equity offerings.
CHANGE OF CONTROL. Upon the occurrence of a change of control each holder
of the discount debentures will have the right to require that Atrium
Corporation repurchase such holder's discount debentures at a purchase price in
cash equal to 101% of the accreted value plus accrued and unpaid interest to the
date of repurchase. In addition, at any time prior to October 2, 2003, Atrium
Corporation may redeem the discount debentures as a whole following a change of
control at a redemption price equal to 100% of the accreted value plus the
applicable premium and accrued and unpaid interest to the redemption date.
A portion of net proceeds of the offering of the outstanding notes was used
to distribute $20.6 million, including accreted discount, to Atrium Corporation
to repurchase a portion of the discount debentures.
GEIPPPII and an affiliate of Ardshiel that owns discount debentures may in
the future transfer discount debentures to third parties not affiliated with
Atrium Corporation.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The outstanding notes were issued and the exchange notes will be issued
under an indenture, dated as of May 17, 1999, among Atrium, the subsidiaries of
Atrium, as guarantors and State Street Bank and Trust Company, as trustee. Upon
the issuance of the exchange notes, the indenture will be governed by the Trust
Indenture Act of 1939, as amended.
The following summary of certain provisions of the indenture and the
exchange notes is not complete and is subject to all the provisions of the
indenture and the exchange notes.
You can find the definition of certain terms used in the following summary
under the subheading "--Certain Definitions."
In this description of the exchange notes, references to Atrium refer to
Atrium Companies, Inc. and not to any of its subsidiaries.
Principal, premium, and interest on the exchange notes will be payable, and
the exchange notes may be exchanged or transferred, at the office or agency of
Atrium in the Borough of Manhattan, The City of New York, which initially shall
be the corporate trust office of the trustee in New York, New York. Payment of
interest may be made by check. Initially, the trustee will act as paying agent
and registrar for the exchange notes. The exchange notes may be presented for
registration of transfer and exchange at the offices of the registrar.
The exchange notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
exchange notes, but Atrium may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection with
such transfer or exchange.
TERMS OF EXCHANGE NOTES
The exchange notes will be unsecured, senior subordinated obligations of
Atrium, which are limited to $175,000,000 aggregate principal amount. The
exchange notes will mature on May 1, 2009. Each exchange note will bear interest
at the rate of 10 1/2% per annum from May 17, 1999, and will be payable
semiannually on May 1 and November 1 of each year, commencing on November 1,
1999. The exchange notes will not be entitled to the benefit of any mandatory
sinking fund.
OPTIONAL REDEMPTION
OPTIONAL REDEMPTION. The exchange notes are not redeemable prior to May 1,
2004.
The exchange notes will be redeemable at the option of Atrium, in whole or
in part, at any time on or after May 1, 2004, at the redemption prices,
expressed as percentages of the principal amount set forth below, plus accrued
and unpaid interest thereon, if any, to the date of redemption, if redeemed
during the 12-month period beginning on May 1 of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- -----------
<S> <C>
2004................................................................... 105.250%
2005................................................................... 103.500%
2006................................................................... 101.750%
2007 and following years............................................... 100.000%
</TABLE>
OPTIONAL REDEMPTION UPON EQUITY OFFERING. On or prior to May 1, 2002,
Atrium may, at its option, use the net proceeds of one or more Equity Offerings
following which there is a Public Market to redeem up to
84
<PAGE>
35% of the originally issued aggregate principal amount of the exchange notes,
at a redemption price in cash equal to 110.5% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of redemption;
PROVIDED that
- at least 65% of the originally issued aggregate principal amount of
exchange notes is outstanding following such redemption; and
- notice of such redemption must be given not later than 60 days after the
consummation of any such Equity Offering.
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. At any time on or prior to May
1, 2004, the exchange notes may be redeemed as a whole and not in part at the
option of Atrium upon the occurrence of a Change of Control, at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
and accrued and unpaid interest, if any, to, the date of redemption. Notice of
such redemption must be given not later than 90 days after the occurrence of
such Change of Control.
SELECTION AND NOTICE. In the event that less than all of the exchange notes
are to be redeemed selection of exchange notes for redemption will be made by
the trustee in compliance with the requirements of the principal national
securities exchange on which the exchange notes as follows are listed; or if the
exchange notes are not listed on a national securities exchange, selection will
be made on a PRO RATA basis or by such method as the trustee will deem fair and
appropriate.
No exchange notes of a principal amount of $1,000 or less shall be redeemed
in part. Any redemption made with the net proceeds of an Equity Offering will be
made on a PRO RATA basis or on as nearly a PRO RATA basis as practicable.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of exchange notes to
be redeemed at its registered address.
If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that exchange note will state the portion of the
principal amount to be redeemed. A new exchange note in a principal amount equal
to the unredeemed portion of the original exchange note will be issued in the
name of the holder thereof upon cancellation of their original exchange note. On
and after the redemption date, interest will cease to accrue on exchange notes
or portions called for redemption.
RANKING AND SUBORDINATION
The payment of the principal, premium and interest on the exchange notes is
subordinated in right of payment to the payment of all Senior Indebtedness of
Atrium. However, payment of Permitted Junior Securities and payment from the
money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "--Defeasance" below is not subordinate to any Senior
Indebtedness. Assuming that the Atrium transactions occurred on March 31, 1999,
Atrium would have had approximately $136.6 million of Senior Indebtedness
outstanding, exclusive of unused commitments under our revolving credit
facility, and the Guarantors would have had approximately $1.3 million of Senior
Indebtedness outstanding, exclusive of their guarantee of approximately $135.3
million of our Senior Indebtedness.
Only Indebtedness of Atrium that is Senior Indebtedness will rank senior to
the exchange notes in accordance with the provisions of the indenture. The
exchange notes will in all respects rank equally with all other Senior
Subordinated Indebtedness of Atrium. The exchange notes will rank senior to all
Subordinated Obligations of Atrium.
Atrium may not pay principal, premium or interest on the exchange notes or
make any deposit pursuant to the provisions described under "--Defeasance" and
may not otherwise purchase or retire any exchange notes (collectively, "pay the
exchange notes") if
(1) any Designated Senior Indebtedness is not paid when due or
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<PAGE>
(2) any other default on Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated, unless the
default has been cured or waived and/or any such acceleration has been
rescinded or such Designated Senior Indebtedness has been paid in full;
PROVIDED, HOWEVER, Atrium may pay the exchange notes if Atrium and the
trustee receive written notice approving such payment from the Representative of
such Designated Senior Indebtedness.
During the continuance of any default, with the exception of a default
described in clause (1) or (2) of the preceding sentence, with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately or the expiration of any applicable grace periods,
Atrium may not pay the exchange notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the trustee of written notice (a "Blockage
Notice") of such default from the Representative of the holders of such
Designated Senior Indebtedness. Such Blockage Notice should specify an election
to effect a Payment Blockage Period and ending 179 days thereafter or earlier if
such Payment Blockage Period is terminated;
(1) by written notice to the trustee and Atrium from the Person or
Persons who gave such Blockage Notice,
(2) because the default giving rise to such Blockage Notice is no longer
continuing, or
(3) because such Designated Senior Indebtedness has been repaid in full.
Atrium may resume payments on the exchange notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period and there shall be a period of at least 180
consecutive days in each 360-day period when no Payment Blockage Period is in
effect.
Upon a total or partial liquidation or dissolution or reorganization or
bankruptcy of or similar proceeding relating to Atrium or its property, the
holders of Senior Indebtedness will be entitled to receive payment in full of
the Senior Indebtedness before the holders of the exchange notes. If a
distribution is made to holders of the exchange notes that, due to the
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear. In the event of insolvency,
creditors of Atrium who are holders of Senior Indebtedness may recover more,
ratably, than the holders of exchange notes, and creditors of Atrium who are not
holders of Senior Indebtedness, including holders of the exchange notes.
GUARANTEES
Each Guarantor fully and unconditionally guarantees, jointly and severally,
to each holder and the trustee, on a senior subordinated basis, the full and
prompt payment of principal of, premium, if any, and interest on the exchange
notes, and of all other obligations of Atrium under the indenture.
The Indebtedness evidenced by each Guarantee, including the payment of
principal of, premium, if any, and interest on the exchange notes, will be
subordinated to Senior Indebtedness of each such Guarantor on substantially the
same basis as the exchange notes are subordinated to Senior Indebtedness of the
Guarantor. As of March 31, 1999, on a pro forma basis after giving effect to the
Atrium transactions, the Guarantors would have had approximately $135.3 million
of Senior Indebtedness outstanding exclusive of the guarantees of the Guarantors
under the Credit Facility.
The obligations of each Guarantor are limited to the maximum amount as will
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to contribution from each other Guarantor in a PRO RATA amount based on
the Adjusted Net Assets of each Guarantor.
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<PAGE>
Subject to the requirements described under "--Certain
Covenants--Consolidation, Merger, Sale of Assets, Etc.," any Guarantee by a
Restricted Subsidiary of the exchange notes shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer to any Person not an Affiliate of Atrium of all of
Atrium's Capital Stock or all or substantially all the assets of such Restricted
Subsidiary, which transaction is in compliance with the terms of the indenture.
Such Guarantee will be released and discharged so long as such Restricted
Subsidiary has been or simultaneous with its release under the Guarantee will be
unconditionally released from all guarantees by it of other Indebtedness of
Atrium or any Restricted Subsidiary. Atrium may, at any time, cause a Subsidiary
to become a Guarantor by executing and delivering a supplemental indenture
providing for the guarantee of payment of the exchange notes by such Subsidiary.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require Atrium to repurchase all or any part of such holder's exchange notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.
Within 30 days following any Change of Control Atrium shall mail a notice
(the "Change of Control Offer") to each holder with a copy to the trustee
stating:
(1) that a Change of Control has occurred and that such holder has the
right to require Atrium to purchase such holder's exchange notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase;
(2) the repurchase date, which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed; and
(3) the procedures determined by Atrium, consistent with the indenture,
that a holder must follow in order to have its exchange notes purchased. The
Change of Control Offer needs not to be mailed if Atrium has mailed a
redemption notice with respect to all the outstanding exchange notes in
connection with such Change of Control,
Atrium will comply to the extent with the applicable requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of exchange notes pursuant to this covenant.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of Atrium and
its Subsidiaries. In certain circumstances there may be a degree of uncertainty
in ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the property or assets of a Person, and it may be
unclear as to whether a Change of Control has occurred and whether Atrium is
required to make an offer to repurchase the exchange notes.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the credit facility. Future Senior
Indebtedness of Atrium and its Subsidiaries may also contain prohibitions of
certain events that would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require Atrium to repurchase the exchange notes
could cause a default under such Senior Indebtedness. Furthermore, Atrium's
ability to pay cash to the holders upon a repurchase may be limited by Atrium's
then existing financial resources. Finally, if Atrium is not able to prepay the
Indebtedness under the Credit Facility and any other Senior Indebtedness
containing similar restrictions or obtain requisite consents Atrium will be
unable to fulfill its repurchase obligations if holders of exchange notes
exercise their repurchase rights following a Change of Control, thereby
resulting in a default under the indenture.
87
<PAGE>
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. Atrium will not, and will not permit any of the
Restricted Subsidiaries to incur any Indebtedness or issue Disqualified Stock
and will not permit any of the Restricted Subsidiaries to issue Preferred Stock
to a Person other than Atrium or a Wholly-Owned Subsidiary; PROVIDED, HOWEVER,
that Atrium and a Guarantor may Incur Indebtedness and Atrium may issue
Disqualified Stock after giving PRO FORMA effect thereto and the use of the
proceeds thereof, the Consolidated Coverage Ratio is at least equal to (1)
2.00:1.00 on or prior to May 1, 2001 and (2) 2.25:1.00 after May 1, 2001.
Notwithstanding the foregoing, each and all of the following shall be
permitted:
(1) Indebtedness Incurred by Atrium or any Guarantor pursuant to the
credit facility, so long as the aggregate principal amount of all
Indebtedness Incurred does not exceed $175.0 million at any time
outstanding, less the aggregate principal amount required to be repaid with
the net proceeds of Asset Dispositions;
(2) Indebtedness in the amount of up to $10.0 million Incurred by Atrium
or any Guarantor represented by Capitalized Lease Obligations, mortgage
financing or purchase money obligations, in each case Incurred
-for the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property used in a Related
Business or Incurred to refinance any such purchase price or cost of
construction or improvement,
-no later than 365 days after the date of such acquisition or the date of
completion of such construction or improvement;
(3) Permitted Indebtedness;
(4) Indebtedness Incurred by Atrium or any Guarantor in a principal
amount outstanding which, when taken together with the principal amount of
all other Indebtedness Incurred pursuant to this clause (4) and then
outstanding, will not exceed $20.0 million.
Atrium will not permit any Unrestricted Subsidiary to Incur any Indebtedness
other than Non-Recourse Debt.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness permitted by this covenant, Atrium in its sole discretion shall
classify, such item of Indebtedness.
LIMITATION ON INCURRENCE OF SENIOR SUBORDINATED INDEBTEDNESS. Atrium will
not Incur any Indebtedness if such Indebtedness is subordinate or junior in
ranking to any Senior Indebtedness unless
-such Indebtedness is Senior Subordinated Indebtedness, or
-is contractually subordinated in right of payment to all Senior
Subordinated Indebtedness, including the exchange notes, to the same
extent as the exchange notes are subordinated in right of payment to
Senior Indebtedness.
No Guarantor shall Incur any Indebtedness if such Indebtedness is
contractually subordinate or junior in ranking in any respect to any Senior
Indebtedness of such Guarantor unless
-such Indebtedness is Senior Subordinated Indebtedness of such Guarantor,
-or is contractually subordinated in right of payment to all Senior
Subordinated Indebtedness of such Guarantor, including its Guarantee of
the exchange notes, to the same extent as its Guarantee is subordinated
in right of payment to Senior Indebtedness of such Guarantor.
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LIMITATION ON RESTRICTED PAYMENTS. Atrium will not, and will not permit any
of the Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock, except
(A) dividends or distributions payable in its Capital Stock or in
options, warrants or other rights to purchase such Capital Stock, and
(B) dividends or distributions by a Restricted Subsidiary paid (i)
to Atrium or a Restricted Subsidiary of Atrium and (ii) if such
Restricted Subsidiary paying the dividend or making the distribution is
not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a
PRO RATA basis; or
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of Atrium held by Persons other than a Restricted Subsidiary of Atrium
or any Capital Stock of a Restricted Subsidiary of Atrium held by Persons
other than Atrium or another Restricted Subsidiary; or
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations; or
(4) make any Investment, other than a Permitted Investment, in any
Person
(any of the actions described in clauses (1) through (4) are collectively
referred to as, "Restricted Payments"), unless at the time Atrium or such
Restricted Subsidiary makes such Restricted Payment:
(1) no Default shall have occurred and be continuing, or would result
from such Restricted Payment;
(2) immediately after giving PRO FORMA effect to such Restricted
Payment, Atrium would have been able to Incur an additional $1.00 of
Indebtedness pursuant to the covenant described in under "--Limitation on
Indebtedness"; and
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would not
exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period from
the first day of the fiscal quarter beginning on or after the Issue Date
to the end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment as to which financial results are available; plus
(B) the aggregate net cash proceeds received by Atrium from the
issue or sale of its Capital Stock or other common equity capital
contributions on and subsequent to the Recapitalization Date, less all
Restricted Payments made on the Recapitalization Date; plus
(C) the amount by which Indebtedness of Atrium or a Restricted
Subsidiary that is a Guarantor is reduced on Atrium's balance sheet upon
the conversion or exchange subsequent to the Issue Date of any
Indebtedness of Atrium or a Restricted Subsidiary that is a Guarantor
into or for Capital Stock of Atrium, less the amount of any cash, or
other property, distributed by Atrium or such Restricted Subsidiary that
is a Guarantor upon such conversion or exchange to the holders of such
Indebtedness on account of such Indebtedness; plus
(D) the amount equal to the net reduction in Investments, other than
Permitted Investments or Investments made pursuant to clause (9) of the
following paragraph, made after the Issue Date by Atrium or any of its
Restricted Subsidiaries in any Person resulting from
(1) repurchases or redemptions of such Investments by such Person,
proceeds realized upon the sale of such Investment to a purchaser who is not
an Affiliate of Atrium and repayments of loans or
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advances or other transfers of assets by such Person to Atrium or any
Restricted Subsidiary of Atrium or
(2) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously included in the calculation of the amount
of Restricted Payments; PROVIDED, HOWEVER, that no amount shall be included
under this clause (D) to the extent it is already included in Consolidated
Net Income.
The foregoing provisions shall not prohibit the following actions:
(1) dividends paid within 60 days after the date of declaration if at
such date of declaration such dividend would have complied with this
covenant;
(2) any purchase or redemption of Capital Stock or Subordinated
Obligations of Atrium made in exchange for or out of the proceeds of the
substantially concurrent sale of Capital Stock of Atrium with the exception
of Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan; PROVIDED, HOWEVER, that the net cash proceeds from such sale
shall be excluded from clause (3)(B) of the preceding paragraph;
(3) any purchase or redemption of Subordinated Obligations of Atrium
made in exchange for or out of the proceeds of the substantially concurrent
sale of Subordinated Obligations of Atrium; PROVIDED, HOWEVER, that such new
Subordinated Obligations
-do not have a Stated Maturity earlier than the earlier of (x) the Stated
Maturity for the exchange notes and (y) the Stated Maturity for the
Subordinated Obligations being purchased or redeemed, and
-are expressly subordinated in right of payment to the exchange notes at
least to the same extent as the Subordinated Obligations being purchased
or redeemed;
(4) dividends, distributions or loans by Atrium to Atrium Holdings
-to fund the payment of audit, accounting, legal or other similar
expenses of Atrium Holdings and Parent,
-to pay franchise or other similar taxes of Atrium Holdings and Parent
and
-to pay other corporate overhead expenses of Atrium Holdings and Parent,
so long as such dividends, distributions or loans are paid when needed by
Atrium Holdings or Parent and so long as the aggregate amount of payments
pursuant to this clause (4) does not in any calendar year exceed $1.0 million;
(5) payments to Parent pursuant to the Tax Sharing Agreement;
(6) payments of dividends on Atrium's common stock after an initial
public offering of common stock of Atrium, Atrium Holdings or Parent in an
annual amount not to exceed 6.0% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of the
offering) received by Atrium from shares of common stock sold for the
account of Atrium, Atrium Holdings or Parent as the case may be (and not for
the account of any stockholder), in such initial public offering, so long as
no Default has occurred and is continuing or would result therefrom,
(7) in any fiscal year and $10.0 million in the aggregate after the
Issue Date, the payment of dividends or distributions to Atrium Holdings in
the amount not to exceed $5.0 million (A) necessary to permit Parent to
purchase, redeem, acquire, cancel or otherwise retire for value Capital
Stock of Parent, in each case held by officers, directors or employees of
Parent, Atrium Holdings, Atrium or any of Atrium's Subsidiaries in
connection with death, disability, retirement, severance or termination of
employment or service or pursuant to any agreement under which such Capital
Stock was issued, (B) to enable Parent to redeem or repurchase stock
purchase or similar rights in respect of its Capital
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Stock or (C) to enable Parent to make cash payments to holders of its
Capital Stock in lieu of the issuance of fractional shares of its Capital
Stock so long as no Default has occurred and is continuing or would result
therefrom;
(8) the payment of dividends to Atrium Holdings after September 30, 2003
in an amount not to exceed the interest then unpaid and accrued on the
Atrium Holdings Discount exchange notes and, so long as (A) no Default has
occurred and is continuing or would result therefrom and (B) Atrium is able
to Incur an additional $1.00 of Indebtedness pursuant to the first paragraph
under "--Limitation on Indebtedness",
(9) Restricted Payments, in addition to those otherwise permitted in
clauses (1) through (8) above, in an aggregate amount not to exceed $5.0
million so long as no Default has occurred and is continuing or would result
therefrom, so long as no Default has occurred and is continuing or would
result therefrom,
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (3) of the first paragraph of this
covenant, amounts expended pursuant to clauses (6), (7) and (8) of the
immediately preceding paragraph shall be included in such calculation, and
amounts expended pursuant to clauses (1), (2), (3), (4), (5) and (9) of the
immediately preceding paragraph shall be excluded in such calculation.
The amount of any non-cash Restricted Payment shall be the fair market
value, as determined in good faith by the board of directors, of the assets or
securities proposed to be transferred or issued by Atrium or such Restricted
Subsidiary, pursuant to such Restricted Payment.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Atrium will not, and will not
permit any of the Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction or series of related transactions with or for the
benefit of any Affiliate of Atrium or of a Restricted Subsidiary (an "Affiliate
Transaction") unless
(a) the terms of such Affiliate Transaction are no less favorable to
Atrium or such Restricted Subsidiary, than those that could be obtained in
arm's-length dealings with a Person who is not such an Affiliate,
(b) in the event such Affiliate Transaction involves an aggregate amount
in excess of $2.5 million, the terms of such transaction have been approved
by at least a majority of the members of the board of directors of Atrium,
(c) in the event such Affiliate Transaction or series of related
Affiliate Transactions involves an aggregate amount in excess of $7.5
million, Atrium has received a written opinion from an independent
investment banking firm of nationally recognized standing that such
Affiliate Transaction is fair to Atrium or such Restricted Subsidiary from a
financial point of view.
The requirements of this covenant shall not apply to
(1) any Restricted Payment or other payment or Investment permitted to
be made pursuant to the covenant described under "--Limitation on Restricted
Payments,"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to employment arrangements, or any
stock options and stock ownership plans for the benefit of employees,
officers and directors, consultants and advisors approved by the board of
directors of Atrium,
(3) loans or advances to employees in the ordinary course of business of
Atrium or any of the Restricted Subsidiaries,
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(4) any transaction between or among Atrium and any Restricted
Subsidiary or between Restricted Subsidiaries, so long as no Person, other
than a Restricted Subsidiary, that is an Affiliate of Atrium has any direct
or indirect interest in such Restricted Subsidiary.
(5) indemnification agreements with, and the payment of fees and
indemnities to, directors, officers and employees of Atrium and its
Restricted Subsidiaries, in each case in the ordinary course of business,
(6) transactions pursuant to agreements as in existence on the Issue
Date,
(7) any employment, noncompetition or confidentiality agreements entered
into by Atrium or any of the Restricted Subsidiaries with its employees in
the ordinary course of business,
(8) the issuance of Capital Stock of Atrium,
(9) amounts paid by Atrium to Ardshiel on the Issue Date in connection
with the Atrium transactions and
(10) any obligations of Atrium in respect of management fees payable to
Ardshiel pursuant to agreements as in effect on the Issue Date.
LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. Atrium will not
permit any of the Restricted Subsidiaries to issue any Capital Stock to any
Person, or permit any Person, except for Atrium to own any Capital Stock of a
Restricted Subsidiary of Atrium except for Atrium or a Wholly-Owned Subsidiary
of Atrium, if in either case as a result thereof such Restricted Subsidiary
would no longer be a Restricted Subsidiary of Atrium. This provision does not
prohibit (1) Atrium or any of the Restricted Subsidiaries from selling,
transferring or otherwise disposing of all of the Capital Stock of any
Restricted Subsidiary or (2) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary in compliance with the indenture.
LIMITATION ON LIENS. Atrium will not, and will not cause or permit the
Restricted Subsidiaries to, directly or indirectly, Incur any Liens of any kind
securing any Senior Subordinated Indebtedness or Subordinated Obligations
against any of their respective properties or assets now owned or hereafter
acquired, or any proceeds income or profits therefrom, unless the exchange notes
are, or in the case of a Restricted Subsidiary that is a Guarantor, the
Guarantee of such Guarantor is, equally and ratably secured with such Senior
Subordinated Indebtedness or, in the case of Subordinated Obligations, prior to
such Subordinated Obligations, with a Lien on the same properties and assets
securing such Senior Subordinated Indebtedness or Subordinated Obligations, for
so long as such Senior Subordinated Indebtedness or Subordinated Obligations are
secured by such Lien, except for Permitted Liens.
LIMITATION ON SALE OF ASSETS. Atrium will not, and will not cause or permit
any of the Restricted Subsidiaries to, directly or indirectly, make any Asset
Disposition, unless (1) Atrium or such Restricted Subsidiary, receives
consideration at the time of such Asset Disposition at least equal to the fair
market value, as determined in good faith by Atrium's board of directors, of the
assets sold or otherwise disposed of and (2) at least 75% of such consideration
consists of cash or Cash Equivalents.
Atrium or Restricted Subsidiary may apply the Net Available Cash of any
Asset Disposition to acquire Additional Assets within 360 days after the receipt
thereof,
-if the Net Available Cash is not required to be applied to repay
permanently any Senior Indebtedness outstanding as required by the terms
thereof,
-or Atrium determines not to apply such Net Available Cash to the
permanent repayment of the Senior Indebtedness,
-or if no Senior Indebtedness is outstanding,
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If the Net Available Cash of any Asset Disposition is not applied within 360
days of the applicable Asset Disposition (such Net Available Cash, the
"Unutilized Net Available Cash"), Atrium will, within 20 days after the date
that is 360 days from the receipt of such Net Available Cash, make an offer to
purchase (the "Net Available Cash Offer") all outstanding exchange notes up to a
maximum principal amount of exchange notes equal to the exchange notes Portion
of Unutilized Net Available Cash, at a purchase price in cash equal to 100%
thereof, plus accrued and unpaid interest thereon, if any, to the purchase date.
The Net Available Cash Offer may be deferred until there is aggregate Unutilized
Net Available Cash equal to or in excess of $10.0 million, at which time the
entire amount of such Unutilized Net Available Cash, shall be applied.
Atrium may apply the Unutilized Net Available Cash otherwise required to be
applied to a Net Available Cash Offer to offer to purchase
-and any other Indebtedness of Atrium which ranks equally with the
exchange notes (the "Other Indebtedness") requiring that an offer to
repurchase such Indebtedness be made upon the consummation of any Asset
Disposition,
-to a Net Available Cash Offer,
so long as the amount of such Unutilized Net Available Cash applied to
repurchase the exchange notes is not less than the exchange notes Portion of
Unutilized Net Available Cash. Atrium shall make the Net Available Cash Offer in
respect to any Unutilized Net Available Cash, at the same time as the analogous
offer to purchase is made under any Other Indebtedness and the purchase date
shall be the same under the Net Available Cash Offer as the purchase date
pursuant to any Other Indebtedness.
For purposes of this covenant, "Exchange Notes Portion of Unutilized Net
Available Cash" in respect of a Net Available Cash Offer means (a) if no Other
Indebtedness is concurrently being offered to be purchased, the amount of the
Unutilized Net Available Cash in respect of such Net Available Cash Offer and
(b) if Other Indebtedness is concurrently being offered to be purchased, an
amount equal to the product of (x) the Unutilized Net Available Cash in respect
of such Net Available Cash Offer and (y) a fraction the numerator of which is
the principal amount of all exchange notes tendered pursuant to the Net
Available Cash Offer related to such Unutilized Net Available Cash (the
"Exchange Notes Amount") and the denominator of which is the sum of the Exchange
Notes Amount and the lesser of the aggregate principal face amount or accreted
value as of the relevant purchase date of all Other Indebtedness tendered
pursuant to a concurrent offer to purchase such Other Indebtedness made at the
time of such Net Available Cash Offer.
With respect to any Net Available Cash Offer effected pursuant to this
covenant, to the extent that the principal amount of the exchange notes tendered
pursuant to such Net Available Cash Offer exceeds the Exchange Notes Portion of
Unutilized Net Available Cash with respect thereto, the exchange notes shall be
purchased PRO RATA based on the principal amount of the exchange notes tendered
by each Holder. Holders whose exchange notes are purchased only in part will be
issued new exchange notes equal in principal amount to the unpurchased portion
of the exchange notes surrendered.
To the extent the Exchange Notes Portion of Unutilized Net Available Cash
available for any Net Available Cash Offer effected pursuant to this covenant
exceeds the aggregate purchase price for the exchange notes validly tendered and
purchased by Atrium pursuant thereto, such excess shall no longer be deemed
Unutilized Net Available Cash and shall be available to Atrium and its
Restricted Subsidiaries for any purpose not prohibited under the indenture.
For the purposes of this covenant, the following will be deemed to be cash,
but not Net Available Cash: (x) the assumption by the transferee of
Indebtedness, other than Subordinated Obligations, of Atrium or any Guarantor
and the release of Atrium or such Guarantor from all liability on such
Indebtedness in connection with such Asset Disposition, in which case Atrium
shall, without further action, be deemed to have applied such assumed
Indebtedness in accordance with the second paragraph under
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this covenant, and (y) securities received by Atrium or any Restricted
Subsidiary of Atrium from the transferee that are promptly converted, but in no
event later than 30 days after the relevant Asset Disposition, by Atrium or such
Restricted Subsidiary into cash.
Atrium will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other applicable securities laws or
regulations in connection with the repurchase of exchange notes pursuant to a
Net Available Cash Offer, and any violation of the provisions of the Indenture
relating to such Net Available Cash Offer occurring as a result of such
compliance shall not be deemed a Default.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The indenture will provide that Atrium will not, and will not
cause or permit any of the Restricted Subsidiaries to, directly or indirectly,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (1) pay dividends or
make any other distributions on its Capital Stock to Atrium or any other
Restricted Subsidiary or pay any Indebtedness or other obligation owed to Atrium
or any other Restricted Subsidiary, (2) make any loans or advances to Atrium or
to any other Restricted Subsidiary which directly or indirectly owns the Capital
Stock of such Restricted Subsidiary or (3) transfer any of its property or
assets to Atrium or to any other Restricted Subsidiary which directly or
indirectly owns the Capital Stock of such Restricted Subsidiary, except for:
(a) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date, including, without limitation, the Credit
Facility and the indenture;
(b) any encumbrance or restriction with respect to such a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness issued by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by Atrium and outstanding on such date, other than
Indebtedness issued as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary of Atrium or was acquired by Atrium;
(c) any encumbrance or restriction with respect to such a Restricted
Subsidiary (A) pursuant to an agreement evidencing Indebtedness Incurred
without violation of the Indenture or (B) effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in clause (a) or
(b) above or this clause (c) or contained in any amendment to an agreement
referred to in clause (a) or (b) above or this clause (c); PROVIDED,
HOWEVER, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any of such agreement, refinancing
agreement or amendment, taken as a whole, are no less favorable to the
holders of the exchange notes in any material respect, as determined in good
faith by the board of directors of Atrium, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in, in the
case of (A) above, the Credit Facility, and in the case of (B) above, the
agreement being refinanced or amended;
(d) in the case of clause (iii) above, any encumbrance or restriction
(A) that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of Atrium or any Restricted Subsidiary not otherwise
prohibited by the Indenture, (C) that is included in a licensing agreement
to the extent such restrictions limit the transfer of the property subject
to such licensing agreement or (D) arising or agreed to in the ordinary
course of business and that does not, individually or in the aggregate,
detract from the value of property or assets of Atrium or any of its
Subsidiaries in any manner material to Atrium or any such Restricted
Subsidiary;
(e) in the case of clause (iii) above, restrictions contained in
security agreements, mortgages or similar documents securing Indebtedness of
a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements; PROVIDED, that
such Indebtedness and such Lien is permitted by the Indenture;
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(f) any restriction with respect to such a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(g) encumbrances or restrictions arising or existing by reason of
applicable law.
LIMITATIONS ON GUARANTEES BY RESTRICTED SUBSIDIARIES. Atrium will permit
any of the Restricted Subsidiaries, directly or indirectly, to guarantee the
payment of any Indebtedness of Atrium ("Other Guaranteed Indebtedness") unless
such Restricted Subsidiary
(A) is a Guarantor, or
(B) simultaneously executes and delivers a supplemental indenture pursuant
to which it will become a Guarantor.
However, if such Other Guaranteed Indebtedness is (A) Senior Subordinated
Indebtedness, the Guarantee of such Restricted Subsidiary shall be rank equally
in right of payment with the guarantee of the Other Guaranteed Indebtedness; or
(B) Subordinated Obligations, the Guarantee of such Restricted Subsidiary shall
be senior in right of payment to the guarantee of the Other Guaranteed
Indebtedness, which guarantee of such Subordinated Obligations shall provide
that such guarantee is subordinated to the Guarantee of such Restricted
Subsidiary to the same extent and in the same manner as the Other Guaranteed
Indebtedness is subordinated to the exchange notes.
Furthermore, each Restricted Subsidiary issuing a Guarantee will be
automatically and unconditionally released and discharged from its obligations
under such Guarantee upon the release or discharge of the guarantee of the Other
Guaranteed Indebtedness that resulted in the creation of such Guarantee, except
a discharge or release by, or as a result of, any payment under the guarantee of
such Other Guaranteed Indebtedness by such Restricted Subsidiary. In addition,
Atrium may, at any time, cause a Restricted Subsidiary to become a Guarantor by
executing and delivering a supplemental indenture providing for the guarantee of
payments of the exchange notes by such Restricted Subsidiary on the basis
provided in the Indenture.
PROVISION OF FINANCIAL STATEMENTS. For so long as the exchange notes are
outstanding, Atrium will, to the extent permitted by SEC practice and applicable
law and regulations, file with the SEC the annual reports, quarterly reports and
other documents which Atrium would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d), if Atrium was so subject, such
documents to be filed with the SEC on or prior to the date (the "Required Filing
Dates") by which Atrium would have been required so to file such documents if
Atrium was so subject.
Atrium will also in any event within 15 days of each Required Filing Date,
whether or not permitted or required to be filed with the SEC, (1) transmit or
cause to be transmitted by mail to all holders of exchange notes, as their names
and addresses appear in the security register, without cost to such holders and
(2) file with the Trustee, copies of the annual reports, quarterly reports and
other documents which Atrium would have been required to file with the SEC
pursuant to Section 13(a) or 15(d) of the Exchange Act, or any successor
provision thereto, if Atrium were subject to either of such Sections.
In addition, for so long as any exchange notes remain outstanding, Atrium
will furnish
- to the holders of exchange notes and prospective investors, at their
request, the information required to be delivered pursuant to Rule
144(d)(4) under the Securities Act, and,
- to any beneficial holder of exchange notes known to Atrium, information of
the type that would be filed with the SEC pursuant to the provisions
described above if not obtainable from the SEC.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Atrium will not
- consolidate with or merge with or into, or
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- sell, convey, transfer or lease all or substantially all its assets to,
any Person,
- or permit any of its Restricted Subsidiaries to enter into any such
transaction if such transaction would result in the sale, conveyance,
transfer or lease of all or substantially all of the assets of Atrium and
the Restricted Subsidiaries on a consolidated basis, unless:
(1) the Surviving Person shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia and the Surviving Person shall expressly assume by a
supplemental indenture executed and delivered to the trustee, in form
satisfactory to the trustee, all the obligations of Atrium under the
exchange notes and the indenture and the registration rights agreement;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(3) immediately after giving effect to such transaction, the Surviving
Person would be able to Incur an additional $1.00 of Indebtedness pursuant
to the first paragraph under the covenant described under "--Certain
Covenants--Limitation on Indebtedness."
Notwithstanding clauses (2) and (3) above:
(1) any Restricted Subsidiary of Atrium may consolidate with, merge into
or transfer all or part of its properties and assets to Atrium or any
Wholly Owned Subsidiary that is a Guarantor; and
(2) Atrium may merge with an Affiliate incorporated solely for the
purpose of reincorporating Atrium in another jurisdiction to realize
tax or other benefits.
No Guarantor will in any transaction or series of related transactions,
consolidate with or merge with or into another Person, whether or not such
Person is affiliated with such Guarantor and whether or not such Guarantor is
the Surviving Person, unless
(1) the Surviving Person shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia;
(2) the Surviving Person expressly assumes by a supplemental indenture
all the obligations of such Guarantor under its Guarantee and the
performance and observance of every covenant of the indenture and the
registration rights agreement to be performed or observed by such Guarantor;
and
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing.
After any consolidation or merger of Atrium or any Guarantor or any transfer
of all or substantially all of the assets of Atrium in which Atrium or a
Guarantor is not the Surviving Person, the Surviving Person shall succeed to,
every right and power of Atrium under the indenture, the exchange notes and the
registration rights agreement or such Guarantor under the indenture, the
Guarantee of such Guarantor and the registration rights agreement as the case
may be, with the same effect as if such successor corporation had been named as
Atrium or such, except in the case of
(a) a lease, or
(b) any sale, assignment, conveyance, transfer or other disposition to a
Restricted Subsidiary of Atrium or such Guarantor,
Atrium shall be discharged from all obligations and covenants under the
indenture, the exchange notes and the registration rights agreement and such
Guarantor shall be discharged from all obligations and covenants under the
indenture, the registration rights agreement and the Guarantee of such
Guarantor.
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For all purposes of the indenture and the exchange notes, Subsidiaries of
any Surviving Person shall upon such transaction or series of related
transactions become Restricted Subsidiaries unless designated as Unrestricted
Subsidiaries pursuant to and in accordance with the terms of the indenture. All
Indebtedness and all Liens on property or assets of Atrium and the Restricted
Subsidiaries in existence immediately prior to such transaction or series of
related transactions will be deemed to have been incurred upon such transaction
or series of related transactions.
EVENTS OF DEFAULT
The following will be "Events of Default" under the indenture:
(1) default in any payment of interest on any note when the same becomes
due and payable, and such default continues for a period of 30 days; or
(2) default in the payment of the principal of any note when the same
becomes due and payable; or
(3) Atrium or any Guarantor fails to comply with any of its obligations
described under the option "--Certain Covenants--Consolidation, Merger, Sale
of Assets, Etc."; or
(4) Atrium or any Guarantor fails to comply with any of its obligations
described under the option "Change of Control" and "Certain Covenants" and
such failure continues for 30 days after written notice of such failure
requiring Atrium to remedy the failure shall have been given
(x) to Atrium by the trustee, or
(y) to Atrium and the trustee by the holders of at least 25% in aggregate
principal amount of the exchange notes then outstanding; or
(5) Atrium or any Guarantor fails to comply with any of its obligations
in the exchange notes, the Guarantees or the indenture and such failure
continues for 60 days after written notice of such failure requiring Atrium
to remedy the failure shall have been given
(x) to Atrium by the trustee or
(y) to Atrium and the trustee by the holders of at least 25% in aggregate
principal amount of the exchange notes then outstanding; or
(6) Indebtedness of Atrium or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated by
its holders because of a default and the total amount of such Indebtedness
in the aggregate exceeds $10.0 million at the time and such default have not
been cured or acceleration rescinded within a 30 day period; or
(7) one or more judgments or decrees for the payment of money in excess
of $10.0 million in the aggregate is entered against Atrium or any
Significant Subsidiary and such judgment or decree remains undischarged or
unstayed for a period of 60 days after it becomes final and non-appealable;
or
(8) (a) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or is declared null and void or (b) any Guarantor that is a
Significant Subsidiary denies that it has any further liability under any
Guarantee, or gives notice to such effect; or
(9) certain events of bankruptcy, insolvency or reorganization with
respect to Atrium or any Significant Subsidiary shall have occurred.
If an Event of Default, other than as specified in clause (g) with respect
to Atrium, occurs and is continuing, the trustee or the holders of at least 25%
in principal amount of the outstanding exchange notes by notice to Atrium may
declare the principal of and accrued and unpaid interest, if any, on all the
exchange notes to be due and payable.
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Upon such a declaration, such principal and accrued and unpaid interest
shall be due and payable immediately. However, so long as the Credit Facility
shall be in force and effect, if an Event of Default have occurred and is
continuing, any such acceleration shall not be effective until the earlier to
occur of
(x) five business days following delivery of a notice of such
acceleration to the Representative under the Credit Facility and
(y) the acceleration of any Indebtedness under the Credit Facility.
If an Event of Default under clause (g) relating to certain events of
bankruptcy, insolvency or reorganization of Atrium occurs, the principal of and
accrued and unpaid interest on all the exchange notes will become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holders. Under certain circumstances, the holders of a
majority in principal amount of the outstanding exchange notes may rescind any
such acceleration with respect to the exchange notes and its consequences.
If an Event of Default occurs and is continuing, the Trustee will be under
no obligation to exercise any of the rights or powers under the indenture at the
request or direction of any of the holders unless such holders have offered to
the trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium,
if any, or interest when due, no holder may pursue any remedy with respect to
the indenture or the exchange notes unless
(1) such holder has previously given the trustee notice that an Event
of Default is continuing,
(2) holders of at least 25% in principal amount of the outstanding
exchange notes have requested the trustee to pursue the remedy,
(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or
indemnity and
(5) the holders of a majority in principal amount of the outstanding
exchange notes have not given the trustee a direction that, in
the opinion of the trustee, is inconsistent with such request
within such 60-day period.
The holders of a majority in principal amount of the outstanding exchange
notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or of exercising any trust or
power conferred on the trustee. The trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the trustee in personal liability. Prior to taking any action under the
Indenture, the trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of, premium,
if any, or interest on any note, the trustee may withhold notice if and so long
as its board of directors, a committee of its board of directors or a committee
of its trust officers in good faith determines that withholding notice is in the
interests of the holders of exchange notes. In addition, Atrium is required to
deliver to the trustee, written notice of any events which would constitute
certain Defaults within 30 days after the occurrence of such events.
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AMENDMENTS AND WAIVERS
The Indenture may be amended with the consent of the holders of a majority
in principal amount of the exchange notes then outstanding and any past default
or compliance with any provisions may be waived with the consent of the holders
of a majority in principal amount of the exchange notes then outstanding.
However, without the consent of each holder of an outstanding note affected, no
amendment may, among other things:
(1) reduce the amount of exchange notes whose holders must consent to an
amendment;
(2) reduce the stated rate of or extend the stated time for payment of
interest on any note;
(3) reduce the principal of or change the stated maturity of any note;
(4) reduce the premium payable upon the redemption or repurchase of any
note or change the time at which any note may be redeemed;
(5) make any note payable in money other than that stated in the note;
(6) impair the right of any holder to receive payment of principal of
and interest on such holder's exchange notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's exchange notes;
(7) modify the ranking or priority of any note or the Guarantee of any
Guarantor in any adverse manner;
(8) following the occurrence of a Change of Control or an Asset
Disposition, modify in a manner materially adverse to the holders of
exchange notes affected thereby the provisions of any covenant in the
indenture requiring Atrium to make and consummate an offer to purchase with
respect to such Change of Control or a Net Available Cash Offer with respect
to such Asset Disposition;
(9) release any Guarantor that is a Significant Subsidiary from any of
its obligations under its Guarantee or the Indenture otherwise than in
accordance with the indenture; or
(10) make any change in the amendment or waiver provisions which require
each affected holder's consent.
Without the consent of any holder, Atrium, the Guarantors and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of Atrium under the Indenture, to add further Guarantees with
respect to the exchange notes, to secure the exchange notes, to add to the
covenants of Atrium for the benefit of the holders, to make any change that does
not adversely affect the rights of any holder or to comply with any requirement
of the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, any amendment made to the subordination provisions of
the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding shall not be effective as to the holders of such
outstanding Senior Indebtedness unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, Atrium is required
to mail to the holders a notice briefly describing such amendment. However, the
failure to give such notice to all the holders or any defect therein will not
impair or affect the validity of the amendment.
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DEFEASANCE
Atrium at any time may terminate all its and the Guarantors' obligations
under the exchange notes and the Indenture ("legal defeasance"), except for
certain obligations, including those respecting the defeasance trust and
obligations to register the transfer or exchange of the exchange notes, to
replace mutilated, destroyed, lost or stolen exchange notes and to maintain a
registrar and paying agent in respect of the exchange notes. Atrium at any time
may terminate its and the Guarantors' obligations under covenants described
under "Certain Covenants" (other than clause (i) of the first and second
paragraphs under "Certain Covenants--Consolidation, Merger, Sale of Assets,
etc."), the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries, the judgment default
provision and the Guarantee provision described under "Events of Default"
("covenant defeasance").
Atrium may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Atrium exercises its legal
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default with respect thereto. If Atrium exercises its covenant
defeasance option, payment of the exchange notes may not be accelerated because
of an Event of Default specified in clause (iv), (vi), (vii), (viii) or (ix)
(with respect only to Significant Subsidiaries) under "Events of Default" above
or because of the failure of Atrium to comply with clause (ii) or (iii) in the
first paragraph and clause (iii) in the second paragraph under "Certain
Covenants--Consolidation, Merger, Sale of Assets, etc." above.
In order to exercise either defeasance option, Atrium must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the exchange notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that holders of the exchange notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is to be the Trustee under the Indenture
and has been appointed by Atrium as Registrar and Paying Agent with regard to
the exchange notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Atrium, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding exchange notes issued under the Indenture will have the right to
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee. The Indenture provides that in case an
Event of Default shall occur (which shall not be cured) the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the holders of the exchange notes issued
thereunder, unless they shall have offered to the Trustee security and indemnity
satisfactory to it.
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GOVERNING LAW
The Indenture provides that it, the exchange notes and the Guarantees will
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflict of laws to the
extent that the application of the law of another jurisdiction would be required
thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (1) any property or assets, other than
Indebtedness and Capital Stock, in a Related Business; (2) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Atrium or a Restricted Subsidiary of Atrium; (3) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary of Atrium; or (4) Permitted Investments described in
clause (8) of the definition thereof; PROVIDED, HOWEVER, that, in the case of
clauses (2) and (3), such Restricted Subsidiary is primarily engaged in a
Related Business.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which
(x) the fair value of the property of such Guarantor exceeds the total
amount of liabilities, including the probable liability of such Guarantor with
respect to its contingent liabilities, but excluding liabilities under the
Guarantee of such Guarantor at such date, and
(y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts, excluding debt in respect of the Guarantee, as they
become absolute and matured.
"Affiliate" of any specified Person means
(1) any other Person, directly or indirectly, controlling or controlled by
or under direct or indirect common control with such specified Person, or
(2) any other Person that owns 10.0% or more of any class of Capital Stock
of the specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
Ardshiel is an "Affiliate" of Atrium on the Issue Date based on its
contractual rights to direct the management and policies of Atrium.
"Affiliate Transaction" has the meaning set forth under subheading
"--Certain Covenants-- Limitation on Transactions with Affiliates."
"Ardshiel" means Ardshiel, Inc.
"Asset Acquisition" means (1) an Investment by Atrium or any Restricted
Subsidiary in any other Person pursuant to which such Person will become a
Restricted Subsidiary or will be merged or consolidated with or into Atrium or
any Restricted Subsidiary or (2) the acquisition by Atrium or any Restricted
Subsidiary of the assets of any Person which constitute substantially all of the
assets of such Person or any division or line of business of such Person.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition of shares of Capital Stock of, or other equity interests in, a
Restricted Subsidiary, other than directors' qualifying shares, or of any other
property or other assets (each referred to for the purposes of this definition
as a "disposition") by Atrium or any of its Restricted Subsidiaries other than
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(1) a disposition by a Restricted Subsidiary to Atrium or by Atrium or a
Restricted Subsidiary to a Restricted Subsidiary,
(2) a disposition of inventory in the ordinary course of business,
(3) a disposition of obsolete or worn out equipment or equipment that is no
longer used or useful in the conduct of the business of Atrium and its
Restricted Subsidiaries and that is disposed of in each case in the ordinary
course of business,
(4) dispositions of property for net proceeds which, when taken collectively
with the net proceeds of any other such dispositions under this clause (4) that
were consummated since the beginning of the fiscal year in which such
disposition is consummated, do not exceed $1.0 million, and
(5) transactions permitted by the covenant described under subheading
"--Certain Covenants-- Consolidation, Merger, Sale of Assets, Etc." and the
creation of any Lien not prohibited by the covenant described under "--Certain
Covenants--Limitation on Liens."
A Restricted Payment or other payment or Investment made in compliance with
the covenant described under subheading "--Certain Covenants--Limitation on
Restricted Payments" shall not constitute an Asset Disposition except for
purposes of determination of the Consolidated Coverage Ratio.
"Atrium Holdings" means Atrium Corporation, a Delaware corporation and the
owner on the date hereof of all the outstanding capital stock of Atrium, and its
successors.
"Atrium Holdings Discount Exchange Notes" means the 12% senior discount
debentures due 2010 of Atrium Holdings, having an aggregate principal amount at
maturity of $80,562,000 as of the Issue Date.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value, discounted at the
interest rate borne by the exchange notes, compounded annually, of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction, including any period for
which such lease has been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption multiplied by the amount of such payment by
(2) the sum of all such payments.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means any of the following:
(1) any Investment in direct obligations of the United States of America or
any agency thereof or obligations guaranteed by the United States of America or
any agency thereof,
(2) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized
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under the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital surplus and
undivided profits aggregating in excess of $250 million, or the foreign currency
equivalent thereof, and whose long-term debt, or whose parent holding company's
long term debt, is rated "A", or such similar equivalent rating, or higher by at
least one nationally recognized statistical rating organization, as defined in
Rule 436 under the Securities Act,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered into
with a bank meeting the qualifications described in clause (2) above,
(4) Investments in commercial paper, maturing not more than 180 days after
the date of acquisition, issued by a corporation, other than an Affiliate of
Atrium, organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1", or
higher, according to Moody's Investors Service, Inc. or "A-1", or higher,
according to Standard and Poor's Ratings Group,
(5) Investments in 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-2" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc., and
(6) Investments in mutual funds whose investment guidelines restrict such
funds' investments to those satisfying the provisions of any or all of clauses
(1) through (5) above.
"Change of Control"means the occurrence of any of the following events:
(1) Atrium consolidates with, or merges with or into, another Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, in any such event pursuant to
a transaction in which the outstanding Voting Stock of Atrium is converted
into or exchanged for cash, securities or other property, other than any
such transaction where
(a) the outstanding Voting Stock of Atrium is converted into or exchanged
for (1) Voting Stock of the surviving or transferee corporation or its parent
corporation and/or (2) cash, securities and other property in an amount which
could be paid by Atrium as a Restricted Payment under the applicable indenture,
and
(b) immediately after such transaction no "person" or "group", as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act, excluding Permitted
Holders, is the "beneficial owner", as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, directly or indirectly, of more than 50% of the total voting
power of the then outstanding Voting Stock of the surviving or transferee
corporation, as applicable;
(2) a majority of the board of directors of Atrium shall consist of
Persons who are not Continuing Directors of Atrium; or
(3)
(a) prior to the consummation of an Initial Public Offering, the Permitted
Holders fail to collectively beneficially own, within the meaning of Rules 13d-3
and 13d-5 under the Exchange Act, directly or indirectly, at least a majority of
the total voting power of then outstanding Voting Stock of Atrium or fail to
have the ability to appoint a majority of the board of directors of Atrium, or
(b) at or after the consummation of an Initial Public Offering, (1) any
Person or Group, other than the Permitted Holders, shall (A) beneficially own,
within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, directly or
indirectly, more than 50% of the total voting power of the then outstanding
Voting Stock of Atrium or (B) have the right or power to appoint, directly or
indirectly, a majority of the board of directors of Atrium.
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PROVIDED that any Person or group shall be deemed to beneficially own any
Voting Stock 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 then outstanding Voting Stock 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.
"Commodity Agreement"means any commodity future contract, commodity option
or other similar agreement or arrangement entered into by Atrium or any
Restricted Subsidiary that is designed to protect Atrium or any Restricted
Subsidiary against fluctuations in the price of commodities used by Atrium or a
Restricted Subsidiary as raw materials in the ordinary course of business.
"Consolidated Cash Flow"for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income:
(1) income tax expense,
(2) Consolidated Interest Expense,
(3) depreciation expense,
(4) amortization expense,
(5) exchange or translation losses on foreign currencies, and
(6) all other noncash items reducing Consolidated Net Income, excluding any
noncash item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
exchange notes, and less, to the extent added in calculating Consolidated Net
Income, (x) exchange or translation gains on foreign currencies, (y) noncash
items, excluding such noncash items to the extent they represent an accrual for
cash receipts reasonably expected to be received prior to the Stated Maturity of
the exchange notes, and (z) dividends or distributions paid pursuant to clause
(4) under the second paragraph in the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," in each case for such period.
Notwithstanding the foregoing, the income tax expense, depreciation expense
and amortization expense of a Subsidiary of Atrium shall be included in
Consolidated Cash Flow only to the extent, and in the same proportion, that the
net income of such Subsidiary was included in calculating Consolidated Net
Income. For any period for which Consolidated Cash Flow is being measured that
includes the fiscal quarter ended March 31, 1999, severance payments made during
such fiscal quarter in an amount not to exceed $1.8 million shall be added back
to Consolidated Cash Flow to the extent deducted in the calculation thereof.
"Consolidated Coverage Ratio"as of any date of determination means the ratio of
(i) the aggregate amount of Consolidated Cash Flow for the period of the most
recent four consecutive fiscal quarters ending prior to the date of such
determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER,
that
(1) if Atrium or any of the Restricted Subsidiaries has Incurred any
Indebtedness since the beginning of such period through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a PRO FORMA basis to
(A) such Indebtedness, other than Indebtedness incurred pursuant to the
second paragraph under the covenant described under subheading "--Certain
Covenants--Limitation on Indebtedness" on the date of determination, as if such
Indebtedness had been Incurred on the first day of such period, PROVIDED that,
if such Indebtedness is Incurred under a revolving credit facility or similar
arrangement or under any predecessor revolving credit or similar arrangement,
only that portion of such Indebtedness that constitutes the one year projected
average balance of such Indebtedness shall be deemed outstanding for purposes of
this calculation, and
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(B) the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
(2) if since the beginning of such period any Indebtedness of Atrium or any
of the Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged, other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced, Consolidated Interest Expense for
such period shall be calculated after giving PRO FORMA effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period,
(3) if since the beginning of such period Atrium or any of its Restricted
Subsidiaries shall have made any Asset Disposition or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow, if positive, attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow, if negative,
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be
(a) reduced by an amount equal to the Consolidated Interest Expense
attributable to any Indebtedness of Atrium or any of the Restricted Subsidiaries
repaid, repurchased, defeased or otherwise discharged with respect to Atrium and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period or, if the Capital Stock of any Restricted Subsidiary of Atrium
is sold, transferred or otherwise disposed of, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent Atrium and the continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale, transfer or other
disposition, and
(b) increased by interest income attributable to the assets which are the
subject of such Asset Disposition for such period,
(4) if since the beginning of such period Atrium or any of its Restricted
Subsidiaries shall have made an Asset Acquisition, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
PRO FORMA effect thereto, including the incurrence of any Indebtedness, as if
such Asset Acquisition occurred on the first day of such period, and (5) if
since the beginning of such period any Person that subsequently became a
Restricted Subsidiary of Atrium or was merged with or into Atrium or any
Restricted Subsidiary of Atrium since the beginning of such period shall have
made any Asset Disposition or Asset Acquisition that would have required an
adjustment pursuant to clause (3) or (4) above if made by Atrium or a Restricted
Subsidiary of Atrium during such period, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving PRO FORMA
effect thereto as if such Asset Disposition or Asset Acquisition occurred on the
first day of such period.
For purposes of this definition, whenever PRO FORMA effect is to be given to
an Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the PRO FORMA calculations shall be determined
in accordance with GAAP and Regulation S-X under the Securities Act, to the
extent applicable, in good faith by a responsible financial or accounting
officer of Atrium. If any Indebtedness bears a floating rate of interest and is
being given PRO FORMA effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period, taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term that extends at least until the end of such period.
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"Consolidated Interest Expense"means, for any period, the total interest
expense of Atrium and the Restricted Subsidiaries for such period as determined
on a consolidated basis in accordance with GAAP, plus, to the extent not
included in such interest expense,
(1) interest expense attributable to capital leases,
(2) amortization of debt discount,
(3) capitalized interest,
(4) noncash interest expense,
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers acceptance financing,
(6) interest actually paid by Atrium or any such Restricted Subsidiary under
any guarantee of Indebtedness or other obligation of any other Person,
(7) net payments pursuant to Interest Rate Agreements, and
(8) the product of (x) all cash and Disqualified Stock dividends in respect
of all Preferred Stock of Subsidiaries and Disqualified Stock of Atrium held by
Persons other than Atrium or a Wholly-Owned Subsidiary times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal, and less, to the extent included in such interest
expense, the amortization of capitalized debt issuance costs.
"Consolidated Net Income" means, for any period, the net income (loss) of
Atrium and the consolidated Restricted Subsidiaries for such period determined
in accordance with GAAP; PROVIDED, HOWEVER, that there shall not be included in
such Consolidated Net Income:
(1) any net income (loss) of any person acquired by Atrium or any of its
Restricted Subsidiaries in a pooling of interests transaction for any period
prior to the date of such acquisition,
(2) any net income of any Restricted Subsidiary of Atrium to the extent
that the payment of dividends or the making of distributions by such
Restricted Subsidiary is prohibited, directly or indirectly, by contract,
operation of law or otherwise,
(3) any gain or loss realized upon the sale or other disposition of any
assets of Atrium or its consolidated Restricted Subsidiaries which are not
sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person,
(4) any extraordinary gain or loss, including non-recurring expenses
related to the Atrium transactions,
(5) the cumulative effect of a change in accounting principles,
(6) noncash restructuring charges or writeoffs in connection with or
related to the Atrium transactions recorded before or within the one year
period following the Issue Date,
(7) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of the lesser of (A) dividends or distributions paid to
Atrium or any of its Restricted Subsidiaries, unless and to the extent such
Restricted Subsidiary is subject to clause (2) above, by such Person and (B)
the net income of such Person, but in no event less than zero, and the net
loss of such Person, other than an Unrestricted Subsidiary, the net income
and net loss of which will not be included, shall be included only to the
extent of the aggregate Investment of Atrium or any of its Restricted
Subsidiaries in such Person, and
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(8) any noncash expenses attributable to grants or exercises of employee
stock options.
Notwithstanding the foregoing, for the purpose of the covenant described
under subheading "--Certain Covenants--Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to Atrium or to a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (3)(D) under the first paragraph thereof.
"Continuing Director" means, as of the date of determination, any Person who
(1) was a member of the board of directors of such Person on the date of
the Indenture,
(2) was nominated for election or elected to the board of directors of
such Person with the affirmative vote of a majority of the Continuing
Directors who were members of such board of directors at the time of such
nomination or election, or
(3) is a representative of a Permitted Holder. "covenant defeasance"has
the meaning set forth under "--Defeasance."
"Credit Facility" means the Credit Agreement, dated as of October 2, 1998,
as amended, among Atrium, Atrium Holdings, Parent, the guarantors named therein,
Merrill Lynch Capital Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Lead Arranger, Syndication Agent and Documentation Agent, and
BankBoston, N.A., as Administrative Agent, and any other financial institutions
from time to time party thereto, together with the related documents thereto, in
each case as such agreements may be amended, supplemented or otherwise modified
from time to time, including any agreement extending the maturity of,
refinancing, replacing, increasing the total commitment of, or otherwise
restructuring all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defeasance" has the meaning set forth under "--Defeasance."
"Designated Senior Indebtedness" means
(a) all Senior Indebtedness, liquidated or contingent, outstanding under
the Credit Facility, and
(b) any other Senior Indebtedness of Atrium which, at the time of
determination, is in an aggregate principal amount outstanding or committed
for of at least $30.0 million and is specifically designated in the
instrument governing such Senior Indebtedness as "Designated Senior
Indebtedness" by Atrium.
"Disqualified Stock" means any Capital Stock which, 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
(1) matures, excluding any maturity as the result of an optional
redemption by the issuer thereof, or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise or is redeemable at the option of the
holder thereof, except upon the occurrence of a Change of Control or Asset
Disposition if such Capital Stock requires that the Change of Control Offer
or Net Available Cash Offer, with respect to the exchange notes be completed
prior to any similar offer being made with respect to such Capital Stock, in
whole or in part, on or prior to the final stated maturity of the exchange
notes, or
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(2) is convertible into or exchangeable, unless at the sole option of
the issuer thereof, for (a) debt securities or (b) any Capital Stock
referred to in (1) above, in each case at any time prior to the final stated
maturity of the exchange notes.
"Event of Default" has the meaning set forth under "--Events of Default."
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair market value shall be determined
by the board of directors of Atrium acting in good faith evidenced by a board
resolution thereof delivered to the trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date hereof, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations contained in the indenture shall be computed in
conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness of such other Person, whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise, or
(2) entered into for purposes of assuring in any other manner the
obligee to such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof, in whole or in part,
PROVIDED, HOWEVER, that the term "guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
The term "guarantee" used as a verb has a corresponding meaning.
"Guarantee" means the guarantee by any Guarantor of Atrium's obligations
under the indenture and the exchange notes pursuant to a guarantee given in
accordance with the indenture.
"Guarantor" means the Subsidiaries listed as guarantors in the indenture and
any other Subsidiary which is a guarantor of the exchange notes, including any
Person that executes or is required after the date of the indenture to execute a
guarantee of the exchange notes as described in "--Guarantees" and "--Certain
Covenants--Limitation on Guarantees by Restricted Subsidiaries," until a
successor replaces such party pursuant to the applicable provisions of the
indenture and, thereafter, shall mean such successor; PROVIDED, that for
purposes hereof the term "Guarantor" shall not include any Unrestricted
Subsidiary unless specifically provided otherwise or any Person that has been
released from its Guarantee in accordance with the terms of the Indenture. As of
the Issue Date, all of Atrium's Restricted Subsidiaries will be Guarantors.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary shall be deemed
to be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
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"Indebtedness" means, with respect to any Person on any date of
determination,
(1) the principal of and premium, if any, in respect of indebtedness of
such Person for borrowed money,
(2) the principal of and premium, if any, in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments,
(3) all obligations of such Person in respect of letters of credit or
other similar instruments, including reimbursement obligations with respect
thereto, other than obligations with respect to letters of credit securing
obligations, entered into in the ordinary course of business of such Person
to the extent that such letters of credit are not drawn upon or, if and to
the extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit,
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except trade payables and accrued
expenses incurred in the ordinary course of business payable in accordance
with industry practices,
(5) all Capitalized Lease Obligations and all Attributable Indebtedness
of such Person,
(6) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of such Indebtedness shall be the lesser
of the fair market value of such asset at such date of determination and the
amount of such Indebtedness of such other Person,
(7) all Indebtedness of other Persons to the extent guaranteed by such
Person,
(8) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Restricted Subsidiary of Atrium, any Preferred Stock of such
Restricted Subsidiary to the extent such obligation arises on or before the
Stated Maturity of the exchange notes, but excluding any accrued dividends,
and
(9) to the extent not otherwise included in this definition, net
obligations under Currency Agreements, Interest Rate Agreements and
Commodity Agreements.
"Initial Public Offering" means a primary underwritten public offering of
the common stock of Parent, Atrium Holdings or Atrium 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.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan, other
than advances to customers in the ordinary course of business that are recorded
as accounts payable on the balance sheet of such Person, or other extension of
credit, including by way of guarantee or similar arrangement, but excluding any
debt or extension of credit represented by a bank deposit other than a time
deposit, or 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, or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the covenant
described under subheading "--Certain Covenants--Limitation on Restricted
Payments,"
(1) "Investment" shall include the portion, proportionate to Atrium
equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary, of the fair market value of the net assets of such
Restricted Subsidiary of Atrium at the time that such Restricted Subsidiary
is
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designated an Unrestricted Subsidiary and shall exclude the portion,
proportionate to Atrium's equity interest in an Unrestricted Subsidiary to
be redesignated as a Restricted Subsidiary, of the fair market value of the
net assets of such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is redesignated as a Restricted Subsidiary,
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, and
(3) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by Atrium or any of
its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment.
"Issue Date" means the original issue date of the exchange notes under the
indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature thereof,
"Net Available Cash"from an Asset Disposition means cash payments received,
including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets subject to such Asset Disposition, therefrom, in
each case net of
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition,
(2) all payments made on any Indebtedness that is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid
out of the proceeds from such Asset Disposition,
(3) all distributions and other payments required to be made to any
Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition,
(4) the deduction of appropriate amounts to be provided by the seller as
a reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition; PROVIDED, HOWEVER, that
upon any reduction in such reserves, other than to the extent resulting from
payments of the respective reserved liabilities, Net Available Cash shall be
increased by the amount of such reduction to reserves and retained by Atrium
or any Restricted Subsidiary of Atrium after such Asset Disposition, and
(5) any portion of the purchase price from an Asset Disposition placed
in escrow, whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or
otherwise in connection with such Asset Disposition; PROVIDED, HOWEVER, that
upon the termination of such escrow, Net Available Cash shall be increased
by any portion of funds therein released to Atrium or any Restricted
Subsidiary. "Net Available Cash Offer"has the meaning set forth under
"--Certain Covenants--Limitation on Sale of Assets." "Non-Recourse
Debt"means Indebtedness as to which neither Atrium nor any Restricted
Subsidiary
(a) provides any guarantee or credit support of any kind, including
any undertaking, guarantee, indemnity, agreement or instrument that would
constitute Indebtedness, other than a non-recourse pledge of the Capital
Stock of an Unrestricted Subsidiary securing Indebtedness of such
Unrestricted Subsidiary or
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(b) is directly or indirectly liable as a guarantor or otherwise.
"Exchange Notes Amount" has the meaning set forth under "--Certain
Covenants--Limitation on Sale of Assets."
"Exchange Notes Portion of Unutilized Net Available Cash" has the meaning
set forth under subheading "--Certain Covenants--Limitation on Sale of Assets."
"Other Guaranteed Indebtedness"has the meaning set forth under subheading
"--Certain Covenants--Limitation on Guarantees by Restricted Subsidiaries."
"Other Indebtedness" has the meaning set forth under subheading "--Certain
Covenants--Limitation on Sale of Assets."
"Parent" means D and W Holdings, Inc., a Delaware corporation and the owner
on the date hereof of all the outstanding capital stock of Atrium Holdings, and
its successors.
"Permitted Holder"means (1) GE Investment Private Placement Partners II, a
Limited Partnership, (2) Ardshiel, or (3) any of their Affiliates.
"PERMITTED INDEBTEDNESS" means
(1) (A) Indebtedness of Atrium owing to and held by any Restricted
Subsidiary so long as such Indebtedness is subordinated to the
exchange notes to the same extent that the exchange notes are
subordinated to Senior Indebtedness or
(B) Indebtedness of a Restricted Subsidiary owing to and held by
Atrium or any Restricted Subsidiary;
PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of any such
Indebtedness, except, in the case of subclause (A), to a Restricted Subsidiary
or, in the case of subclause (B), to Atrium or a Restricted Subsidiary), shall
be deemed, in each case to constitute the Incurrence of such Indebtedness by the
issuer thereof;
(2) Indebtedness represented by (x) the exchange notes, (y) any
Indebtedness, other than the Indebtedness described in subclauses (1), (2)
and (4) of the second paragraph under subheading "--Certain
Covenants--Limitation on Indebtedness" and other than Indebtedness Incurred
pursuant to clause (1) above or clauses (4), (5), (6) or (7) below)
outstanding on the Issue Date and (z) any Refinancing Indebtedness Incurred
in respect of any Indebtedness described in this clause (2) or Incurred as
described in the first paragraph under subheading "--Certain
Covenants--Limitation on Indebtedness";
(3) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on the date on which such Restricted Subsidiary was acquired by Atrium,
other than Indebtedness Incurred as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary or was otherwise acquired by
Atrium; PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by Atrium, Atrium would have been able to Incur $1.00 of additional
Indebtedness as described in the first paragraph under subheading "--Certain
Covenants--Limitation on Indebtedness" after giving effect to the Incurrence
of such Indebtedness pursuant to this clause (3) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (3);
(4) Indebtedness of Atrium or any Restricted Subsidiary's
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(A) in respect of performance bonds, bankers' acceptances and surety
or appeal bonds provided by Atrium or any of the Restricted Subsidiaries
to their customers in the ordinary course of their business and not for
money borrowed,
(B) in respect of performance bonds or similar obligations of Atrium
or any of the Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business and
not for money borrowed in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health,
safety or environmental obligations,
(C) arising from guarantees to suppliers, lessors, licensees,
contractors, franchises or customers of obligations, other than
Indebtedness, incurred in the ordinary course of business and not for
money borrowed, and
(D) under Currency Agreements, Interest Rate Agreements and Commodity
Agreements;
PROVIDED, HOWEVER, that in the case of subclause (D), such agreements are
entered into for bona fide hedging purposes of Atrium or its Restricted
Subsidiaries and, in the case of Currency Agreements and Interest Rate
Agreements, such Currency Agreements and Interest Rate Agreements correspond in
terms of notional amount, duration, currencies and interest rates, as
applicable, to Indebtedness of Atrium or its Restricted Subsidiaries Incurred
without violation of the indenture or the business transactions of Atrium or the
Restricted Subsidiaries on customary terms entered into in the ordinary course
of business and otherwise in compliance with the indenture, as applicable;
(5) Indebtedness of Atrium or any Restricted Subsidiary's arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of Atrium or any of the
Restricted Subsidiaries pursuant to such agreements, in each case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of Atrium, other than guarantees of Indebtedness or other
obligations Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of Atrium for the purpose of
financing such acquisition, in a principal amount not to exceed the gross
proceeds actually received by Atrium or any of the Restricted Subsidiaries
in connection with such disposition;
(6) Indebtedness consisting of
(A) guarantees by Atrium or any Restricted Subsidiary of Indebtedness
Incurred by a Restricted Subsidiary that is a Guarantor without violation
of the Indenture, and
(B) guarantees by a Restricted Subsidiary of Indebtedness Incurred by
Atrium without violation of the indenture, so long as such Restricted
Subsidiary could have Incurred such Indebtedness directly without
violation of the indenture; and
(7) Indebtedness of Atrium or any Restricted Subsidiary arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course
of business; PROVIDED that such Indebtedness is extinguished within two
Business Days of its incurrence.
"PERMITTED INVESTMENT" means an Investment by Atrium or any of the
Restricted Subsidiaries in:
(1) Atrium or a Restricted Subsidiary of Atrium; PROVIDED, HOWEVER, that
the primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person
becomes a Restricted Subsidiary of Atrium or is merged or consolidated with
or into, or transfers or conveys all or substantially all its assets to,
Atrium or a Restricted Subsidiary of Atrium; PROVIDED, HOWEVER, that in each
case such Person's primary business is a Related Business;
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(3) Cash Equivalents;
(4) receivables owing to Atrium or any of the Restricted Subsidiaries,
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6)
(a) loans or advances by Atrium or a Restricted Subsidiary to
employees of Parent, Atrium Corporation, Atrium or any Subsidiary of
Atrium for purposes of purchasing Atrium's, Atrium Corporation's or
Parent's common stock in an aggregate amount outstanding at any one time
not to exceed $5.0 million, and
(b) other loans and advances by Atrium or a Restricted Subsidiary to
employees of Parent, Atrium Corporation, Atrium or any Subsidiary of
Atrium made in the ordinary course of business of Atrium or such
Restricted Subsidiary;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Atrium or any of the
Restricted Subsidiaries or in satisfaction of judgments or claims;
(8) a Person engaged in a Related Business or a loan or advance to
Atrium the proceeds of which are used solely to make an Investment in a
Person engaged in a Related Business or a guarantee by Atrium of
Indebtedness of any Person in which such Investment has been made; PROVIDED,
HOWEVER, that no Permitted Investments may be made pursuant to this clause
(8) to the extent the amount thereof would, when taken together with all
other Permitted Investments made pursuant to this clause (8), exceed $5.0
million in the aggregate, plus, to the extent not previously reinvested, any
return of capital realized on Permitted Investments made pursuant to this
clause (8), or any release or other cancellation of any guarantee
constituting such Permitted Investment;
(9) Persons to the extent such Investment is received by Atrium or any
Restricted Subsidiary as consideration for asset dispositions effected in
compliance with the covenant described under subheading "--Certain
Covenants--Limitation on Sale of Assets";
(10) prepayments and other credits to suppliers made in the ordinary
course of business of Atrium and the Restricted Subsidiaries; and
(11) Investments in connection with pledges, deposits, payments or
performance bonds made or given in the ordinary course of business and not
for money borrowed in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or
environmental obligations.
"PERMITTED JUNIOR SECURITIES" means,
(1) Capital Stock, other than Disqualified Stock, issued by Atrium to
pay interest on the exchange notes or issued in exchange for the exchange
notes,
(2) securities substantially identical to the exchange notes issued by
Atrium in payment of interest accrued thereon or
(3) securities issued by Atrium which are subordinated to the Senior
Indebtedness at least to the same extent as the exchange notes and having an
Average Life at least equal to the remaining Average Life of the exchange
notes.
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"PERMITTED LIENS" means:
(1) Liens on property or shares of Capital Stock of a Person existing at
the time such Person is merged into or consolidated with Atrium or any
Restricted Subsidiary; PROVIDED, HOWEVER, that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not secure any property or assets of Atrium or any
Restricted Subsidiary other than the property or assets subject to the Liens
prior to such merger or consolidation;
(2) Liens on a property existing at the time of acquisition thereof by
Atrium or any Restricted Subsidiary; PROVIDED that such Liens were not
created, incurred or assumed in connection with such acquisition;
(3) Liens existing on the Issue Date;
(4) Liens in favor of Atrium or any Restricted Subsidiary so long as
held by Atrium or any Restricted Subsidiary;
(5) Liens securing Indebtedness consisting of Capitalized Lease
Obligations, purchase money obligations, mortgage financings, industrial
revenue bonds or other monetary obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of Atrium or the
Restricted Subsidiaries or in a Related Business, or repairs, additions or
improvements to such assets; PROVIDED, HOWEVER, that any such Lien encumbers
only the assets so financed, purchased, constructed or improved;
(6) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing"), in whole or in
part, of any Indebtedness secured by Liens referred to in the clauses above
so long as such Lien does not extend to any other property, other than
improvements thereto;
(7) Liens securing letters of credit or surety bonds entered into in the
ordinary course of business and consistent with past business practice and
not for money borrowed; and
(8) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary.
"EQUITY OFFERING" means any public offering registered with the SEC for cash
by Atrium Holdings or Parent, to the extent the net cash proceeds thereof are
contributed to the common equity capital of Atrium, or Atrium of its Capital
Stock, other than Disqualified Capital Stock.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes which is preferred as to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such corporation, over shares of Capital Stock of
any other class of such corporation.
"APPLICABLE PREMIUM" means, with respect to a note at any redemption date,
the greater of
(a) 1.0% of the principal amount of such note on such redemption date,
and
(b) the excess of (A) the present value at such time of (1) the
redemption price of such Note on May 1, 2004 (as described above under
subheading "--Optional Redemption") plus (2) all required interest payments
due on such note through May 1, 2004, computed using a discount rate equal
to the Treasury Rate plus 50 basis points, over (B) the principal amount of
such note on such redemption date.
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"QUALIFIED CAPITAL STOCK" of any Person shall mean any Capital Stock of such
Person which is not Disqualified Stock.
"RECAPITALIZATION DATE" means October 2, 1998.
"REFINANCING INDEBTEDNESS" means Indebtedness, including Disqualified Stock,
that refunds, refinances, replaces, renews, repays or extends, including
pursuant to any defeasance or discharge mechanism, (collectively, "refinances,"
and "refinanced" shall have a correlative meaning) any Indebtedness existing on
the date of the Indenture or Incurred in compliance with the indenture,
including Indebtedness of Atrium that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary, including Indebtedness that
refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the earlier of (A) the Stated Maturity of the exchange notes and (B) the
Stated Maturity of the Indebtedness being refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
lesser of (A) the Average Life of the exchange notes and (B) the Average
Life of the Indebtedness being refinanced, and
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount, or if issued with original issue discount, an aggregate issue price,
that is equal to or less than the sum of the aggregate principal amount, or
if issued with original issue discount, the aggregate accreted value, then
outstanding of the Indebtedness being refinanced, plus the amount of any
accrued or unpaid interest thereon, plus the amount of any stated or
reasonably determined prepayment premium paid in connection with such
refinancing, plus the amount of expenses of Atrium or a Restricted
Subsidiary incurred in connection with such refinancing.
"RELATED BUSINESS" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Atrium and its Restricted
Subsidiaries on the Issue Date, as reasonably determined by Atrium's board of
directors.
"REPRESENTATIVE" means any trustee, agent or representative of an issue of
Senior Indebtedness.
"RESTRICTED PAYMENTS" has the meaning set forth under subheading "--Certain
Covenants--Limitation on Restricted Payments."
"RESTRICTED SUBSIDIARY" means any Subsidiary of Atrium other than an
Unrestricted Subsidiary.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby Atrium or a Restricted Subsidiary transfers
such property to a Person and Atrium or a Subsidiary leases it from such Person.
"SENIOR INDEBTEDNESS" means, with respect to Atrium or any Guarantor, as
applicable, the principal of, premium, if any, and interest, including interest
that would accrue but for the filing of a petition initiating any proceeding
under any state or federal bankruptcy laws, whether or not such claim is
allowable in such proceeding, on any Indebtedness of Atrium or such Guarantor
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to any Indebtedness of Atrium or such Guarantor,
"Senior Indebtedness" will include the principal of, premium, if any, and
interest, including interest that would accrue but for the filing of a petition
initiating any proceeding under any state or federal bankruptcy laws, whether or
not such claim is allowable in such proceeding, and all indemnity, fees,
expenses and other payment obligations from time to time owed to the lenders
under the Credit Facility.
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"Senior Indebtedness" shall not include, to the extent constituting
Indebtedness,
(1) Indebtedness evidenced by the exchange notes or the Guarantees,
(2) Indebtedness that is expressly subordinate or junior in right of
payment to any Indebtedness of Atrium or any Guarantor,
(3) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to Atrium or any Guarantor,
(4) Indebtedness which is represented by Disqualified Capital Stock,
(5) Indebtedness for goods, materials or services purchased in the
ordinary course of business or Indebtedness consisting of trade payables or
other current liabilities, other than any current liabilities owing under
the Credit Facility or the current portion of any long-term Indebtedness
which would constitute Senior Indebtedness but for the operation of this
clause (5),
(6) Indebtedness or other obligations of or amounts owed by Atrium or
any Guarantor for compensation to employees or for services rendered to
Atrium or such Guarantor,
(7) any liability for federal, state, local or other taxes owed or owing
by Atrium or any Guarantor,
(8) Indebtedness of Atrium or any Guarantor to a Subsidiary of Atrium
and
(9) that portion of any Indebtedness which at the time of issuance is
issued in violation of the Indenture, but, as to any such Indebtedness, no
such violation shall be deemed to exist for purposes of this clause (9) if
the holder(s) of such Indebtedness or their representative and the trustee
shall have received an Officers' Certificate of Atrium to the effect that
the incurrence of such Indebtedness does not violate the indenture.
"SENIOR SUBORDINATED INDEBTEDNESS" means the exchange notes, the Guarantees
and any other Indebtedness of Atrium or a Guarantor that either (x) specifically
provides that such Indebtedness ranks equally with the exchange notes or the
Guarantee of such Guarantor, in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or other obligation of Atrium or a
Guarantor, which is not Senior Indebtedness or (y) is otherwise deemed not to be
Senior Indebtedness pursuant to the definition thereof unless it meets the
definition of Subordinated Obligations.
"SIGNIFICANT SUBSIDIARY" means
(1) any Restricted Subsidiary that, together with its Restricted
Subsidiaries, would be a "Significant Subsidiary" of Atrium within the
meaning of Rule 1-02 under Regulation S-X promulgated by the SEC, and
(2) for purposes of "Events of Default," any other Restricted Subsidiary
that when aggregated with all other Restricted Subsidiaries that are not
Significant Subsidiaries as to which an event described under clauses (8) or
(9) under "Events of Default" has occurred, together with their Restricted
Subsidiaries, would constitute a Significant Subsidiary pursuant to clause
(1) above.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"SUBORDINATED OBLIGATION" means any Indebtedness of Atrium or a Guarantor,
whether outstanding on the Issue Date or thereafter Incurred, which is
subordinate or junior in right of payment to the exchange notes or the Guarantee
of such Guarantor, as applicable, pursuant to a written agreement or by law,
including, without limitation, Disqualified Capital Stock.
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"SUBSIDIARY" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests, including partnership interests,
entitled to vote in the election of directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person. Unless otherwise specified
herein, each reference to a Subsidiary shall refer to a Subsidiary of Atrium.
"SURVIVING PERSON" means, with respect to any Person involved in any
consolidation or merger, or any sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of its properties and assets as an
entirety, the Person formed by or surviving such merger or consolidation or the
Person to which such sale, assignment, conveyance, transfer or lease is made.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated as of October
2, 1998, as amended on the Issue Date, by and among Parent and its subsidiaries
named therein, as the same may be amended from time to time in accordance with
its terms and the terms of the Credit Facility after the Issue Date so long as
such agreement as so amended is no less favorable to Atrium or the holders of
the exchange notes in any material respect than the Tax Sharing Agreement as
amended and in effect on the Issue Date.
"ATRIUM TRANSACTIONS" means (1) the recapitalization of Atrium that occurred
on the Recapitalization Date and (2) the acquisition by Atrium of all the
outstanding Capital Stock of Heat, Inc., H.I.G. Vinyl, Inc. and Champagne
Industries, Inc. on the Issue Date.
"UNRESTRICTED SUBSIDIARY" means
(1) any Subsidiary of Atrium that at the time of determination shall be
designated an Unrestricted Subsidiary by the board of directors in the manner
provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The board of directors may designate any Subsidiary of Atrium to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, Atrium or any Restricted Subsidiary of Atrium that is not a Subsidiary of
the Subsidiary to be so designated; PROVIDED, HOWEVER, that either
(A) the Subsidiary to be so designated has consolidated total assets of
$10,000 or less, or
(B) if such Subsidiary has consolidated total assets greater than $10,000,
then such designation would be permitted under the covenant described under
subheading "--Certain Covenants--Limitation on Restricted Payments."
The board of directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that
(x) immediately after giving effect to such designation no Default shall
have occurred and be continuing and
(y) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such designation, if incurred at such time, would have
been permitted to be incurred for all purposes of the Indenture.
Any such designation by the board of directors shall be evidenced to the
holders of the exchange notes by promptly delivering to the Trustee a copy of
the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
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"UNUTILIZED NET AVAILABLE CASH" has the meaning set forth under subheading
"--Certain Covenants-- Limitation on Sale of Assets."
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged and which are not callable or redeemable at the
issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WHOLLY-OWNED SUBSIDIARY" means a Restricted Subsidiary of Atrium, at least
99% of the Capital Stock of which, other than directors' qualifying shares, is
owned by Atrium or another Wholly-Owned Subsidiary.
A "Public Market" exists at any time with respect to the common stock of
Atrium Holdings, Parent or Atrium if
(a) the common stock of Atrium Holdings, Parent or Atrium, as applicable, is
then registered with the SEC pursuant to Section 12(b) or 12(g) of the Exchange
Act and traded either on a national securities exchange or in the National
Association of Securities Dealers Automated Quotation System, and
(b) at least $50.0 million in gross proceeds from the sale of common stock
of Atrium Holdings, Parent or Atrium, as applicable, by means of an effective
registration statement under the Securities Act has been raised prior to such
time.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be represented by one or more, permanent global
notes in definitive, fully registered book-entry form of the global securities,
which will be registered in the name of a nominee of The Depositary Trust
Company and deposited on behalf of purchasers of the exchange notes represented
thereby with a custodian for DTC for credit to the respective accounts of the
purchasers, or to such other accounts as they may direct, at DTC.
THE GLOBAL SECURITIES. Atrium expects that pursuant to procedures
established by DTC
(a) upon deposit of the Global Securities, DTC or its custodian will credit
on its internal system portions of the Global Securities which shall be
comprised of the corresponding respective amount of the Global Securities to the
respective accounts of persons who have accounts with such depositary; and
(b) ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC or
its nominee, with respect to interests of participants, as defined below, and
the records of participants, with respect to interests of persons other than
Participants.
Such accounts initially will be designated by or on behalf of the initial
purchaser and ownership of beneficial interests in the global securities will be
limited to persons who have accounts with DTC or participants or persons who
hold interests through participants. Noteholders may hold their interests in a
global security directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC or its nominee is the registered owner or holder of any of
the exchange notes, DTC or such nominee will be considered the sole owner or
holder of such exchange notes represented by such global securities for all
purposes under the indenture and under the exchange notes represented thereby.
No beneficial owner of an interest in the global securities will be able to
transfer such interest except in accordance with the applicable procedures of
DTC in addition to those provided for under the indenture.
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Payments of the principal, premium, interest and other amounts on the
exchange notes represented by the global securities will be made to DTC or its
nominee as the registered owner thereof. None of Atrium, the trustee or any
paying agent under the indenture will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the global securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
Atrium expects that DTC or its nominee, upon receipt of any payment of the
principal, premium, interest or other amounts on the exchange notes represented
by the global securities, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the global
securities as shown on the records of DTC or its nominee. Atrium also expects
that payments by participants to owners of beneficial interests in the global
securities held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payment will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with DTC
rules and will be settled in immediately available funds.
DTC has advised Atrium that DTC will take any action permitted to be taken
by a holder of exchange notes, including the presentation of exchange notes for
exchange as described below, only at the direction of one or more participants
to whose account the DTC interests in the Global Securities are credited and
only in respect of the aggregate principal amount of as to which such
Participant or participants has or have given such direction.
DTC has advised Atrium as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
clearing agency registered pursuant to the provisions of Section 17A of
the Exchange Act.
- DTC was created to hold securities for its Participants and facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and certain other organizations. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and trust
companies or indirect participants that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the global securities among participants of
DTC, DTC is under no obligation to perform such procedures, and such procedures
may be discontinued at any time. None of Atrium, the trustee or the paying agent
will have any responsibility for the performance by DTC or its direct or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
CERTIFICATED SECURITIES. Interests in the global securities will be
exchanged for physical delivery of certificates or Certificated Securities only
if
(1) DTC is at any time unwilling or unable to continue as depositary for the
Global Securities, or DTC ceases to be a clearing agency registered under the
Exchange Act, and a successor depositary is not appointed by Atrium within 90
days, or
(2) an event of default under the Indenture has occurred and is continuing
with respect to the exchange notes.
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"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity, as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
applicable redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar market data), most nearly
equal to the period from such redemption date to May 1, 2004; PROVIDED, HOWEVER,
that if the period from such redemption date to May 1, 2004 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from such redemption date to May 1, 2004 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income tax consequences of the exchange offer and the acquisition, ownership and
disposition of the notes and exchange notes to U.S. Holders and non-U.S.
Holders, as defined below. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly on a retroactive basis.
This discussion applies only to initial beneficial owners that purchased the
notes upon original issuance at the initial offering price thereof, and is
limited to initial beneficial owners that hold the outstanding notes and
exchange notes as capital assets. Moreover, this discussion does not address all
of the United States federal income tax consequences that may be relevant to
particular beneficial owners in light of their personal circumstances, or to
certain types of beneficial owners. Such beneficial owners may include, for
example, pass-through entities (E.G., partnerships) or persons who hold the
outstanding notes or exchange notes through pass-through entities, banks and
other financial institutions, insurance companies, tax-exempt entities, dealers
in securities, certain former citizens or former long-term residents of the
United States, hybrid entities, persons holding the exchange notes or Exchange
exchange notes as part of a hedging or conversion transaction or a straddle or
U.S. Holders that have a functional currency other than the U.S. dollar.
This discussion does not address the tax consequences to Non-U.S. Holders
that are subject to U.S. federal income tax on a net basis on income realized
with respect to a note or exchange note because such income is effectively
connected with the conduct of a U.S. trade or business. Such holders are
generally taxed in a similar manner to U.S. Holders; however, certain special
rules apply. In addition, this discussion does not include any description of
the tax laws of any state, local or foreign government that may be applicable to
a particular beneficial owner.
As used herein, the term "U.S. Holder" means a beneficial owner of a note or
exchange note that is, for U.S. federal income tax purposes,
(1) a citizen or resident of the United States,
(2) a corporation (including an entity treated a corporation for United
States federal income tax purposes) or partnership created or organized in
or under the laws of the United States or any political subdivision thereof,
(3) an estate, the income of which is subject to United States federal
income tax regardless of its source, or
(4) a trust if a United States court can exercise primary supervision
over the administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the trust, or if
the trust was in existence on August 20, 1996 and has properly elected to
continue to be treated as a United States person.
The term "Non-U.S. Holder" means a beneficial owner of a note or exchange
Note that is not a U.S. Holder.
Prospective purchasers are urged to consult their own tax advisors as to the
particular United States federal income and other tax consequences to them of
the acquisition, ownership and disposition of the notes and exchange notes, as
well as the tax consequences under state, local and foreign tax laws, and the
possible effects of changes in tax laws.
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UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
PAYMENTS OF INTEREST.
In general, interest on a note or exchange note will be taxable to a U.S.
Holder as ordinary income at the time it accrues, or is actually or
constructively received, in accordance with the U.S. Holder's method of
accounting for United States federal income tax purposes. The Company
anticipates that the exchange notes will be issued without original issue
discount within the meaning of Section 1273 of the Internal Revenue Code and the
following discussion so assumes.
SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES OR EXCHANGE EXCHANGE
NOTES.
Upon the sale, exchange, redemption, retirement at maturity or other taxable
disposition of a note or exchange note, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between
(1) the sum of cash plus the fair market value of all other property
received on such disposition, except to the extent such cash or property is
attributable to accrued but unpaid interest which will be taxable as
ordinary income, and
(2) such U.S. Holder's adjusted tax basis in the note or exchange note.
Gain or loss recognized on the disposition of a note or exchange note generally
will be capital gain or loss. Capital gains of individuals derived in respect of
capital assets held for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to limitations.
EXCHANGE OFFER.
The exchange of notes for the exchange notes pursuant to the exchange offer
will not constitute a taxable exchange for U.S. federal income tax purposes. As
a result,
(1) a U.S. Holder will not recognize taxable gain or loss as a result of
exchanging notes for exchange notes pursuant to the exchange offer,
(2) the holding period of the exchange notes will include the holding
period of the notes exchanged therefor, and
(3) the adjusted tax basis of the exchange notes will be the same as the
adjusted tax basis of the notes exchanged therefor immediately before such
exchange.
The filing of a shelf registration statement should not result in a taxable
exchange to us or any holder of a note.
BACKUP WITHHOLDING AND INFORMATION REPORTING.
In general, a U.S. Holder will be subject to backup withholding at the rate
of 31.0% with respect to interest, principal and premium, if any, paid on a note
or exchange note, and the proceeds of a sale of a note or exchange note, unless
the U.S. Holder
(1) is an entity that is exempt from withholding, including corporations
and tax-exempt organizations, and, when required, demonstrates this fact, or
(2) provides the payor with its taxpayer identification number ("TIN")
which for an individual would be the holder's social security number,
certifies that the TIN provided to the payor is correct and that the holder
has not been notified by the IRS that it is subject to backup withholding
due to underreporting of interest or dividends, and otherwise complies with
applicable requirements of the backup withholding rules.
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In addition, such payments of principal, premium and interest to, and the
proceeds of a sale of a note or exchange note by, U.S. Holders that are not
exempt entities will generally be subject to information reporting requirements.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's United States federal income tax
liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the IRS.
UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
PAYMENTS OF INTEREST.
In general, payments of interest on the notes or exchange notes by us or our
agent to a Non-U.S. Holder will not be subject to United States federal income
tax, or any withholding thereof except as described below under "--Backup
Withholding and Information Reporting," provided that either,
(1) (a) the Non-U.S. Holder does not actually or constructively own
10.0% or more of the total combined voting power of all classes of our stock
entitled to vote,
(b) the Non-U.S. Holder is not a controlled foreign corporation that
is related to us, actually or constructively, through stock ownership,
(c) the Non-U.S. Holder is not a bank described in Section
881(c)(3)(A) of the Code, and
(d) either
(x) the Non-U.S. Holder certifies to us or our agent on IRS Form
W-8 or a suitable substitute form, under penalties of perjury, that
it is not a "United States person," as defined in the Internal
Revenue Code, and provides its name and address, or
(y) a financial institution such as a securities clearing
organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
and holds the notes or exchange notes on behalf of the Non-U.S.
Holder certifies to us or our agent under penalties of perjury that
such statement has been received from the Non-U.S. Holder by it or by
a financial institution between it and the Non-U.S. Holder and
furnishes us or our agent with a copy thereof, or
(2) (a) the Non-U.S. Holder is entitled to the benefits of an income tax
treaty under which interest on the notes or exchange notes is exempt from
United States federal withholding tax and provides us or our paying agent
with a properly executed IRS Form 1001 or successor form claiming the
exemption, or
(b) the interest paid on the note is not subject to withholding tax
because it is effectively connected with the beneficial owner's conduct of a
trade or business in the United States and the beneficial owner provides us
or our paying agent with a properly executed IRS Form 4224, or successor
form.
Treasury regulations issued on October 6, 1997 and revised on December 31,
1998 (the "New Withholding Regulations") alter the rules described above in
certain respects. The New Withholding Regulations generally will be effective
with respect to payments made after December 31, 2000, regardless of the issue
date of the instrument with respect to which such payments are made. The New
Withholding Regulations generally will not materially alter the certification
rules described in (1)(d) of the preceding paragraph, but will provide
alternative methods for satisfying such requirements.
In addition, the New Withholding Regulations may require that a Non-U.S.
Holder obtain a United States taxpayer identification number and make certain
certifications if the Non-U.S. Holder wishes to claim exemption from, or a
reduced rate of, withholding under an income tax treaty. Each Non-U.S. Holder
should consult its own tax advisor regarding the application to such holder of
the New Withholding Regulations.
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SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES OR EXCHANGE EXCHANGE
NOTES.
A Non-U.S. Holder generally will not be subject to United States federal
income tax, or any withholding thereof except as described below under "--Backup
Withholding and Information Reporting," on gain realized on the sale, exchange,
redemption, retirement at maturity or other disposition of a note or exchange
note unless
(1) such gain is effectively connected with the conduct by such holder
of a trade or business in the United States,
(2) in the case of gains derived by an individual, such individual is
present in the United States for 183 days or more in the taxable year of the
disposition and certain other conditions are met and
(3) the Non-U.S. Holder is subject to tax according to the provisions of
United States federal income tax law applicable to certain expatriates.
EXCHANGE OFFER.
The exchange of notes for the exchange notes pursuant to the exchange offer
will not be treated as a taxable exchange for United States federal income tax
purposes. As a result, there will be no U.S. federal income tax consequences to
Non-U.S. Holders exchanging the notes for the exchange notes pursuant to the
exchange offer.
BACKUP WITHHOLDING AND INFORMATION REPORTING.
Under current Treasury regulations, backup withholding and information
reporting do not apply to payments made by us or our paying agent to Non- U.S.
Holders if the certification described in (1)(d) under "--Payments of Interest"
above is received, provided that the payor does not have actual knowledge that
the holder is a United States person.
In addition, backup withholding and information reporting generally will not
apply if payments on a note or exchange note are made to a Non-U.S. Holder by or
through
(1) the foreign office of a custodian, nominee or other agent of such
Non-U.S. Holder, or
(2) if the foreign office of a "broker," as defined in applicable
Treasury regulations, pays the proceeds of the sale of a note or exchange
note to the seller thereof.
Information reporting requirements, but, currently, not backup withholding,
will apply, however, to a payment by or through a foreign office of a custodian,
nominee, agent or broker that is, for United States federal income tax purposes:
(1) a United States person;
(2) a controlled foreign corporation; or
(3) a foreign person that derives 50.0% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States, unless such custodian, nominee, agent or broker has documentary
evidence in its records that the holder is a non-U.S. person and certain
other conditions are met, or the holder otherwise establishes an exemption.
Payment by a U.S. office of a custodian, nominee, agent or broker is subject
to both backup withholding at a rate of 31.0% and information reporting
unless the holder certifies, under penalties of perjury, that it is not a
United States person and the payor does not have actual knowledge to the
contrary, or the holder otherwise establishes an exemption. A Non-U.S.
Holder may obtain a refund or a credit against such Non-U.S. Holder's United
States federal income tax liability of any amounts withheld under the backup
withholding rules, provided the required information is furnished to the
IRS.
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The New Withholding Regulations revise, substantially in certain respects,
the procedures that withholding agents and payees must follow to comply with, or
to establish an exemption from, the information reporting and backup withholding
provisions for payments after December 31, 2000. Each Non-U.S. Holder should
consult its own tax advisor regarding the application to such holder of the New
Withholding Regulations.
ESTATE TAX.
Notes or exchange notes held at the time of death, or theretofore
transferred subject to certain retained rights or powers, by an individual who
at the time of death is a Non-U.S. Holder will not be included in such holder's
gross estate for U.S. federal estate tax purposes, provided that,
(1) the individual does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled to
vote, and
(2) the income on the exchange notes or exchange notes is not
effectively connected with the conduct of a United States trade or business
by the individual.
LEGAL MATTERS
Certain legal matters relating to the validity of the exchange notes offered
hereby will be passed upon on behalf of the Company by Paul, Hastings, Janofsky
& Walker LLP, New York, New York.
EXPERTS
The consolidated financial statements of Atrium and subsidiaries (after the
1998 recapitalization), Atrium Companies, Inc. and subsidiaries (previous
registrant), the combined financial statements of R.G. Darby Company, Inc. and
Total Trim, Inc. and the consolidated financial statements of Heat, Inc.
included in this registration statement have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, to the extent
and for the periods indicated in their reports thereon, given on the authority
of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities Exchange
Act and in accordance with the Securities Exchange Act we file reports, proxy
statements and other information with the Commission. You may read and copy any
of such information on file with the Commission at the Commission's public
reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices located at Seven World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 140, Chicago, Illinois 60661-2511. Copies of filed
documents can be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by telephone at 1-800-SEC-0330, or electronically
through the Commission's Electronic Data Gathering, Analysis and Retrieval
system at the Commission's Web site (http://www.sec.gov).
We have filed with the Commission a registration statement on Form S-4 under
the Securities Act, with respect to the exchange notes offered by this
prospectus. As permitted by the rules and regulations of the Commission, this
prospectus omits certain information contained in the registration statement.
For further information with respect to Atrium and the exchange notes, reference
is made to the registration statement, including its exhibits and the financial
statements, notes and schedules filed as a part of it, which you may read and
copy at the public reference facilities of the Commission referred to above.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the full text of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ATRIUM COMPANIES, INC.
Report of Independent Accountants........................................................................ F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997........................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and the periods ended
December 31, 1996 and October 25, 1996............................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and the
periods ended December 31, 1996 and October 25, 1996................................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and the periods ended
December 31, 1996 and October 25, 1996............................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998..................... F-30
Consolidated Statements of Income (unaudited) for the Quarters Ended March 31, 1999 and 1998........... F-31
Consolidated Statements of Comprehensive Income (unaudited) for the Quarters Ended March 31, 1999 and
1998................................................................................................. F-32
Consolidated Statement of Stockholder's Equity (unaudited) for the Quarter Ended March 31, 1999........ F-33
Consolidated Statements of Cash Flows (unaudited) for the Quarters Ended March 31, 1999 and 1998....... F-34
Notes to Consolidated Financial Statements (unaudited)................................................... F-35
ATRIUM COMPANIES, INC. (PREVIOUS REGISTRANT)
Report of Independent Accountants........................................................................ F-41
Consolidated Balance Sheets as of December 31, 1997 and 1996........................................... F-42
Consolidated Statements of Income for the periods ended October 2, 1998 and September 30, 1997
(Unaudited) and for the years ended December 31, 1997 and 1996....................................... F-43
Consolidated Statements of Stockholders' Equity (Deficit) for the periods ended October 2, 1998 and
September 30, 1997 (Unaudited) and for the years ended December 31, 1997 and 1996.................... F-44
Consolidated Statements of Cash Flows for the periods ended October 2, 1998 and September 30, 1997
(Unaudited) and for the years ended December 31, 1997 and 1996....................................... F-45
Notes to Consolidated Financial Statements............................................................... F-46
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
Report of Independent Accountants........................................................................ F-65
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1997 and 1996............................................... F-66
Combined Statements of Income for the years ended December 31, 1997 and 1996........................... F-67
Combined Statements of Stockholder's Equity for the years ended
December 31, 1997 and 1996........................................................................... F-68
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996....................... F-69
Notes to Combined Financial Statements................................................................... F-70
DOOR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheet as of September 30, 1998.................................................... F-74
Consolidated Statements of Income for the nine months ended September 30, 1998 and 1997................ F-75
Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1998............ F-76
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997............ F-77
Notes to Consolidated Financial Statements............................................................... F-78
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HEAT, INC.
Report of Independent Public Accountants................................................................. F-82
Consolidated Balance Sheet as of March 31, 1999 (unaudited) and as of December 31, 1998
and 1997............................................................................................. F-83
Consolidated Statements of Operations for the periods ended March 31, 1999 and 1998 (unaudited) and the
year ended December 31, 1998, the seven month period ended December 31, 1997, the five month period
ended May 30, 1997 and the year ended December 31, 1996.............................................. F-84
Consolidated Statements of Shareholders' Equity for the period ended March 31, 1999 (unaudited) and the
year ended December 31, 1998, the seven month period ended December 31, 1997, the five month period
ended May 30, 1997, and the year ended December 31, 1996............................................. F-85
Consolidated Statements of Cash Flows for the periods ended March 31, 1999 and 1998 (unaudited) and the
year ended December 31, 1998, the seven month period ended December 31, 1997, the five month period
ended May 30, 1997, and the year ended December 31, 1996............................................. F-86
Notes to Consolidated Financial Statements............................................................. F-87
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Report of Independent Accountants........................................................................ F-98
Atrium Companies, Inc.................................................................................. F-99
Atrium Companies, Inc. (previous registrant)........................................................... F-100
R.G. Darby Company, Inc. and Total Trim, Inc........................................................... F-101
Door Holdings, Inc. and Subsidiaries................................................................... F-101
Heat, Inc.............................................................................................. F-102
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Atrium Companies, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of Atrium
Companies, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended and
each of the two periods ended December 31, 1996 and October 25, 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
April 4, 1999, except for Note 18, which is as of May 17, 1999.
F-3
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................................... $ -- $ 34
Equity securities--available for sale........................................................... 137 --
Accounts receivable, net of allowance of $778 and $725, respectively............................ 46,466 9,187
Inventories..................................................................................... 46,289 13,557
Prepaid expenses and other current assets....................................................... 7,756 832
Deferred tax asset.............................................................................. 1,249 --
--------- ---------
Total current assets............................................................................ 101,897 23,610
PROPERTY, PLANT AND EQUIPMENT, net................................................................ 26,760 7,553
GOODWILL, net of amortization of $2,354 and $471, respectively.................................... 214,749 22,394
DEFERRED FINANCING COSTS, net of amortization of $379 and $420, respectively...................... 11,058 1,374
OTHER ASSETS...................................................................................... 5,405 452
--------- ---------
Total assets.................................................................................... $ 359,869 $ 55,383
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of notes payable................................................................ $ 2,209 $ 3,364
Accounts payable................................................................................ 25,353 6,438
Accrued liabilities............................................................................. 15,432 2,517
Deferred tax liability.......................................................................... -- 566
--------- ---------
Total current liabilities....................................................................... 42,994 12,885
LONG-TERM LIABILITIES:
Notes payable................................................................................... 177,018 28,874
Deferred tax liability.......................................................................... 1 449
Other long-term liabilities..................................................................... 6,800 2,500
--------- ---------
Total long-term liabilities..................................................................... 183,819 31,823
--------- ---------
Total liabilities............................................................................... 226,813 44,708
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and outstanding......... -- --
Class A voting common stock $.01 par value, 225,000 authorized; 25,501 issued and retired....... -- --
Class B nonvoting common stock $.01 par value, 100,000 authorized; 54,500 issued and retired.... -- 1
Paid-in capital................................................................................. 134,852 9,675
Retained earnings (accumulated deficit)......................................................... (1,820) 999
Accumulated other comprehensive income.......................................................... 24 --
--------- ---------
Total stockholder's equity...................................................................... 133,056 10,675
--------- ---------
Total liabilities and stockholder's equity.................................................... $ 359,869 $ 55,383
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE PERIODS ENDED DECEMBER 31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
---------------------------------------- ------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 211,059 $ 99,059 $ 13,200 $ 62,880
COST OF GOODS SOLD..................................... 159,140 78,270 9,927 47,311
------------ ------------ ------------ ------------
Gross profit......................................... 51,919 20,789 3,273 15,569
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, delivery, general and administrative
expenses............................................. 39,754 15,671 2,242 13,271
Amortization expense................................. 2,133 774 125 --
Stock option compensation expense.................... 3,851 -- -- --
------------ ------------ ------------ ------------
45,738 16,445 2,367 13,271
------------ ------------ ------------ ------------
Income from operations............................. 6,181 4,344 906 2,298
INTEREST EXPENSE....................................... 9,081 2,953 374 509
OTHER INCOME, net...................................... 571 -- -- --
------------ ------------ ------------ ------------
Income (loss) before income taxes and extraordinary
charge............................................... (2,329) 1,391 532 1,789
PROVISION (BENEFIT) FOR INCOME TAXES................... (149) 695 229 670
------------ ------------ ------------ ------------
Income (loss) before extraordinary charge............ (2,180) 696 303 1,119
EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT (net
of income tax benefit of $392)....................... 639 -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS)...................................... $ (2,819) $ 696 $ 303 $ 1,119
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIODS ENDED DECEMBER
31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK CLASS A CLASS B
-------------------------- ------------------------ -------------------------- TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK
----------- ------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995....... -- $ -- 512 $ 263 -- $ -- $ (156)
Net income....................... -- -- -- -- -- -- --
Exercise of stock options........ -- -- 59 30 -- -- --
Tax benefit related to option
exercises...................... -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, October 25, 1996........ -- $ -- 571 $ 293 -- $ -- $ (156)
--- --- --- ----- --- --- -----------
--- --- --- ----- --- --- -----------
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
THE COMPANY
Balance, October 26, 1996........ -- $ -- -- $ -- -- $ -- $ --
Net income....................... -- -- -- -- -- -- --
Initial issuance of common
stock.......................... -- -- 26 -- 55 1 --
Issuance of warrants............. -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, December 31, 1996....... -- -- 26 -- 55 1 --
Net income....................... -- -- -- -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Balance, December 31, 1997....... -- -- 26 -- 55 1 --
Conversion of Wing's common stock
to Atrium's common stock....... 100 -- (26) -- (55) (1) --
Conversion of exchangeable
subordinated note payable...... -- -- -- -- -- -- --
Step-up of Wing's assets due to
purchase of minority
interest....................... -- -- -- -- -- -- --
Contribution of assets of Darby.. -- -- -- -- -- -- --
Capital contribution from Atrium
Corp........................... -- -- -- -- -- -- --
Stock option compensation
expense........................ -- -- -- -- -- -- --
Exercise of stock options........ -- -- -- -- -- -- --
Comprehensive loss:
Net loss....................... -- -- -- -- -- -- --
Unrealized gain on equity
securities................... -- -- -- -- -- -- --
--- --- --- ----- --- --- -----------
Total comprehensive loss.........
--- --- --- ----- --- --- -----------
Balance, December 31, 1998....... 100 $ -- -- $ -- -- $ -- $ --
--- --- --- ----- --- --- -----------
--- --- --- ----- --- --- -----------
<CAPTION>
RETAINED
EARNINGS TOTAL
ACCUMULATED OTHER PAID-IN (ACCUMULATED STOCKHOLDER'S
COMPREHENSIVE INCOME CAPITAL DEFICIT) EQUITY
------------------------- --------- --------------- -------------
<S> <C> <C> <C> <C>
PREDECESSOR
Balance, December 31, 1995....... $ -- $ 233 $ 4,171 $ 4,511
Net income....................... -- -- 1,119 1,119
Exercise of stock options........ -- 409 -- 439
Tax benefit related to option
exercises...................... -- 253 -- 253
--- --------- ------- -------------
Balance, October 25, 1996........ $ $ 895 $ 5,290 $ 6,322
--- --------- ------- -------------
--- --------- ------- -------------
THE COMPANY
Balance, October 26, 1996........ $ -- $ -- $ -- $ --
Net income....................... -- -- 303 303
Initial issuance of common
stock.......................... -- 7,999 -- 8,000
Issuance of warrants............. -- 1,327 -- 1,327
--- --------- ------- -------------
Balance, December 31, 1996....... -- 9,326 303 9,630
Net income....................... -- -- 696 696
Issuance of warrants............. -- 349 -- 349
--- --------- ------- -------------
Balance, December 31, 1997....... -- 9,675 999 10,675
Conversion of Wing's common stock
to Atrium's common stock....... -- 1 -- --
Conversion of exchangeable
subordinated note payable...... -- 11,375 -- 11,375
Step-up of Wing's assets due to
purchase of minority
interest....................... -- 1,247 -- 1,247
Contribution of assets of Darby.. -- 13,147 -- 13,147
Capital contribution from Atrium
Corp........................... -- 95,340 -- 95,340
Stock option compensation
expense........................ -- 3,851 -- 3,851
Exercise of stock options........ -- 216 -- 216
Comprehensive loss:
Net loss....................... -- -- (2,819) (2,819)
Unrealized gain on equity
securities................... 24 -- -- 24
--- --------- ------- -------------
Total comprehensive loss......... 24 (2,819) (2,795)
--- --------- ------- -------------
Balance, December 31, 1998....... $ 24 $ 134,852 $ (1,820) $ 133,056
--- --------- ------- -------------
--- --------- ------- -------------
</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, 1998 AND 1997 AND
THE PERIODS ENDED DECEMBER 31, 1996 AND OCTOBER 25, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (2,819) $ 696 $ 303
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary charge, net of income tax benefit.......................... 639 -- --
Depreciation and amortization............................................ 4,158 1,492 260
Stock option compensation expense........................................ 3,851 -- --
Amortization of deferred financing costs................................. 732 390 30
Accretion of discount on exchangeable subordinated notes payable......... 105 113 33
Provision for bad debts.................................................. 227 1,791 287
Gain on sale of assets................................................... (12) -- --
Deferred tax provision (benefit)......................................... 358 184 60
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (1,751) (1,949) 582
Inventories............................................................ (12,297) (2,990) (229)
Prepaid expenses and other current assets.............................. (2,142) (166) 93
Accounts payable....................................................... 4,859 354 (462)
Accrued liabilities.................................................... (3,932) 1,233 155
------------- ------------- -------------
Net cash provided by (used in) operating activities.................. (8,024) 1,148 1,112
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................... (2,221) (1,355) (122)
Proceeds from sales of assets............................................ 12 -- --
Acquisition of Atrium, net of cash acquired and debt and accrued interest
assumed................................................................ (120,977) -- --
Acquisition of the Door Division of Super Millwork....................... -- (10,408) --
Acquisition of Wing, net of cash acquired................................ -- -- (29,143)
Other assets............................................................. (1,998) -- --
------------- ------------- -------------
Net cash used in investing activities................................ (125,184) (11,763) (29,265)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under term notes................................ 145,930 -- --
Payment of notes payable................................................. (29,563) (1,032) --
Payment of senior subordinated notes..................................... (70,930) (70) --
Net borrowings under revolving credit facility........................... 4,118 1,497 2,951
Proceeds from issuance of exchangeable subordinated notes................ -- 3,960 --
Proceeds from issuance of notes payable.................................. -- 6,790 18,500
Deferred financing costs................................................. (11,437) (536) (1,258)
Capital contributions.................................................... -- -- 8,000
Scheduled principal payments on term notes............................... (500) -- --
Contributions from Atrium Corp........................................... 95,340 -- --
Exercise of stock options................................................ 216 -- --
------------- ------------- -------------
Net cash provided by financing activities............................ 133,174 10,609 28,193
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (34) (6) 40
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 34 40 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ -- $ 34 $ 40
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................... $ 11,765 $ 2,620 $ 167
Income taxes, net of refunds........................................... 536 550 --
Noncash investing and financing activities:
Conversion of exchangeable subordinated notes payable.................. 11,375 -- --
Contribution of Darby's assets......................................... 13,147 -- --
Step-up of Wing's assets due to purchase of minority interest.......... 1,247 -- --
Purchase of equipment under capital leases............................. 20 840 --
Payable to seller...................................................... -- 2,500 --
Issuance of common stock warrants...................................... -- -- 332
Tax benefit related to option exercises................................ -- -- --
<CAPTION>
PREDECESSOR
-------------
PERIOD ENDED
OCTOBER 25,
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 1,119
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Extraordinary charge, net of income tax benefit.......................... --
Depreciation and amortization............................................ 716
Stock option compensation expense........................................ --
Amortization of deferred financing costs................................. --
Accretion of discount on exchangeable subordinated notes payable......... --
Provision for bad debts.................................................. 1,274
Gain on sale of assets................................................... --
Deferred tax provision (benefit)......................................... (71)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable.................................................... (2,116)
Inventories............................................................ (621)
Prepaid expenses and other current assets.............................. 219
Accounts payable....................................................... 253
Accrued liabilities.................................................... (69)
-------------
Net cash provided by (used in) operating activities.................. 704
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................... (962)
Proceeds from sales of assets............................................ --
Acquisition of Atrium, net of cash acquired and debt and accrued interest
assumed................................................................ --
Acquisition of the Door Division of Super Millwork....................... --
Acquisition of Wing, net of cash acquired................................ --
Other assets............................................................. 28
-------------
Net cash used in investing activities................................ (934)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under term notes................................ --
Payment of notes payable................................................. (2,492)
Payment of senior subordinated notes..................................... --
Net borrowings under revolving credit facility........................... 2,122
Proceeds from issuance of exchangeable subordinated notes................ --
Proceeds from issuance of notes payable.................................. --
Deferred financing costs................................................. --
Capital contributions.................................................... 439
Scheduled principal payments on term notes............................... --
Contributions from Atrium Corp........................................... --
Exercise of stock options................................................ --
-------------
Net cash provided by financing activities............................ 69
-------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (161)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 161
-------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ --
-------------
-------------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest............................................................... $ 510
Income taxes, net of refunds........................................... 927
Noncash investing and financing activities:
Conversion of exchangeable subordinated notes payable.................. --
Contribution of Darby's assets......................................... --
Step-up of Wing's assets due to purchase of minority interest.......... --
Purchase of equipment under capital leases............................. --
Payable to seller...................................................... --
Issuance of common stock warrants...................................... --
Tax benefit related to option exercises................................ 253
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-7
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION:
Atrium Companies, Inc. (the "Company") is engaged in the manufacture and
sale of doors, windows and various building materials throughout the United
States.
Prior to October 2, 1998, the Company's historical financial statements as
previously filed with the Securities and Exchange Commission included its
operations and the operations of its wholly-owned subsidiaries, Atrium Door and
Window Company of the Northeast, Atrium Door and Window Company of New England,
Atrium Door and Window Company of New York (collectively "ADW--Northeast"),
Atrium Door and Window Company--West Coast ("ADW--West Coast") and Atrium Door
and Window Company of Arizona ("ADW--Arizona"). On October 2, 1998, pursuant to
an acquisition and merger (the "Recapitalization" or "reverse acquisition") as
more fully described in Note 3, the Company's indirect Parent (D and W)
contributed the assets of Wing Industries Holdings, Inc. and its subsidiary Wing
Industries, Inc. (collectively "Wing") and Door Holdings, Inc. and its
subsidiaries R.G. Darby Company, Inc. and Total Trim, Inc. (collectively
"Darby") to the Company.
As Wing was determined to be the acquiror in the reverse acquisition, the
historical financial statements of the Company (prior to October 3, 1998) were
replaced with the historical financial statements of Wing. As a result, the
statement of operations for 1998 only includes the operations of the Company and
Darby from October 3 through December 31. The statements of operations for the
year ended December 31, 1997, the periods ended December 31, 1996 and October
25, 1996 only include the operations and accounts of Wing and its predecessor.
Wing was acquired by the current controlling shareholders on October 25, 1996.
The December 31, 1998 balance sheet includes the accounts of the Company, Wing,
Darby and each of their respective subsidiaries. The December 31, 1997 balance
sheet only includes the accounts of Wing.
Following is a comparison of the actual results for the Company, Wing and
Darby prior to October 3, 1998, to unaudited pro forma information for the same
period assuming the reverse acquisition had taken place as of January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997
------------------------ ------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 211,059 $ 400,777 $ 99,059 $ 357,870
Income (loss) before income taxes and
extraordinary charge....................... (2,329) 7,464 1,391 5,827
Income (loss) before extraordinary charge.... (2,180) 2,821 696 1,844
Net income (loss)............................ (2,819) 2,821 696 1,844
Depreciation, amortization and stock option
compensation expense....................... 8,009 18,632 1,492 11,026
Interest expense............................. 9,081 17,506 2,953 23,963
</TABLE>
The references to the periods ended December 31, 1996 and October 25, 1996
used throughout these consolidated financial statements, refer to the periods
October 26, 1996 through December 31, 1996 and January 1, 1996 through October
25, 1996, respectively.
F-8
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment, the fabrication,
distribution and installation 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 to the customer. Allowances are established to
recognize the risk of sales returns from customers and estimates of warranty
costs.
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents. At December 31, 1998, the
Company had $4,012 of bank overdrafts that were reclassified into Accounts
Payable.
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.
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 in 6 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 58% and 65% of gross sales for 1998
and 1997 and 55% for the periods ended December 31, 1996 and October 25, 1996,
respectively.
INVENTORIES
Inventories are valued at the lower of cost (last-in, first-out or "LIFO")
or market. Work-in- process and finished goods inventories consist of materials,
labor and manufacturing overhead. 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.
F-9
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. The Company depreciates the assets principally on a straight-line
basis for financial reporting purposes 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.
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.
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.
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 straight-line basis over three 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.
Unamortized capitalized software costs at December 31, 1998 and 1997 were
$3,665 and $0, respectively. Amortization expense for 1998 was $304.
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
F-10
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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 bad debt, workers' compensation and warranty
accruals, and in recognizing deferred tax assets and liabilities.
ADVERTISING COSTS
Advertising costs are expensed when incurred and were $2,841, $1,800, $128
and $1,222 for 1998 and 1997 and the periods ended December 31, 1996 and October
25, 1996, respectively. These costs are reflected in "selling, delivery, general
and administrative" in the consolidated statements of operations.
OTHER COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130") "Reporting
Comprehensive Income." FAS 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. FAS 130 is effective for financial statement periods
beginning after December 15, 1997. The Company adopted FAS 130 beginning January
1, 1998. The Company had no comprehensive income for all periods presented prior
to January 1, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") Issued Statement of Position
98-1 ("SOP 98-1") "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" that is effective for reporting periods beginning
after December 15, 1998, but provides for earlier application if certain
conditions are met. The Company has applied the provisions of SOP 98-1 in its
financial statements for the year ended December 31, 1998 and its adoption had
no material effect on the Company's consolidated financial position or results
of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging
Activities" that is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will implement the provisions of FAS 133 as
F-11
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
required. The future adoption of FAS 133 in not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 balances to
conform to the 1998 presentation.
3. THE REVERSE ACQUISITION (RECAPITALIZATION):
On August 3, 1998, D and W ("Parent"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Atrium Corporation ("Corp"), the parent
company of the Company and other necessary parties to acquire all of the
outstanding capital stock of Corp for $225.0 million, through a series of
transactions (the "Recapitalization") described below. Corp owned 100% of the
outstanding capital stock of the Company prior to the Merger discussed below. GE
Investment Private Placement Partners II, a limited partnership ("GEIPPPII"),
and Ardatrium L.L.C. ("Ardatrium") formed Parent by acquiring all of its
outstanding common stock for an aggregate purchase price of $50.0 million.
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 Corp by Parent was effected through the merger on October
2, 1998 of a wholly owned subsidiary of Parent, with and into Corp (the
"Merger") pursuant to the terms of the Merger Agreement. Prior to the Merger,
Parent contributed $50.0 million to the wholly-owned subsidiary in exchange for
all of its outstanding common stock. As a result of the Merger, Corp became a
direct wholly-owned subsidiary of Parent, and the Company became an indirect
wholly owned subsidiary of Parent.
Prior to the Merger, GEIPPPII and Ardshiel held investments in debt and
equity securities of Wing and Darby. Immediately prior to the consummation of
the Merger, all of the outstanding subordinated debt and associated warrants to
purchase common stock of Wing and Darby were converted into common stock of Wing
and Darby, respectively. The stockholders of Wing and Darby contributed their
common stock in Wing and Darby to Parent in exchange for common stock of Parent.
Immediately after the consummation of the Merger, Parent contributed all of the
common stock of Wing and Darby to Corp, which in turn contributed such stock to
the Company.
Upon completion of the Recapitalization, GEIPPPII and Ardshiel and its
affiliates beneficially owned approximately 96.7% of the outstanding common
stock of Parent with management owning the remaining 3.3%.
Pursuant to the terms of the Merger Agreement, all of the outstanding equity
securities of Corp were converted into the right to receive the merger
consideration of $94.2 million (the "Merger Consideration") in cash, net of
transaction costs of $5.4 million, outstanding indebtedness of $122.7 million
and $2.7 million of equity securities of Corp, owned by certain members of
management of Corp, which were converted into comparable equity securities of
Parent. The Merger Consideration was funded with (i) the $50.0 million in cash
that became an asset of Corp in the Merger, (ii) $20.0 million in cash proceeds
from the issuance of Senior Discount Debentures due 2010 by Corp. to GEIPPPII
and Ardatrium (the "Discount Debentures"), (iii) approximately $24.0 million in
cash proceeds from a loan from the Company (the
F-12
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. THE REVERSE ACQUISITION (RECAPITALIZATION): (CONTINUED)
"Intercompany Loan") which was funded by a portion of the proceeds of a term
loan to the Company under the Credit Facility (see Note 9), and (iv) $0.2
million in cash proceeds from the issuance of common stock of Parent to certain
members of management of Corp followed by a capital contribution of such
proceeds by Parent to Corp.
The acquisition of Corp by Parent and the Merger was accounted for as a
reverse acquisition. As Wing's shareholder group received the largest ownership
interest in Parent, Wing was determined to be the "accounting acquiror" in the
reverse acquisition. As a result, purchase accounting was applied to the assets
and liabilities of the Company. The purchase price was allocated to the
Company's assets and liabilities as follows:
<TABLE>
<S> <C>
Equity securities available for sale...................... $ 113
Accounts receivable....................................... 32,097
Inventories............................................... 18,766
Prepaid expenses and other current assets................. 4,506
Deferred tax asset........................................ 2,268
Property, plant and equipment............................. 18,391
Other noncurrent assets................................... 3,326
Goodwill.................................................. 170,447
Current liabilities....................................... (24,614)
Other long-term liabilities............................... (300)
---------
Total purchase price...................................... $ 225,000
---------
---------
</TABLE>
The purchase price includes cash paid of $120,977, including the retirement
of certain indebtedness, and the assumption of debt and accrued interest
$104,023
The purchase method of accounting was also applied to the net assets of Wing
and Darby to the extent minority interest was acquired. Goodwill was increased
by $1,247 and $242 for Wing and Darby, respectively.
4. ACQUISITION OF DOOR DIVISION OF SUPER MILLWORK, INC.
On November 10, 1997, Wing 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.
F-13
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
4. ACQUISITION OF DOOR DIVISION OF SUPER MILLWORK, INC. (CONTINUED)
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.............................. 215
Other noncurrent assets.................................... 300
Deferred financing costs................................... 536
Goodwill................................................... 9,945
Current liabilities........................................ (1,914)
---------
Total purchase price....................................... $ 13,444
---------
---------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards No. 107 ("FAS
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. The carrying value of notes payable, other than the
exchangeable subordinated notes and the senior subordinated notes,
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 senior subordinated notes of $29,070 are valued
at $29,361 as of December 31, 1998 based on quoted market prices.
Interest Rate Swaps--The Company has entered into two interest rate swap
agreements whereby the Company will pay the counterparties interest at a
fixed rate and the counterparties will pay the Company interest at a
floating rate equal to the three-month LIBOR interest rate. The fair value
of
F-14
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
interest rate swap agreements is the amount at which they could be settled,
based on estimates obtained from lenders. Swaps consisted of the following
at December 31:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Swap #1
Notional Amount............................................................ $ 1,406 $ 2,531
Fixed Interest Rate........................................................ 6.50% 6.50%
Termination Date........................................................... 3/31/00 3/31/00
Unrealized Gain/(Loss)..................................................... $ (15) --
Swap #2
Notional Amount............................................................ $ 2,827 --
Fixed Interest Rate........................................................ 6.25% --
Termination Date........................................................... 11/6/03 --
Unrealized Gain/(Loss)..................................................... $ (87) --
</TABLE>
Forward aluminum contracts--The unrealized gains and losses are based on
quotes for aluminum as reported on the London Metal Exchange. As of December
31, 1998, the Company had forward contracts with fixed rate prices totaling
$2,623 with an unrealized loss of $199.
6. INVENTORIES:
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 27,362 $ 6,816
Work-in-process......................................................... 4,129 1,591
Finished goods.......................................................... 13,486 5,247
--------- ---------
44,977 13,654
LIFO reserve............................................................ 1,312 (97)
--------- ---------
$ 46,289 $ 13,557
--------- ---------
--------- ---------
</TABLE>
The change in the LIFO reserve for 1998 and 1997, resulted in a decrease in
cost of sales of $1,409 and an increase in cost of sales of $95, respectively
and a decrease in cost of sales for the periods ended December 31, 1996 and
October 26, 1996 of $2 and $360, respectively.
F-15
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land.................................................................... $ 1,303 $ 40
Buildings and improvements.............................................. 8,671 1,812
Machinery and equipment................................................. 19,311 6,974
Construction-in-process................................................. 722 --
--------- ---------
Total................................................................. 30,007 8,826
Less accumulated depreciation and amortization.......................... (3,247) (1,273)
--------- ---------
$ 26,760 $ 7,553
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $1,996, $1,180, $165 and $716 for 1998 and 1997,
and the periods ended December 31, 1996 and October 25, 1996, respectively.
8. 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 1998 and 1997 and for the period ended December 31,
1996 was $732, $390 and $30, respectively and was recorded as interest expense
in the accompanying consolidated statements of operations. No amortization
expense was recorded for the period ended October 25, 1996.
The Company wrote off deferred financing costs of $639, net of income tax
benefit of $392, in connection with the Recapitalization.
F-16
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. NOTES PAYABLE:
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
$100,000 Senior Subordinated Notes, due November 15, 2006, with semiannual
interest payments of 10 1/2% due May 15 and November 15........................ $ 29,070 $ --
Revolving credit facility........................................................ 4,118
$75,000 Term Loan B, due June 30, 2005 with $250 quarterly payments, interest at
either the administrative agent's base rate plus an applicable margin or LIBOR
plus an applicable margin (9.625% at December 31, 1998)........................ 74,750 --
$70,930 Term Loan C, due June 30, 2006, with $250 quarterly payments, interest at
either the administrative agent's base rate plus an applicable margin or LIBOR
plus an applicable margin (9.875% at December 31, 1998)........................ 70,680 --
Other notes payable.............................................................. 609 770
$14,500 revolving line of credit with BHF-Bank, bearing interest at bank's base
rate (which approximate prime) plus one and one-half percent (10% at December
31, 1997)...................................................................... -- 4,448
$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 one and one-half percent (10%
at December 31, 1997).......................................................... -- 6,750
$4,000 exchangeable subordinated note payable to GEIPPPII and Ardwing L.L.C.,
payable interest only in quarterly installments at 11%, due November 10, 2004,
exchangeable into approximately 22,126 shares of common stock.................. -- 4,000
$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 one and one-half percent (10%
at December 31, 1997).......................................................... -- 9,000
$8,500 exchangeable subordinated note payable to GEIPPPII, payable interest only
in quarterly installments at 11%, due October 25, 2003, exchangeable into
approximately 46,669 shares of common stock.................................... -- 8,500
---------- ---------
179,227 33,468
Less:
Unamortized discount on exchangeable subordinated notes payable................ -- (1,230)
Current maturities of long-term debt........................................... (2,209) (3,364)
---------- ---------
Long-term debt............................................................... $ 177,018 $ 28,874
---------- ---------
---------- ---------
</TABLE>
The Company's exchangeable subordinated notes payable, notes payable to
banks and revolving line of credit existing at December 31, 1997 and through
October 2, 1998, were repaid or converted in connection with the
Recapitalization.
The note agreements existing prior to the merger contained certain
covenants, including, among others, requirements that the Company comply with
certain financial and operational results and ratios. In addition, the loan
agreements placed 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 Wing's assets and capital stock were collateralized under
F-17
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. NOTES PAYABLE: (CONTINUED)
the BHF-Bank agreements. The $10,000 and $6,750 term loans contained "excess
cash flow" provisions mandating additional principal payments if certain cash
flow targets were met during each fiscal year. No additional principal payments
were required as of December 31, 1997.
The Company entered into a Credit Agreement (the "Credit Agreement"), dated
as of October 2, 1998 with Bank Boston, as administrative agent (the
"Administrative Agent") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as lead arranger, syndication agent and documentation agent.
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"). The Revolving Facility is in the
amount of $30,000, of which $5,000 is available under a letter of credit
sub-facility. The Revolving Facility has a maturity date of June 30, 2004.
All amounts outstanding under the Credit Agreement are secured by (i) a
pledge of all of the capital stock and intercompany notes of the Company and its
direct and indirect subsidiaries existing October 2, 1998 or thereafter and (ii)
an 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
Corp, the Company and their respective direct and indirect domestic subsidiaries
existing on the October 2, 1998 or thereafter created or acquired (the "Domestic
Subsidiaries"). Corp and each of the Domestic Subsidiaries have unconditionally
guaranteed, on a joint and several basis, all obligations of the Company under
the Credit Agreement.
The Term Loans have an "excess cash flows" provision mandating additional
principal payments if certain cash flows targets are met during the year. No
additional principal payments are required as of December 31, 1998 related to
this provision.
The Company 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 Company 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 Company to
meet certain financial tests pertaining to, interest coverage, fixed charge
coverage and leverage.
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.
F-18
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. NOTES PAYABLE: (CONTINUED)
Principal payments due during the next five years on long-term notes payable
as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 2,209
2000.............................................. 2,260
2001.............................................. 2,140
2002.............................................. 2,000
2003.............................................. 2,000
Thereafter........................................ 168,618
---------
$ 179,227
---------
---------
</TABLE>
10. FEDERAL INCOME TAX:
Temporary differences that give rise to the deferred income tax assets and
liabilities are as follows as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Stock option compensation.............................................. $ 2,486 $ --
Transaction costs...................................................... 1,341 --
Allowance for doubtful accounts........................................ 380 52
Inventory cost capitalization and valuation............................ 648 72
Accrued vacation and bonus............................................. 608 80
Warranty reserve....................................................... 135 --
Workers' compensation reserve.......................................... 431 --
Other.................................................................. 130 59
--------- ---------
6,159 263
Deferred income tax liabilities:
Depreciation........................................................... (1,861) (449)
LIFO reserve........................................................... (1,505) (829)
Capitalized software costs............................................. (1,039) --
Amortization of goodwill............................................... (506) --
--------- ---------
(4,911) (1,278)
--------- ---------
Net deferred income tax asset asset (liability).......................... 1,248 (1,015)
Less-current deferred tax asset (liability).............................. 1,249 (566)
--------- ---------
Long-term deferred tax liability......................................... $ (1) $ (449)
--------- ---------
--------- ---------
</TABLE>
A valuation allowance is required 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, 1998 and
1997, no valuation reserve was required.
F-19
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. FEDERAL INCOME TAX: (CONTINUED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------- ------------- ------------- -------------
Current federal income tax provision
(benefit).......................... $ (467) $ 462 $ 153 $ 441
<S> <C> <C> <C> <C>
Deferred federal income tax
provision.......................... 330 184 60 182
State income tax provision
(benefit).......................... (12) 49 16 47
----- ----- ----- -----
Provision (benefit) for income
taxes.............................. $ (149) $ 695 $ 229 $ 670
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Reconciliation of the federal statutory income tax rate to the effective tax
rate, was as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 25,
1998 1997 1996 1996
------------- ------------- ------------- -------------
Tax computed at statutory rate...... $ (815) $ 473 $ 181 $ 606
<S> <C> <C> <C> <C>
State taxes, net of federal
benefit........................... (12) 67 22 40
Amortization of goodwill............ 495 110 18 --
Other............................... 183 45 8 24
----- ----- ----- -----
Provision (benefit) for income
taxes............................. $ (149) $ 695 $ 229 $ 670
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
11. PREFERRED STOCK:
Wing was authorized to issue 2,000 shares, $.01 par value of preferred stock
and at December 31, 1997 there were no shares outstanding. Concurrent with the
Recapitalization discussed in Note 3, all of Wing's authorized preferred stock
was canceled.
12. RELATED PARTIES:
MANAGEMENT AND INVESTMENT BANKING AGREEMENT
In November 1997, Wing amended its ten-year Management and Investment
Banking Agreement (the "Old Management Agreement") with Ardshiel. Pursuant
thereto, Wing agreed to pay Ardshiel an annual fee of $375 plus expenses for
ongoing management advisory services to Wing. In 1998, 1997 and 1996, $368, $485
and $72, respectively, was paid to Ardshiel under this agreement. The Old
Management Agreement was terminated in connection with the Recapitalization on
October 2, 1998.
FINANCIAL ADVISORY FEE
Ardshiel received a financial advisory fee of $600 plus expenses on the
closing date of the October 26, 1996 transaction as compensation for its
services as financial advisor to Wing. 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 of
Wing.
Ardshiel received an investment banking fee of $250 plus expenses on the
closing date of the acquisition of the of the Door Division of Super Millwork,
Inc. acquisition as compensation for its services to Wing in connection with
this acquisition.
F-20
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. RELATED PARTIES: (CONTINUED)
SHAREHOLDER AGREEMENT
GEIPPPII, Ardatrium and certain of its affiliates, and certain other
shareholders of Parent have entered into a Shareholder Agreement (the
"Shareholder Agreement"), dated as of October 2, 1998, which affect their
relative rights as shareholders of Parent.
MANAGEMENT AGREEMENT
Parent 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 Parent and its subsidiaries with respect to business
strategy, operations and budgeting and financial controls ("Management
Services") in exchange for an annual fee of $1,300 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 including,
Parent or its subsidiaries 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 Parent such engagement would result in a
conflict of interest or would otherwise be adverse to the interests of Parent or
such subsidiaries. Ardshiel shall receive a fee for any such services rendered
by Ardshiel to Parent 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 Parent or any of its subsidiaries in paying
similar fees to other entities for similar services. Parent paid a closing fee
of approximately $3,375 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 automatically be renewed for one-year
periods unless either party gives written notice to the contrary at least 30
days prior to the expiration of the initial or any extended term of the
agreement.
NOTES RECEIVABLE
Included in prepaid expenses and other current assets are the following
receivables due from related parties at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Receivables from officers..................................................... $ 123 $ --
Receivables from employees.................................................... $ 211 $ --
</TABLE>
13. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT AGREEMENTS
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 Chief Operating 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.
F-21
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
OPERATING LEASES
The Company has entered into operating lease agreements for office and
manufacturing space, automobiles, and machinery and equipment with unrelated
third parties, affiliates of certain stockholders and certain stockholders of
the Company. Total rent expense for 1998, 1997 and for the periods ended
December 31, 1996 and October 25, 1996 was $2,862, $1,189, $172 and $691,
respectively. Of these totals, amounts paid to related parties was $398 for 1998
and $0 for 1997 and the periods ended December 31, 1996 and October 25, 1996.
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>
1999......................................................... $ 1,317 $ 3,898 $ 5,215
2000......................................................... 1,317 3,348 4,665
2001......................................................... 1,317 2,779 4,096
2002......................................................... 1,180 1,989 3,169
2003......................................................... 1,272 1,407 2,679
Thereafter................................................... 14,001 3,627 17,628
--------- --------- ---------
$ 20,404 $ 17,048 $ 37,452
--------- --------- ---------
--------- --------- ---------
</TABLE>
FORWARD COMMITMENTS
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 with fixed and floating prices. As of December 31,
1998, the Company had forward commitments totaling $2,623 for delivery through
December 1999 for 21.1 million pounds of aluminum, of which 3.6 million pounds
were at fixed prices, respectively. No amounts were outstanding as of December
31, 1997.
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 consolidated
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 and extended for three additional years in 1998. In
addition, in connection with its Woodville, Texas operations, the Company is
party to collective bargaining arrangements due to expire in 2001.
The Company is involved in various stages of investigation and cleanup
related 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 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
F-22
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 consolidated financial
position, results of operations or liquidity.
14. OTHER INCOME, NET:
Other income, net consists of the following for the year ended December 31,
1998:
<TABLE>
<S> <C>
Rental, interest and other income.................... $ 556
Gain on sale of assets............................... 12
Other................................................ 3
---------
$ 571
---------
---------
</TABLE>
15. STOCK OPTIONS:
The Wing Industries Holdings, Inc. Stock Option Plan (the "Plan") was
adopted on October 25, 1996 and amended on November 17, 1997 to provide certain
employees, officers and directors of Wing an opportunity to purchase Class A
voting common stock of Wing. Options available for grant under the Plan included
(1) "Incentive Stock Options" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended and (2) Nonqualified Stock Options which were options
that did not constitute Incentive Stock Options.
At December 31, 1997, Nonqualified Stock Options for a total of 14,483
shares of Wing's Class A voting common stock had been granted. During 1998, and
prior to the Recapitalization, 1,766 options were exercised. The remaining
12,717 options were exchanged for 2,528,314 options in the D and W Holdings,
Inc. 1998 Stock Option Plan (the "New Plan"). The Plan was terminated in
connection with the Recapitalization. No compensation expense was recorded
during 1997 or 1996.
THE NEW PLAN
In connection with the Recapitalization, the Board of Directors adopted the
New Plan authorizing the issuance of 11,991,142 options to acquire common stock
of the Company. Through December 31, 1998, the Board of Directors granted
11,735,941 options under the New Plan. All options granted under the New Plan
expire ten years from the date of grant, October 2, 1998.
As of December 31, 1998, 1,756,924 options had been granted in three
tranches under the New Plan in replacement of certain of the options granted
under the Plan. These options consist of (a) options to purchase 692,861 shares
of common stock at an exercise price of $0.01 per share; (b) options to purchase
539,135 shares of common stock at an exercise price of $0.72 per share until
December 1, 1999, and then increasing 15% per year thereafter, until and
including December 1, 2000; and (c) options to purchase 524,928 shares of common
stock at an exercise price of $0.82 per share until December 1, 1999, and then
F-23
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
increasing 30% per year thereafter, until and including December 1, 2000. As of
December 31, 1998, 1,064,030 of these options were fully vested. The remaining
options vest on October 25, 1999, subject to accelerated vesting in the event
(a) the Company sells common stock in an offering registered with the Securities
and Exchange Commission which results in a Change of Control (as defined in the
New Plan); (b) the Company is merged or consolidated with another corporation in
a merger in which the surviving corporation has freely tradeable common stock;
(c) substantially all of the assets of the Company and its subsidiaries, taken
as a whole, are sold or otherwise transferred; or (iv) a plan of liquidation of
the Company of the optionee's employer is adopted.
As of December 31, 1998, options of 771,390 with an exercise price of $1.25
had been granted under the New Plan that become exercisable only as such time at
(each such event, a "Value Event") (a) the Company sells common stock in an
offering registered with the Securities and Exchange Commission, which
constitutes a Qualifying Public Offering (as defined in the New Plan); (b) the
Company is merged or consolidated with another corporation in a merger in which
the surviving corporation has freely tradeable common stock; or (c)
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, are sold or otherwise transferred.
As of December 31, 1998, options of 832,314 had been granted that consisted
of two tranches: (a) - options to purchase 277,438 shares with an exercise price
of $0.83 per share to March 31, 1999 and then increasing 15% per year thereafter
and (b) - options to purchase 554,876 shares with an exercise price of $0.83 per
share to March 31, 1999 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. At
December 31, 1998 none of these options were vested. The options vest equally in
one-third increments on January 9, 1999, 2000 and 2001, respectively.
As of December 31, 1998, options of 221,725 with an exercise price of $1.65
had been granted that are exercisable only upon the occurrence of a Value Event.
These options vest at such time of occurrence of a value event.
As of December 31, 1998, options of 8,153,588 options had been granted with
an exercise price of $1.00. On the anniversary of the grant date and prior to
termination of employment, 3,551,526 options will vest 25% and shall continue to
vest ratably as of and after the fourth anniversary date of grant. The remaining
4,602,062 options will vest 20% and shall continue to vest ratably as of and
after the fifth anniversary date of grant. The options expire ten years from the
date of grant.
The Company recorded non cash stock option compensation expense of $1,038 in
1998 in connection with the difference between the fair value of the stock at
the date of issuance ($1.00) and the respective exercise prices of each of the
above grants.
THE REPLACEMENT PLAN
In addition to the New Plan, the Board of Directors adopted the D and W
Holdings, Inc. Replacement Stock Option Plan (the "Replacement Plan") to govern
the terms of certain options to purchase the Company's common stock which were
granted in replacement of outstanding options of Atrium Corp. in connection with
the Recapitalization. Under the Replacement Plan, options to purchase in
aggregate of 1,575,000 shares of the Company's 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
F-24
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
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 the optionee's employment, the Company shall have the
right to repurchase the options. In the event termination was for cause, the
price per option repurchased will be equal to the lesser of $1.00 per underlying
share and the market value per share of the Company's common stock, in either
case, minus $0.01 per share. If termination is for other than cause, the
repurchase price will differ for the vested and unvested portions. The unvested
portion will be reacquired at a purchase price equal to the lesser of the market
value per share and $1.00 per share, in each case, minus $0.01 per share and the
vested portion may be reacquired at a purchase price equal to the greater of the
market value per share or $1.00 per share, in each case, minus $0.01 per share.
On October 2, 1998, the Company 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 2,841,221
shares of common stock at any time subsequent to the Recapitalization. The
exercise price of the Warrant is $.01 per share. An additional 1,894,148 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 1,894,148 options vest ratably each day for three
years. The Warrant will terminate on October 2, 2008. The Company recorded non
cash compensation expense of $2,813 for 1998 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).
In addition, in exchange for certain warrants to purchase common stock of
Atrium Corp, the Executive received a warrant to purchase 1,000,000 shares of
the Company's common stock at a price of $.01 per share with a term of twenty
years.
The following table summarizes the transactions of the New Plan and the
Replacement Plan for the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996 (all outstanding options were granted to management of
the Company):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Outstanding options, beginning of period......... 2,849,863 2,078,473 --
Granted.......................................... 13,310,941 771,390 2,078,473
Canceled or expired.............................. -- -- --
Exchanged........................................ (2,528,314) -- --
Exercised........................................ (321,549) -- --
------------- ------------- ------------
Outstanding options, end of year................. 13,310,941 2,849,863 2,078,473
------------- ------------- ------------
------------- ------------- ------------
Weighted average exercise price of options
exercised...................................... $ .84 $ -- $ --
Weighted average exercise price of options
granted........................................ $ .82 $ 1.25 $ .42
Weighted average exercise price, end of period... $ .85 $ 0.74 $ .42
Options exercisable, end of period............... 1,064,030 461,937 --
</TABLE>
F-25
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. STOCK OPTIONS: (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Options available for future grant............... 255,201 731,415 834,837
</TABLE>
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 1998 and 1997: 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).
If an event or value event as previously defined were to become probable,
the difference between the option price and the then fair market value would be
charged to earnings at that time.
The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (MONTHS) PRICE EXERCISABLE PRICE
- ------------------ ------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Options:
$ .01 2,267,861 117 $ .01 461,906 $ .01
$.83 - 1.00 9,525,037 117 $ .98 308,150 $ .79
$1.21 - 1.65 1,518,043 117 $ 1.29 293,974 $ 1.07
------------ ----------
13,310,941 1,064,030
Warrants:
$ .01 2,841,221 117 $ .01 2,841,221 $ .01
$1.00 1,894,148 117 $ 1.00 155,541 $ 1.00
------------ ----------
4,735,369 2,996,762
</TABLE>
In 1995, the FASB issued FASB Statement No. 123 ("FAS 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 FAS 123 is optional and
the Company has decided not to elect the provisions of FAS 123. However, pro
forma disclosures as if the Company adopted the cost recognition provisions of
FAS 123 are required by FAS 123; however, there is no pro forma effect of
adopting the cost provisions of FAS 123 for the years ended December 31, 1998
and 1997 and the periods ended December 31, 1996 and October 25, 1996. In 1998,
1997 and 1996, the Company granted only nonqualified stock options and warrants
under the plans.
Had the compensation cost for the Company's stock-based compensation plans
and warrants been determined consistent with FAS 123, the Company's net income
(loss) for 1998, 1997 and 1996 would have been ($3,122), $440 and $224,
respectively.
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. FAS 123 does not apply to awards prior to 1995.
F-26
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. EMPLOYEE BENEFIT PLANS:
Prior to the formation of Wing, 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 under Section 401(k) of the
Internal Revenue Code (the "Code"). The Company makes discretionary matching
contributions equal to 50% of the first 4% of the employee's contribution. The
Company contributed $101, $85, $78 during 1998 and 1997 and the period ended
December 31, 1996, respectively.
In connection with the Recapitalization, the Company maintains two
additional plans under Section 401(k) and 401 of the Code. Each plan provides
for discretionary contributions by the employer. The Plan covered by Section 401
of the Code does not provide for employee contributions. The Company contributed
$57 to the plans during the period from October 3, 1998 to December 31, 1998.
17. SUBSIDIARY GUARANTORS:
In connection with the Company's Senior Subordinated Notes, 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, ADW-Arizona,
ADW-West Coast, Wing and Darby (collectively, the Subsidiary Guarantors). The
Company has no non-guarantor direct or indirect subsidiaries. The operations
related to the assets of ADW-Northeast ADW-Arizona ADW-West Coast and Darby are
included since the reverse acquisition on October 2, 1998. The operations of
Wing are presented for all periods covered. The balance sheet information
includes all subsidiaries as of December 31, 1998 and only Wing as of December
31, 1997. 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>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets................................................... $ 42,887 $ 23,610
Noncurrent assets................................................ 157,678 31,773
Current liabilities.............................................. 16,666 12,885
Noncurrent liabilities........................................... 123,049 31,823
</TABLE>
F-27
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
17. SUBSIDIARY GUARANTORS: (CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales........................................................ $ 165,333 $ 99,059
Gross profit..................................................... 37,340 20,789
Net income from continuing operations............................ 503 696
Net income....................................................... 503 696
</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.
18. SUBSEQUENT EVENTS:
DELTA ACQUISITION
On January 27, 1999, the Company acquired certain assets of Delta Millwork,
Inc., a privately held door pre-hanger located in Orlando, Florida, for $1,300.
The Company financed the acquisition through its revolving credit facility.
The acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16").
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
$100, 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 January 27, 1999.
MANAGEMENT CHANGE
On April 9, 1999, the Company completed a separation agreement with Randall
S. Fojtasek, President and Chief Executive Officer, whereby Mr. Fojtasek
resigned from the Company effective March 31, 1999. The Board of Directors has
nominated Jeff L. Hull, Executive Vice President and Chief Financial Officer,
and Ken L. Gilmer, Executive Vice President and Chief Operating Officer, to
oversee day-to-day operations and report directly to the Executive Committee of
the Board of Directors. The Company expects to take a charge of approximately
$1,750 in the first quarter of fiscal year 1999 for severance benefits related
to this management change.
$175,000 SENIOR SUBORDINATED NOTES
On May 10, 1999, the Company issued $175,000 of senior subordinated notes
due May 1, 2009. The notes are non-callable for five years, have a 10.50% stated
rate paid semi-annually and were issued at a discount of 98.496 to yield 10.75%
to maturity. The proceeds were used to fund the acquisitions of Heat, Inc. and
Champagne Industries, Inc., refinance certain indebtedness and pay fees and
expenses.
F-28
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
18. SUBSEQUENT EVENTS: (CONTINUED)
HEAT ACQUISITION
On May 17, 1999, the Company acquired Heat, Inc., a privately held vinyl
window and door company located in Pittsburgh, Pennsylvania, for approximately
$85,000. The Company financed the acquisition with a portion of the proceeds
from the issuance of $175,000 of senior subordinated notes.
The acquisition was accounted for as a purchase in accordance with APB 16.
The aggregate purchase price was allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the date
of acquisition. The excess of purchase price over the fair value of the net
assets acquired was $69,400, which is being amortized over 40 years.
CHAMPAGNE ACQUISITION
On May 17, 1999, the Company acquired Champagne Industries, Inc., a
privately held vinyl window and door company located in Denver, Colorado for
$3,600, excluding $500 to be paid upon achievement of certain operational
targets. The Company financed the acquisition with a portion of the proceeds
from the issuance of $175,000 of senior subordinated notes.
The acquisition was accounted for as a purchase in accordance with APB 16.
The aggregate purchase price was allocated to the underlying assets and
liabilities based upon their respective estimated fair market values at the date
of acquisition. The excess of purchase price over the fair value of the net
assets acquired was approximately $2,300, which is being amortized over 40
years.
F-29
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
MARCH 31, ------------
1999
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ -- $ --
Equity securities--available for sale............................................... 144 137
Accounts receivable, net............................................................ 50,718 46,466
Inventories......................................................................... 49,973 46,289
Prepaid expenses and other current assets........................................... 8,020 7,756
Deferred tax asset.................................................................. 1,249 1,249
----------- ------------
Total current assets.............................................................. 110,104 101,897
PROPERTY, PLANT, AND EQUIPMENT, net................................................... 26,907 26,760
GOODWILL, net......................................................................... 213,902 214,749
DEFERRED FINANCING COSTS, net......................................................... 10,740 11,058
OTHER ASSETS.......................................................................... 5,113 5,405
----------- ------------
Total assets...................................................................... $ 366,766 $ 359,869
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.................................................... $ 2,206 $ 2,209
Accounts payable.................................................................... 23,703 25,353
Accrued liabilities................................................................. 18,581 15,432
----------- ------------
Total current liabilities......................................................... 44,490 42,994
LONG-TERM LIABILITIES:
Notes payable....................................................................... 183,054 177,018
Deferred tax liability.............................................................. 1 1
Other long-term liabilities......................................................... 5,968 6,800
----------- ------------
Total long-term liabilities..................................................... 189,023 183,819
----------- ------------
Total liabilities............................................................... 233,513 226,813
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock $.01 par value, 3,000 shares authorized, 100 shares issued and
outstanding....................................................................... -- --
Paid-in capital..................................................................... 134,852 134,852
Accumulated deficit................................................................. (1,630) (1,820)
Accumulated other comprehensive income.............................................. 31 24
----------- ------------
Total stockholder's equity...................................................... 133,253 133,056
----------- ------------
Total liabilities and stockholder's equity.................................... $ 366,766 $ 359,869
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
NET SALES.................................................................................. $ 106,842 $ 39,450
COST OF GOODS SOLD......................................................................... 74,708 30,464
---------- ---------
Gross profit............................................................................. 32,134 8,986
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses................................... 23,151 6,606
Amortization expense..................................................................... 1,889 146
Special charge........................................................................... 1,762 --
---------- ---------
26,802 6,752
---------- ---------
Income from operations................................................................. 5,332 2,234
INTEREST EXPENSE........................................................................... 4,346 992
OTHER INCOME, net.......................................................................... 32 --
---------- ---------
Income before income taxes............................................................. 1,018 1,242
PROVISION FOR INCOME TAXES................................................................. 828 556
---------- ---------
NET INCOME................................................................................. $ 190 $ 686
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net income........................................................................................ $ 190 $ 686
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during the period............................................ 7 --
--------- ---------
Comprehensive income............................................................................ $ 197 $ 686
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENT OF
STOCKHOLDER'S EQUITY
FOR THE QUARTER ENDED MARCH 31, 1999
(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 EQUITY
----------- ----------- --------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998............. 100 $ -- $ 134,852 $ (1,820) $ 24 $ 133,056
Other comprehensive income......... -- -- -- -- 7 7
Net income......................... -- -- -- 190 -- 190
--- ----- --------- ------------- --- ------------
Balance, March 31, 1999................ 100 $ -- $ 134,852 $ (1,630) $ 31 $ 133,253
--- ----- --------- ------------- --- ------------
--- ----- --------- ------------- --- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-33
<PAGE>
ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 190 $ 686
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................ 2,937 468
Amortization of deferred financing costs................................................. 381 111
Gain on sale of assets................................................................... (31) --
Changes in assets and liabilities, net of acquisition in 1999:
Accounts receivable, net............................................................... (3,073) (4,539)
Inventories............................................................................ (2,735) (45)
Prepaid expenses and other current assets.............................................. (225) 62
Accounts payable....................................................................... (29) (2,756)
Accrued liabilities.................................................................... 3,265 5,527
--------- ---------
Net cash provided by (used in) operating activities.................................. 680 (486)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................................. (1,059) (287)
Proceeds from sale of assets............................................................... 32 --
Payment for acquisition, net of cash acquired.............................................. (1,737) --
Increase in other assets................................................................... (599) (343)
--------- ---------
Net cash used in investing activities................................................ (3,363) (630)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility............................................. 6,582 1,928
Scheduled principal payments on term notes................................................. (500) (782)
Payment of capital lease obligations....................................................... (49) --
Payment of other long-term liabilities..................................................... (1,032) --
Checks drawn in excess of bank balances.................................................... (2,255) --
Deferred financing costs................................................................... (63) --
Proceeds from exercise of stock options.................................................... -- 216
--------- ---------
Net cash provided by financing activities............................................ 2,683 1,362
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................................... -- 246
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................... -- 34
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................... $ -- $ 280
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE:
Cash paid (received) during the period for:
Interest................................................................................. $ 1,222 $ 881
Income taxes, net of refunds............................................................. (502) 400
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-34
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated financial statements of Atrium Companies, Inc.
(the "Company") for the quarters ended March 31, 1999 and 1998, and as of March
31, 1999 and December 31, 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, 1998, 1997 and 1996 included in the Company's Form 10-K as
filed with the Securities and Exchange Commission on April 15, 1999. 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.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging
Activities" that is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will implement the provisions of FAS 133 as
required. The future adoption of FAS 133 is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
Prior to October 2, 1998, the Company's historical financial statements as
previously filed with the Securities and Exchange Commission included its
operations and the operations of its wholly-owned subsidiaries, Atrium Door and
Window Company of the Northeast, Atrium Door and Window Company of New England,
Atrium Door and Window Company of New York (collectively, "ADW-Northeast"),
Atrium Door and Window Company--West Coast ("ADW-West Coast) and Atrium Door and
Window Company of Arizona ("ADW-Arizona"). On October 2, 1998, pursuant to an
acquisition and merger (the "Recapitalization" or "reverse acquisition") as more
fully described in the Company's Form 10-K as filed with the Securities and
Exchange Commission on April 15, 1999, the Company's indirect Parent (D and W
Holdings, Inc.) contributed the stock of Wing Industries Holdings, Inc. and its
subsidiary Wing Industries, Inc. (collectively "Wing") and Door Holdings, Inc.
and its subsidiaries R.G. Darby Company, Inc. and Total Trim, Inc. (collectively
"Darby") to the Company.
As Wing was determined to be the acquiror in a "reverse acquisition", the
historical financial statements of the Company (prior to October 3, 1998) were
replaced with the historical financial statements of Wing. As a result, the
statement of income for 1998 only includes the operations of the Company and
Darby from October 3, 1998 through December 31, 1998. The statements of income
for all periods prior to October 3, 1998 only include the operations and
accounts of Wing. Additionally, the operations of Delta Millwork, Inc. (renamed
R.G. Darby Company-South and Total Trim-South, collectively "Darby-South") are
included since the date of acquisition, January 27, 1999. The March 31, 1999
balance sheet includes the accounts of the Company, Wing, Darby, Darby-South and
each of their respective subsidiaries, while the December 31, 1999 balance sheet
includes the accounts of the Company, Wing, Darby and each of their respective
subsidiaries.
F-35
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION: (CONTINUED)
The following unaudited pro forma information presents consolidated
operating results as though the Recapitalization and the acquisition of Delta
Millwork, Inc. (see Note 6) had occurred at the beginning of the periods
presented:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, QUARTER ENDED MARCH
1999 31, 1998
----------------------- ----------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net sales..................................... $ 106,842 $ 107,350 $ 39,450 $ 95,192
Gross profit.................................. 32,134 32,225 8,986 26,833
Operating expenses............................ 25,040 25,158 6,752 21,588
Special charge................................ 1,762 1,762 -- --
Income from operations........................ 5,332 5,305 2,234 5,245
Net income from continuing operations......... 190 152 686 236
Depreciation and amortization................. 2,937 2,946 468 3,226
Interest expense.............................. 4,346 4,358 992 4,381
</TABLE>
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>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Raw materials....................................................... $ 27,461 $ 27,362
Work-in-process..................................................... 4,680 4,129
Finished goods...................................................... 17,068 14,686
----------- ------------
49,209 46,177
LIFO reserve........................................................ 764 112
----------- ------------
$ 49,973 $ 46,289
----------- ------------
----------- ------------
</TABLE>
F-36
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
4. NOTES PAYABLE:
Notes payable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Revolving credit facility......................................... $ 10,700 $ 4,118
Term loan B....................................................... 74,500 74,750
Term loan C....................................................... 70,430 70,680
Senior subordinated notes......................................... 29,070 29,070
Other............................................................. 560 609
----------- ------------
185,260 179,227
Current portion of notes payable.................................. (2,206) (2,209)
----------- ------------
$ 183,054 $ 177,018
----------- ------------
----------- ------------
</TABLE>
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
consolidated financial position, results of operations or liquidity of the
Company.
During 1993, factory employees voted to unionize and become members of the
Amalgamated Clothing and Textile Workers Union. A three-year union contract was
executed during 1995 and extended for three additional years in 1998. In
addition, in connection with its Woodville, Texas operations, the Company is
party to collective bargaining arrangements due to expire in 2001.
The Company is involved in various stages of investigation and cleanup
related 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 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.
F-37
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
6. ACQUISITION:
DELTA ASSET PURCHASE:
On January 27, 1999, the Company acquired certain assets of Delta Millwork,
Inc., a privately held door pre-hanger located in Orlando, Florida, for
approximately $1,737 including fees and other transaction expenses. The Company
financed the acquisition through its revolving credit facility.
The acquisition of Delta Millwork, Inc. has been accounted for as a purchase
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). 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, which will be amortized over 40 years. The results of operations for
the acquired business are included in the Company's consolidated financial
statements beginning January 27, 1999. The purchase price allocation,
preliminary in nature and subject to change, is as follows:
<TABLE>
<S> <C>
Accounts receivable, net............................................ $ 1,178
Inventories......................................................... 949
Prepaid expenses and other current assets........................... 40
Property, plant and equipment, net.................................. 137
Other noncurrent assets............................................. 5
Goodwill............................................................ 145
Current liabilities................................................. (717)
---------
Total purchase price............................................ $ 1,737
---------
---------
</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 (collectively, the Subsidiary
Guarantees) on a senior subordinated basis by its wholly-owned subsidiaries:
ADW-Northeast, ADW-West Coast, ADW-Arizona, Wing, Darby and Darby-South
(collectively, the Subsidiary Guarantors). The Company has no non-guarantor
direct or indirect subsidiaries. The operations related to the assets of
ADW-Northeast, ADW-West Coast, ADW-Arizona and Darby are included since the
reverse acquisition on October 2, 1998. The operations of Darby-South are
included since the date of acquisition, January 27, 1999. The operations of Wing
are presented for all periods covered. The balance sheet information includes
all subsidiaries as of March 31, 1999 and ADW-Northeast, ADW-West Coast,
ADW-Arizona and Darby as of December 31, 1998. 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-38
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
7. SUBSIDIARY GUARANTORS: (CONTINUED)
Following is summarized combined financial information pertaining to these
Subsidiary Guarantors:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Current assets..................................................... $ 43,320 $ 42,887
Noncurrent assets.................................................. 106,324 106,684
Current liabilities................................................ 16,375 16,666
Noncurrent liabilities............................................. 79,445 76,826
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Net sales.......................................................... $ 59,279 $ 39,450
Gross profit....................................................... 15,601 8,986
Net income from continuing operations.............................. 295 686
</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.
8. SUBSEQUENT EVENTS:
HEAT ACQUISITION
On April 20, 1999, the Company entered into a stock purchase agreement to
acquire Heat, Inc., a privately held vinyl window and door company located in
Pittsburgh, Pennsylvania, for approximately $85,000. The Company expects to
finance the acquisition with a portion of the proceeds from the issuance of
$175,000 of senior subordinated notes (see below).
The acquisition will be accounted for as a purchase in accordance with APB
16. 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. 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") will be approximately $72,000, which will be amortized
over 40 years. The results of operations for the acquired business will be
included in the Company's operations subsequent to the completion of the
transaction, which is expected to be on or about May 17, 1999.
CHAMPAGNE ACQUISITION
On May 10, 1999, the Company entered into a stock purchase agreement to
acquire Champagne Industries, Inc., a privately held vinyl window and door
company located in Denver, Colorado for approximately $3,500, excluding $500 to
be paid upon achievement of certain operational targets. The Company expects to
finance the acquisition with a portion of the proceeds from the issuance of
$175,000 of senior subordinated notes (see below).
F-39
<PAGE>
ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
8. SUBSEQUENT EVENTS: (CONTINUED)
The acquisition will be accounted for as a purchase in accordance with APB
16. 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. 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") will be approximately $2,300, which will be amortized over
40 years. The results of operations for the acquired business will be included
in the Company's operations subsequent to the completion of the transaction,
which is expected to be on or about May 17, 1999.
$175,000 SENIOR SUBORDINATED NOTES
On May 10, 1999, the Company issued $175,000 of senior subordinated notes
due May 1, 2009. The notes are non-callable for five years, have a 10.50% stated
rate paid semi-annually and were issued at a discount of 98.496 to yield 10.75%
to maturity. The proceeds will be used to fund the acquisitions of Heat, Inc.
and Champagne Industries, Inc., refinance certain indebtedness and pay fees and
expenses.
F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Atrium Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), of stockholder's equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Atrium Companies, Inc. and its subsidiaries (a wholly-owned subsidiary of
Atrium Corporation) at December 31, 1997 and 1996, and the results of their
operations and their cash flows for the period from January 1, 1998 to October
2, 1998 and the years ended December 31, 1997 and 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
June 25, 1999
F-41
<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
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 these consolidated financial
statements.
F-42
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
PERIOD ENDED ----------------------
OCTOBER 2, 1998 1997 1996
--------------- PERIOD ENDED ---------- ----------
SEPTEMBER 30,
1997
---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................................... $ 167,418 $ 139,793 $ 186,764 $ 156,269
COST OF GOODS SOLD...................................... 109,235 89,656 121,301 102,341
--------------- --------------- ---------- ----------
Gross profit.......................................... 58,183 50,137 65,463 53,928
--------------- --------------- ---------- ----------
OPERATING EXPENSES:
Selling, delivery, general and administrative
expenses............................................ 37,704 33,114 44,486 34,815
Special charges....................................... 7,452 -- -- 3,044
Stock option compensation expense..................... 5,265 255 307 3,023
--------------- --------------- ---------- ----------
50,421 33,369 44,793 40,882
--------------- --------------- ---------- ----------
Income from operations.............................. 7,762 16,768 20,670 13,046
INTEREST EXPENSE........................................ 9,545 8,542 11,523 4,786
OTHER INCOME (EXPENSE), net............................. (286) 1,127 1,088 (182)
--------------- --------------- ---------- ----------
Income (loss) before income taxes and extraordinary
charge............................................ (2,069) 9,353 10,235 8,078
PROVISION (BENEFIT) FOR INCOME TAXES.................... (732) 3,485 4,068 2,699
--------------- --------------- ---------- ----------
Income (loss) before extraordinary charge........... (1,337) 5,868 6,167 5,379
EXTRAORDINARY CHARGES ON EARLY RETIREMENT OF DEBT (NET
OF INCOME TAX BENEFIT OF $2,164 AND $720,
RESPECTIVELY)......................................... 3,525 -- -- 1,176
--------------- --------------- ---------- ----------
NET INCOME (LOSS)....................................... $ (4,862) $ 5,868 $ 6,167 $ 4,203
--------------- --------------- ---------- ----------
--------------- --------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER RETAINED EARNINGS
---------------------------- COMPREHENSIVE PAID-IN (ACCUMULATED
SHARES AMOUNT INCOME (LOSS) CAPITAL DEFICIT)
------------- ------------- --------------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995...................... 100 $ -- $ -- $ 23,467 $ (38,011)
Capital contributions..... -- -- -- 5,025 --
Net distributions to
Holding................. -- -- -- -- (39,304)
Stock option compensation
expense................. -- -- -- 3,023 --
Income tax benefit upon
exercise of Holding's
stock options........... -- -- -- 421 --
Net income................ -- -- -- -- 4,203
--- ----- --- ----------- --------
BALANCE, December 31,
1996...................... 100 -- -- 31,936 (73,112)
Capital contributions..... -- -- -- 476 --
Net distributions to
Holding................. -- -- -- -- (558)
Stock option compensation
expense................. -- -- -- 307 --
Income tax benefit upon
exercise of Holding's
stock options........... -- -- -- 71 --
Comprehensive loss:
Net income................ -- -- -- -- 6,167
Unrealized loss on equity
securities available for
sale.................... -- -- (79) -- --
--- ----- --- ----------- --------
BALANCE, December 31,
1997...................... 100 -- (79) 32,790 (67,503)
Contributions from
Holding................. -- -- -- 275 --
Distributions to Holding.. -- -- -- -- (570)
Stock option compensation
expense................. -- -- -- 5,265 --
Income tax benefit upon
exercise of Holding's
stock options........... -- -- -- 1,008 --
Comprehensive loss:
Net loss.................. -- -- -- -- (4,862)
Unrealized gain........... -- -- 86 -- --
--- ----- --- ----------- --------
BALANCE, October 2, 1998.... 100 $ -- $ 7 $ 39,338 $ (72,935)
--- ----- --- ----------- --------
--- ----- --- ----------- --------
<CAPTION>
TOTAL
STOCKHOLDER'S
EQUITY (DEFICIT)
------------------
<S> <C>
BALANCE, December 31,
1995...................... $ (14,544)
Capital contributions..... 5,025
Net distributions to
Holding................. (39,304)
Stock option compensation
expense................. 3,023
Income tax benefit upon
exercise of Holding's
stock options........... 421
Net income................ 4,203
--------
BALANCE, December 31,
1996...................... (41,176)
Capital contributions..... 476
Net distributions to
Holding................. (558)
Stock option compensation
expense................. 307
Income tax benefit upon
exercise of Holding's
stock options........... 71
Comprehensive loss:
Net income................ 6,167
Unrealized loss on equity
securities available for
sale.................... (79)
--------
BALANCE, December 31,
1997...................... (34,792)
Contributions from
Holding................. 275
Distributions to Holding.. (570)
Stock option compensation
expense................. 5,265
Income tax benefit upon
exercise of Holding's
stock options........... 1,008
Comprehensive loss:
Net loss.................. (4,862)
Unrealized gain........... 86
--------
BALANCE, October 2, 1998.... $ (33,590)
--------
--------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
PERIOD ENDED 31,
OCTOBER 2, --------------------
1998 1997 1996
------------- PERIOD ENDED --------- ---------
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $ (4,862) $ 5,868 $ 6,167 $ 4,203
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary charge, net of income tax benefit................ 3,525 -- -- 1,176
Depreciation and amortization.................................. 3,246 2,384 3,278 2,205
Amortization of deferred financing costs....................... 493 482 642 279
Gain on retirement of assets................................... (41) (9) (38) (10)
Gain on sale of equity securities.............................. -- (2) (2) --
Stock option compensation expense.............................. 5,265 255 307 3,023
Changes in assets and liabilities:
Deferred tax provision (benefit)............................... (840) 214 2,102 (1,303)
Accounts receivable, net..................................... (5,363) (4,773) (640) (3,056)
Inventories.................................................. (2,654) (5,761) (1,688) 2,252
Prepaid expenses and other current assets.................... 795 1,020 197 (730)
Accounts payable............................................. 4,182 2,004 (1,165) 815
Accrued liabilities.......................................... 6,004 3,056 (57) (87)
------------- ------------- --------- ---------
Net cash provided by operating activities.................. 9,750 4,738 9,103 8,767
------------- ------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment..................... (1,376) (2,326) (3,438) (3,380)
Proceeds from sales of assets.................................. 95 15 68 25
Purchases of equity securities................................. -- (480) (480) --
Proceeds from sales of equity securities....................... -- 375 375 --
Increase in other assets....................................... (475) (807) (1,377) (1,134)
Payment for acquisition, net of cash acquired.................. (26,831) (6,505) (6,561) (10,243)
------------- ------------- --------- ---------
Net cash used in investing activities........................ (28,587) (9,728) (11,413) (14,732)
------------- ------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable....................................... (800) -- -- (62,928)
Net borrowings under revolving credit facility................. 2,285 2,961 -- 7,740
Proceeds from issuance of senior subordinated notes............ -- -- -- 100,000
Proceeds from issuance of notes payable........................ 17,500 -- -- 6,000
Checks drawn in excess of bank balances........................ (352) 1,752 2,135 --
Deferred financing costs....................................... (509) (425) (430) (5,457)
Capital contributions.......................................... -- -- -- 25
Contributions from Holding..................................... 275 196 476 --
Net distributions to Holding................................... (570) (110) (558) (39,304)
Income tax benefit upon exercise of Holding's stock options.... 1,008 -- 71 421
------------- ------------- --------- ---------
Net cash provided by financing activities.................... 18,837 4,374 1,694 6,497
------------- ------------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. -- (616) (616) 532
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 1 617 617 85
------------- ------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 1 $ 1 $ 1 $ 617
------------- ------------- --------- ---------
------------- ------------- --------- ---------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest..................................................... $ 6,314 $ 5,069 $ 10,393 $ 3,699
Income taxes, net of refunds................................. (141) 1,512 2,737 4,514
Noncash contribution from Holding............................ -- -- -- 5,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<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. On September 30, 1996, Atrium Corporation ("Holding"), a Delaware
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.
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 AND PRESENTATION
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.
The consolidated financial information for the nine months ended September
30, 1997 is unaudited. In the opinion of management, the accompanying unaudited
consolidated financial information and related notes thereto contain all
adjustments consisting only of normal, recurring adjustments, necessary to
present fairly the consolidated financial information as of September 30, 1997
and the operating results and cash flows for the nine months ended September 30,
1997. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year.
References to amounts used throughout these consolidated financial
statements for the period ended September 30, 1997 are unaudited.
F-46
<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)
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.
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 in 1998, 1997 or 1996.
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.
F-47
<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)
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
-----------
Buildings and improvements..................................... 5-40 years
<S> <C>
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.
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 $655, $340 and $75 was recorded for the period ended
October 2, 1998 and for the years ended December 31, 1997 and 1996,
respectively. 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 fair value of the 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 straight-line 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.
F-48
<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)
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 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.
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. Since
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.
F-49
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
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
<CAPTION>
NOTIONAL UNREALIZED NOTIONAL UNREALIZED
OFF BALANCE SHEET: AMOUNT GAIN/(LOSS) AMOUNT GAIN/(LOSS)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Forward aluminum contracts..................................... $ 24,960 $ (21) $ 21,656 $ 519
</TABLE>
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 periods ended October 2, 1998 and
September 30, 1997 and for the years ended December 31, 1997 and 1996 resulted
in a decrease in cost of sales of $1,469 in 1998, a decrease in cost of sales of
$267 for the period ended September 30, 1997, an increase in cost of sales of
$500 in 1997 and a decrease in cost of sales by $491 in 1996.
F-50
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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 $1,852, $2,217 and $1,681 for the period ended
October 2, 1998 and for the years ended December 31, 1997 and 1996,
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>
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
period ended October 2, 1998 and for the years ended December 31, 1997 and 1996
was $338, $450 and $450, respectively, resulting in accumulated amortization at
December 31, 1997 and 1996 of $1,125 and $675, respectively. Amortization
expense of $401, $271, and $0 was recorded for the period ended October 2, 1998
and for the years ended December 31, 1997 and 1996 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 period ended October 2, 1998 and for the years
ended December 31, 1997 and 1996 was $493, $642 and $279, respectively and was
included in interest expense in the accompanying Consolidated Statements of
Income (Loss).
F-51
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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 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
F-52
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. NOTES PAYABLE: (CONTINUED)
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>
<S> <C>
1998.............................................................. $ --
1999.............................................................. --
2000.............................................................. --
2001.............................................................. --
2002.............................................................. --
Thereafter........................................................ 100,000
---------
$ 100,000
---------
---------
</TABLE>
9. FEDERAL INCOME TAX:
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.
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>
F-53
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. FEDERAL INCOME TAX: (CONTINUED)
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
periods ended October 2, 1998 and September 30, 1997 and for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- SEPTEMBER 30, --------- ---------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current federal income tax provision........... $ 159 $ 2,663 $ 1,543 $ 3,388
Deferred federal income tax
provision (benefit)........................ (840) 534 2,103 (930)
State income tax provision (benefit)........... (51) 288 422 241
----------- ------ --------- ---------
Provision (benefit) for income taxes....... $ (732) $ 3,485 $ 4,068 $ 2,699
----------- ------ --------- ---------
----------- ------ --------- ---------
</TABLE>
The Company recognized a tax benefit in 1998, 1997 and 1996 of $1,008, $71
and $421, respectively, related to Holding's stock options. This benefit was
recorded directly to paid-in capital.
Reconciliation of the federal statutory income tax rate to the effective tax
rate, was as follows for the periods ended October 2, 1998 and September 30,
1997 and for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- SEPTEMBER 30, --------- ---------
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax computed at statutory rate................. $ (724) $ 3,180 $ 3,482 $ 2,777
State taxes.................................... (51) 288 423 241
Prior year return to accrual differences....... -- -- -- (352)
Non deductible goodwill and other.............. 43 17 163 33
----------- ------ --------- ---------
Provision for income taxes..................... $ (732) $ 3,485 $ 4,068 $ 2,699
----------- ------ --------- ---------
----------- ------ --------- ---------
</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>
F-54
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
10. RELATED PARTIES: (CONTINUED)
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 period ended October 2, 1998 and
the year ended December 31, 1997, $405 and $437 was paid to Hicks Muse under
this agreement, respectively. This agreement was terminated in connection with
the Recapitalization as defined in Note 19.
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. This agreement
was terminated in connection with the Recapitalization as defined in Note 19.
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 period ended
October 2, 1998 and for the years ended December 31, 1997 and 1996 was $2,515,
$4,339 and $2,012, respectively. Of these totals, amounts paid to related
parties were $946, $753 and $605 in the period ended October 2, 1998 and for the
years ended December 31, 1997 and 1996, respectively. Future minimum rents due
under operating leases with initial or remaining terms greater than twelve
months as of December 31, 1997 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>
F-55
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 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.
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 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:
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
F-56
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. STOCK PURCHASE AGREEMENT: (CONTINUED)
(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.
Included in special charges in the 1998 Consolidated Statement of Loss are
officer bonuses of $3,885, transaction expenses of $2,780 and other costs of
$787 incurred in connection with the Recapitalization (see Note 19).
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:
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Insurance settlement............................................................... $ -- $ 1,193 $ --
Rental, interest, and other income................................................. (25) 65 49
Legal expense relating to labor negotiations....................................... (239) -- --
Gain on sale of assets............................................................. 41 38 10
Other.............................................................................. (63) (208) (241)
----------- --------- ---------
$ (286) $ 1,088 $ (182)
----------- --------- ---------
----------- --------- ---------
</TABLE>
15. ACQUISITIONS:
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
F-57
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. ACQUISITIONS: (CONTINUED)
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.
<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 3
Accounts receivable, net........................................... 3,099
Inventories........................................................ 1,635
Prepaid expenses and other current assets.......................... 251
Property, plant and equipment, net................................. 2,700
Goodwill........................................................... 22,797
Current liabilities................................................ (3,354)
Long-term liabilities.............................................. (300)
---------
Total purchase price........................................... $ 26,831
---------
---------
</TABLE>
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 $6,561 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>
<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................................................ (1,090)
---------
Total purchase price........................................... $ 6,561
---------
---------
</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 $19,531. To
consummate the acquisition, the Company paid $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
F-58
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. ACQUISITIONS: (CONTINUED)
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 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>
<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 acquisitions of Masterview, ADW--West Coast and ADW--Northeast were
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations." 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 Company's Consolidated Statements of Income for the period ended October
2, 1998 and the years ended December 31, 1997 and 1996 include Masterview's,
ADW--West Coast's and ADW-- Northeast's operations from the dates of
acquisition, March 27, 1998, July 1, 1997 and September 30, 1996, respectively.
The following table presents the historical consolidated operating results of
the Company for the period ended October 2, 1998 and 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 Masterview, ADW--West Coast and ADW--
Northeast had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 2, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996
-------------------------- -------------------------- --------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 167,418 $ 173,638 $ 186,764 $ 218,574 $ 156,269 $ 182,099
Income (loss) before extraordinary
charge.................................. (1,337) (1,207) 6,167 8,605 5,379 6,358
Net income (loss)......................... (4,862) (4,732) 6,167 8,605 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.
F-59
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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
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 $5,265, $1,384, $307
and $926 related to the options was recognized by the Company for the periods
ended October 2, 1998 and September 30, 1997 and for the years ended December
31, 1997 and 1996, 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.
F-60
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. STOCK OPTIONS: (CONTINUED)
The following table summarizes the transactions of the Original Plan and the
New Plan for the period ended October 2, 1998 and for the years ended December
31, 1997 and 1996 (all outstanding options were granted to management of the
Company):
<TABLE>
<CAPTION>
OCTOBER 2, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Outstanding options, beginning of period.............................. 2,375,037 2,960,390 2,875,922
Granted............................................................... 497,500 275,000 2,960,390
Canceled or expired................................................... (40,000) (504,645) --
Exchanged............................................................. (1,330,207) -- (1,050,000)
Exercised............................................................. (1,502,330) (355,708) (1,825,922)
------------ ------------- ------------
Outstanding options, end of period.................................... -- 2,375,037 2,960,390
------------ ------------- ------------
------------ ------------- ------------
Weighted average exercise price of options exercised.................. $ .46 $ .72 $ .01
Weighted average exercise price of options granted.................... $ 1.75 $ 1.00 $ .62
Weighted average exercise price, end of period........................ $ -- $ .60 $ .65
Options exercisable, end of period.................................... -- 420,007 24,500
Options available for future grant.................................... -- 1,819,255 1,589,610
</TABLE>
The options vest over periods ranging from three to five years.
In connection with the Recapitalization (Note 19), options outstanding were
exchanged for options in the D&W Holdings Inc. Replacement Stock Option Plan.
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).
F-61
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. STOCK OPTIONS: (CONTINUED)
The following table summarizes information about stock options and warrants
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER 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 FASB issued FASB Statement No. 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 1998, 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
(loss) for the period ended October 2, 1998 and the years ended December 31,
1997 and 1996 would have been $(4,880), $6,105 and $3,934, respectively.
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
F-62
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
17. EMPLOYEE BENEFIT PLANS: (CONTINUED)
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 period ended October 2, 1998 and 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.
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>
DECEMBER 31,
OCTOBER 2, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Net sales................................................... $ 30,232 $ 20,162 $ 5,020
Gross profit................................................ 10,797 8,374 2,289
Net income from continuing operations....................... 2,054 1,495 561
</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.
F-63
<PAGE>
ATRIUM COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
19. SUBSEQUENT EVENTS:
On August 3, 1998, D and W ("Parent"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Atrium Corporation ("Corp"), the parent
company of the Company and other necessary parties to acquire all of the
outstanding capital stock of Corp for $225.0 million, through a series of
transactions (the "Recapitalization") described below. Corp owned 100% of the
outstanding capital stock of the Company prior to the Merger discussed below. GE
Investment Private Placement Partners II, a limited partnership ("GEIPPPII"),
and Ardatrium L.L.C. ("Ardatrium") formed Parent by acquiring all of its
outstanding common stock for an aggregate purchase price of $50.0 million.
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 Corp by Parent was effected through the merger on October
2, 1998 of a wholly owned subsidiary of Parent, with and into Corp (the
"Merger") pursuant to the terms of the Merger Agreement. Prior to the Merger,
Parent contributed $50.0 million to the wholly-owned subsidiary in exchange for
all of its outstanding common stock. As a result of the Merger, Corp became a
direct wholly-owned subsidiary of Parent, and the Company became an indirect
wholly owned subsidiary of Parent.
F-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................ $ 611
Accounts receivable, net......................................................................... 3,596
Inventories...................................................................................... 1,669
Prepaid expenses and other current assets........................................................ 224
-------------
Total current assets............................................................................. 6,100
PROPERTY AND EQUIPMENT, net........................................................................ 571
GOODWILL, net...................................................................................... 22,081
DEFERRED FINANCING COSTS........................................................................... 190
OTHER ASSETS....................................................................................... 25
-------------
Total assets..................................................................................... $ 28,967
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of note payable.................................................................. $ 1,150
Accounts payable................................................................................. 1,173
Accrued liabilities.............................................................................. 1,390
-------------
Total current liabilities........................................................................ 3,713
LONG-TERM LIABILITIES:
Notes payable.................................................................................... 13,663
Other long-term liabilities...................................................................... 4,000
-------------
Total liabilities................................................................................ 21,376
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 100,000 shares authorized, 58,952 issued and outstanding........... 1
Paid-in capital.................................................................................. 6,609
Retained earnings................................................................................ 981
-------------
Total stockholders' equity....................................................................... 7,591
-------------
Total liabilities and stockholders' equity....................................................... $ 28,967
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-74
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
1998 1997
----------- -----------
<S> <C> <C>
NET SALES........................................................... $ 16,081 $ 13,077
COST OF GOODS SOLD.................................................. 9,679 7,960
----------- -----------
Gross profit...................................................... 6,402 5,117
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses............ 3,157 3,256
----------- -----------
Income from operations.......................................... 3,245 1,861
INTEREST EXPENSE.................................................... (1,277) (23)
OTHER INCOME (EXPENSE), net......................................... 8 (32)
----------- -----------
Income before income taxes...................................... 1,976 1,806
PROVISION FOR INCOME TAXES.......................................... 995 --
----------- -----------
NET INCOME.......................................................... $ 981 $ 1,806
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-75
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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
Stock option compensation expense........................ -- -- 141 -- 141
Net income............................................... -- -- -- 981 981
--------- ----- --------- ----- ------
Balance, September 30, 1998................................ 58,952 $ 1 $ 6,609 $ 981 $ 7,591
--------- ----- --------- ----- ------
--------- ----- --------- ----- ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-76
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 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........................................................ $ 981 $ 1,806
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:........................................
Depreciation.................................................... 72 108
Amortization of deferred financing costs........................ 23 --
Amortization of goodwill........................................ 422 --
Amortization of discount of note payable........................ 82 --
Stock compensation expense...................................... 141 --
Loss on retirement of assets.................................... -- 29
Changes in assets and liabilities:................................
Accounts receivable, net........................................ (2,007) (937)
Inventories..................................................... (372) (288)
Prepaid expenses, deferred taxes, and other assets.............. (88) 31
Accounts payable................................................ 345 282
Accrued liabilities............................................. 151 733
----------- -----------
Net cash (used in) provided by operating activities......... (250) 1,764
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired................... (19,945) --
Purchases of property and equipment............................... (181) (103)
Proceeds from sale of assets...................................... -- 94
----------- -----------
Net cash (used in) provided by investing activities............. (20,126) (9)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable............................ 16,000 27
Payment on note payable........................................... (85)
Borrowings under revolving credit facility........................ 1,300 11,332
Payments on revolving credit facility............................. (1,300) (11,820)
Payments on short term debt....................................... (500) --
Stockholder distributions......................................... -- (1,228)
Proceeds from issuance of common stock............................ 5,700 --
Cash paid for financing costs..................................... (213) --
----------- -----------
Net cash (used in) provided by financing activities............. 20,987 (1,774)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 611 (19)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... -- 1,650
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $ 611 $ 1,631
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest........................................................ $ 1,194 $ 50
Payable to Seller............................................... 4,000 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-77
<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 nine months ended September 30, 1998 and 1997, and
financial position as of September 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-78
<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 nine months ended September 30, 1997 were
prepared for the Companies on their predecessor basis. No tax provision was
recorded for the nine months ended September 30, 1997 as the Companies were S
corporations for income tax purposes. The financial statements for the nine
months ended September 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
September 30, 1998:
<TABLE>
<S> <C>
Raw materials................................................... $ 1,502
Finished goods.................................................. 167
------
$ 1,669
------
------
</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 September 30, 1998 was $687.
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-79
<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 September 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 September 30, 1998 were $9,500 at an
approximate interest rate of 8.0%. 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 September 30, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 1,150
2000............................................................................... 1,350
2001............................................................................... 1,550
2002............................................................................... 1,600
2003............................................................................... 1,600
Thereafter......................................................................... 8,250
---------
15,500
Less unamortized discount.......................................................... (687)
---------
$ 14,813
---------
---------
</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 September 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
F-80
<PAGE>
DOOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
6. COMMON STOCK PLAN: (CONTINUED)
over a 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 September 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 became 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 were consummated October 2, 1998.
Immediately prior to the merger, the subordinated note payable and related
warrants were converted into common stock of Door.
In connection with the Merger, management exchanged 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 were
repaid and the deferred financing cost was expensed.
F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Heat, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Heat, Inc.
and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for the year ended December 31,
1998, the periods ended December 31, 1997 and May 30, 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
July 9, 1999
F-82
<PAGE>
HEAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
MARCH 31, --------- ---------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 1,143 $ 4,178 $ 1,708
Cash held in escrow.......................................................... -- -- 2,167
Accounts receivable, net of allowance of $221, $343 and $231, respectively... 5,227 6,176 5,109
Inventories.................................................................. 6,710 6,017 5,630
Prepaid expenses and other current assets.................................... 966 1,085 1,998
Deferred tax asset........................................................... 915 915 905
----------- --------- ---------
Total current assets....................................................... 14,961 18,371 17,517
PROPERTY, PLANT AND EQUIPMENT, net............................................. 8,339 8,407 7,747
GOODWILL, net.................................................................. 16,563 16,645 15,228
OTHER ASSETS................................................................... 673 760 1,024
DEFERRED FINANCING COSTS AND OTHER INTANGIBLES, net............................ 1,427 1,499 1,756
----------- --------- ---------
Total assets............................................................. $ 41,963 $ 45,682 $ 43,272
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $ 3,568 $ 2,239 $ 1,624
Accounts payable............................................................. 1,775 843 892
Accrued liabilities.......................................................... 3,975 8,655 7,213
----------- --------- ---------
Total current liabilities.................................................. 9,318 11,737 9,729
Long-term debt................................................................. 20,468 20,805 24,869
Deferred tax liability......................................................... 468 468 203
Other long-term liabilities.................................................... 309 152 --
----------- --------- ---------
Total liabilities.......................................................... 30,563 33,162 34,801
----------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A common stock--authorized 5,000,000 shares at $.01 par value; issued
and outstanding 1,312,500 shares........................................... 13 13 13
Class B common stock--authorized 1,000,000 shares at $.01 par value; no
shares issued and outstanding.............................................. -- -- --
Warrants outstanding......................................................... 146 146 146
Paid-in capital.............................................................. 5,239 5,239 5,239
Retained earnings............................................................ 6,002 7,122 3,073
----------- --------- ---------
Total stockholders' equity................................................. 11,400 12,520 8,471
----------- --------- ---------
Total liabilities and stockholders' equity............................... $ 41,963 $ 45,682 $ 43,272
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-83
<PAGE>
HEAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY THE COMPANY PREDECESSOR
---------------------------- ---------------------------- ----------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MAY 30, DECEMBER 31,
1999 1998 1998 1997 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES........................ $ 13,642 $ 12,841 $ 73,458 $ 45,549 $ 16,970 $ 45,459
COST OF GOODS SOLD............... 8,970 7,587 41,780 26,501 10,345 25,959
------------- ------------- ------------- ------------- ------------- -------------
Gross profit................. 4,672 5,254 31,678 19,048 6,625 19,500
------------- ------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Selling, delivery, general and
administrative............... 5,769 4,895 21,680 12,352 6,595 15,682
Special charges................ -- -- -- -- 785 --
Amortization expense........... 182 162 685 391 -- --
------------- ------------- ------------- ------------- ------------- -------------
Total operating expenses..... 5,951 5,057 22,365 12,743 7,380 15,682
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from
operations................. (1,279) 197 9,313 6,305 (755) 3,818
INTEREST EXPENSE, net............ 530 645 2,330 1,039 92 84
OTHER INCOME (EXPENSE)........... 29 52 (415) (176) 166 446
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before income
taxes...................... (1,780) (396) 6,568 5,090 (681) 4,180
Provision (benefit) for
income taxes............... (660) (120) 2,519 2,017 (298) 1,634
------------- ------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS)................ $ (1,120) $ (276) $ 4,049 $ 3,073 $ (383) $ 2,546
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-84
<PAGE>
HEAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ISSUED(A)
TREASURY STOCK
---------------------- PAID-IN ------------------------ WARRANTS RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT OUTSTANDING EARNINGS
--------- ----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE, December 31, 1995........ 2,011,088 $ 41 $ 430 57,876 $ (25) $ -- $ 17,684
Stock options exercised......... -- -- -- (5,300) 2 -- --
Net income...................... -- -- -- -- -- -- 2,546
--------- --- ----------- ----------- --- ----- -----------
BALANCE, December 31, 1996........ 2,011,088 41 430 52,576 (23) -- 20,230
Stock options exercised......... -- -- -- (4,463) 2 --
Net loss........................ -- -- -- -- -- -- (383)
--------- --- ----------- ----------- --- ----- -----------
BALANCE, May 30, 1997............. 2,011,088 $ 41 $ 430 48,113 $ (21) $ -- $ 19,847
--------- --- ----------- ----------- --- ----- -----------
--------- --- ----------- ----------- --- ----- -----------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
THE COMPANY
BALANCE, May 31, 1997............. -- $ -- $ -- -- $ -- $ -- $ --
Issuance of common stock........ 1,312,500 13 5,239 -- -- -- --
Issuance of warrants............ -- -- -- -- -- 146 --
Net income...................... -- -- -- -- -- -- 3,073
--------- --- ----------- ----------- --- ----- -----------
BALANCE, December 31, 1997........ 1,312,500 13 5,239 -- -- 146 3,073
Net income...................... 4,049
--------- --- ----------- ----------- --- ----- -----------
Balance, December 31, 1998........ 1,312,500 13 5,239 -- -- 146 7,122
Net loss (unaudited)............ -- -- -- -- -- -- (1,120)
--------- --- ----------- ----------- --- ----- -----------
Balance, March 31, 1999
(unaudited)..................... 1,312,500 $ 13 $ 5,239 -- $ -- $ 146 $ 6,002
--------- --- ----------- ----------- --- ----- -----------
--------- --- ----------- ----------- --- ----- -----------
<CAPTION>
TOTAL
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
PREDECESSOR
BALANCE, December 31, 1995........ $ 18,130
Stock options exercised......... 2
Net income...................... 2,546
-------------
BALANCE, December 31, 1996........ 20,678
Stock options exercised......... 2
Net loss........................ (383)
-------------
BALANCE, May 30, 1997............. $ 20,297
-------------
-------------
- ----------------------------------
- ----------------------------------
THE COMPANY
BALANCE, May 31, 1997............. $ --
Issuance of common stock........ 5,252
Issuance of warrants............ 146
Net income...................... 3,073
-------------
BALANCE, December 31, 1997........ 8,471
Net income...................... 4,049
-------------
Balance, December 31, 1998........ 12,520
Net loss (unaudited)............ (1,120)
-------------
Balance, March 31, 1999
(unaudited)..................... $ 11,400
-------------
-------------
</TABLE>
F-85
<PAGE>
HEAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY THE COMPANY PREDECESSOR
---------------------------- ---------------------------- ------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MAY 30, DECEMBER 31,
1999 1998 1998 1997 1997 1996
------------- ------------- ------------- ------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (1,120) $ (276) $ 4,049 $ 3,073 $ (383) $ 2,546
Depreciation and amortization...... 519 482 2,008 1,057 703 1,782
Amortization of deferred debt
discount......................... 5 5 21 12 -- --
Loss/(gain) on disposal of
property, plant and equipment.... -- 5 31 -- 44 (14)
Changes in assets and liabilities:
Accounts receivable.............. 949 (60) (1,067) 1,003 (391) (272)
Inventories...................... (694) (990) (387) 1,814 (784) (740)
Prepaid expenses and other
current assets................. 119 110 1,177 (1,115) (355) (341)
Deferred taxes, net.............. -- -- 255 (21)
Investments...................... -- -- -- -- 5,393 (251)
Other noncurrent assets.......... 65 -- -- -- (122) (391)
Accounts payable................. 932 521 (50) (1,405) 411 507
Accrued liabilities.............. (4,679) (400) 294 (67) 431 440
Other, net....................... (2) (70) (29) (22) --
------------- ------------- ------------- ------------- ------------- ------
Net cash (used in) provided by
operating activities......... (3,906) (673) 6,302 4,329 4,947 3,266
------------- ------------- ------------- ------------- ------------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment, net................... (271) (365) (1,700) (992) (683) (1,696)
Acquisition of Thermal and Best
Built............................ -- -- -- (30,122) -- --
Additional payment to seller....... -- (830) -- -- --
------------- ------------- ------------- ------------- ------------- ------
Net cash used in investing
activities................... (271) (365) (2,530) (31,114) (683) (1,696)
------------- ------------- ------------- ------------- ------------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Liquidation of consolidated escrow
balances......................... -- 2,167 2,167 -- -- --
Proceeds from borrowings in
connection with acquisition of
Thermal and Best Built........... -- -- -- 24,870 -- --
Borrowing/(repayment) of debt...... 1,142 (308) (3,469) (2,883) (28) (172)
Issuance of common stock........... -- -- -- 5,252 -- --
------------- ------------- ------------- ------------- ------------- ------
Net cash (used in) provided by
financing activities......... 1,142 1,859 (1,302) 27,239 (28) (172)
------------- ------------- ------------- ------------- ------------- ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (3,035) 821 2,470 454 4,236 1,398
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 4,178 1,708 1,708 1,254 5,070 3,672
------------- ------------- ------------- ------------- ------------- ------
END OF PERIOD...................... $ 1,143 $ 2,529 $ 4,178 $ 1,708 $ 9,306 5,070
------------- ------------- ------------- ------------- ------------- ------
------------- ------------- ------------- ------------- ------------- ------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for--
Interest......................... 532 595 $ 2,325 $ 1,574 $ 40 $ 84
Income taxes..................... $ 921 $ 112 $ 1,282 $ 2,202 $ 404 $ 1,255
Noncash investing and financing
activities--
Capital expenditures included in
accrued expenses............... -- $ 312 $ -- $ $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-86
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION:
Heat, Inc. (the "Company"), a Delaware corporation, was incorporated on
January 2, 1997 by HIG Capital Management and affiliated companies ("HIG") for
the purpose of acquiring and owning Thermal Industries, Inc. ("Thermal"), based
in Pittsburgh, Pennsylvania, and Best Built, Inc. ("Best Built"), based in Union
Gap, Washington. The acquisitions were consummated effective May 30, 1997. The
statements of operations for the period from January 1, 1997 to May 30, 1997 and
the year ended December 31, 1996 only include the operations of Thermal as
Thermal was deemed to be the predecessor company. The Company is engaged in the
manufacture of vinyl-framed, made-to-order windows, replacement sliding doors,
patio enclosures, vinyl porch decks and boat docks. The products are primarily
sold to remodeling or home improvement contractors for use in residential
remodeling through the Company's twenty-one branch locations. In addition,
products are also sold to wholesale distributors for use in new construction.
The purchase price of the acquisitions exceeded the fair value of the net
assets acquired by approximately $17,273. Pursuant to the terms of the Best
Built purchase agreement, the Company made an additional payment of $830 during
1998. In addition, in January 1999, the Company reached a settlement with
shareholders dissenting to the merger. The settlement amount exceeded the
previously recorded liability by approximately $673. Refer to Note 9 for further
discussion.
2. SIGNIFICANT ACCOUNTING POLICIES:
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 may differ from previously estimated amounts.
The consolidated financial information as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999 is unaudited. In the opinion of
management, the accompanying unaudited consolidated financial information and
related notes thereto contain all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
information as of March 31, 1999 and the operating results and cash flows for
the three months ended March 31, 1999 and 1998. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
BASIS OF CONSOLIDATION
The accounts of the Company and its wholly-owned subsidiaries are included
in the consolidated financial statements. All significant intercompany accounts
and transactions have been eliminated in consolidation. The reference to the
periods ended December 31, 1997 and May 30, 1997 used throughout these
consolidated financial statements, refer to the periods May 31, 1997 through
December 31, 1997 and January 1, 1997 through May 30, 1997, respectively.
F-87
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INDUSTRY SEGMENT
The Company operates in a single industry segment, the fabrication and
distribution windows and related components.
REVENUE RECOGNITION
The Company manufactures the products noted above and provides separate
installation services for customers that request such services under sales
contracts that may require cash deposits. The Company records the sale of
products upon transfer of title to the customer, which typically occurs upon
shipment, and records revenue from installation projects when the projects are
complete.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
ninety days or less when purchased to be cash equivalents.
ADVERTISING COSTS
Advertising costs are expensed when incurred and were $185, $68, $61, and
$80 for the year ended December 98, the periods ended December 31, 1997 and May
30, 1997, and the year ended December 31, 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 various regions of the United States. 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. No customers
accounted for approximately 10% of gross sales for the year ended December 31,
1998, the periods ended December 31, 1997 and May 30, 1997 and the year ended
December 31, 1996.
INVENTORIES
Inventories are carried at the lower of first-in, first-out (FIFO) cost or
market and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
MARCH 31, --------- ---------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................................ $ 4,012 $ 3,948 $ 3,586
Work-in-process.............................................. 69 69 73
Finished goods............................................... 2,629 2,000 1,971
----------- --------- ---------
$ 6,710 $ 6,017 $ 5,630
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-88
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
MARCH 31, --------- ---------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and benefits................................. $ 2,125 $ 2,339 $ 1,781
Accrued income taxes......................................... 92 900 56
Reserve for litigation settlement............................ -- 2,840 2,167
Other accrued liabilities.................................... 1,758 2,576 3,209
----------- --------- ---------
$ 3,975 $ 8,655 $ 7,213
----------- --------- ---------
----------- --------- ---------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions and improvements
of significant items are capitalized while expenditures for maintenance and
repairs are charged to operations as incurred. Provisions for depreciation are
computed principally by the straight-line method based upon the estimated useful
lives of the assets. Property, plant and equipment balances and useful lives are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIATION --------------------
PERIOD 1998 1997
-------------- --------- ---------
<S> <C> <C> <C>
Land...................................................... N/A $ 334 $ 334
Buildings and improvements................................ 39.5 years 1,522 1,522
Furniture and office equipment............................ 3-7 years 643 471
Machinery and equipment................................... 5-20 years 5,170 4,055
Autos and trucks.......................................... 3-10 years 1,082 934
Leasehold improvements.................................... Life of lease 703 634
Construction-in-progress.................................. N/A 912 459
--------- ---------
10,366 8,409
Less accumulated depreciation............................. (1,959) (662)
--------- ---------
Property, plant and equipment, net........................ $ 8,407 $ 7,747
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the year ended December 31, 1998, the periods ended
December 31, 1997 and May 30, 1997, and the year ended December 31, 1996 was
$1,321, $662, $703 and $1,782, respectively.
NONCOMPETE AND CONSULTING AGREEMENTS
In connection with the acquisition of Best Built, the seller agreed not to
compete with the Company for a period of five years in exchange for an initial
payment of $150 and an additional payment of $125 during 1998. The cost of this
agreement is being amortized using the straight-line method over its five-year
contractual life. Additionally, the seller is being retained as a consultant for
the Company through May 29, 1999, subject to extension upon mutual agreement of
the Company and the seller.
F-89
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
GOODWILL
Goodwill is being amortized over forty years on a straight-line basis.
Accumulated amortization was approximately $628 and $229 at December 31, 1998
and 1997, respectively. It is the Company's policy to review goodwill (and other
intangible assets) for possible impairment on the basis of whether the carrying
amount of such assets is fully recoverable from projected undiscounted net cash
flows from the related business. If such review indicates that the carrying
amount of goodwill and other intangible assets is not recoverable, then the
Company's policy is to reduce the carrying amount of such assets to fair value.
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. Since
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, accounts receivable, accounts payable, and other
current liabilities--The carrying amounts reported in the balance sheet for
these accounts approximate the fair value due to their short maturities.
Long-term debt--The fair value of the Company's debt approximates the
carrying value since interest rates are variable for the maturity of the
debt. Management believes the fixed rate debt is consistent with other
financial instruments of similar rating and risk.
TREASURY STOCK
Treasury stock represents stock held principally for sale and issuance to
employees. Purchases of treasury stock are recorded at cost. Sales of treasury
stock are valued using the weighted average method. All treasury stock was
eliminated as part of the acquisition of Thermal and Best Built by the Company.
F-90
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. LONG-TERM DEBT:
Long-term debt outstanding consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Unsecured note payable, 8.00% interest, principal payable in its entirety on
May 29, 2000.............................................................. $ 1,500 $ 1,500
Pennsylvania Economic Development Financing Authority ("PEDFA") bonds,
variable interest rate (recent interest rates ranging from 2.40% to
3.15%), principal payable $100 annually through November 2004, with a $500
payment due November 2005................................................. 1,100 1,200
Pennsylvania Industrial Development Authority ("PIDA") mortgage note, 3%
interest, principal and interest payable in monthly installments of $8
through July 2006......................................................... 653 723
Nations Credit Term Loan A, variable interest rate of 4.25% plus the
Commercial Paper Rate (total rate of 9.17% at December 31, 1998),
principal payable in quarterly installments through May 30, 2003.......... 14,941 18,212
Nations Credit Term Loan B, variable interest rate of 6.50% plus the
Commercial Paper Rate (total rate of 11.42% at December 31, 1998),
principal payable in its entirety throughout the 12 months ended May 30,
2004...................................................................... 4,700 4,700
Various capital lease obligations at interest rates ranging from 10.91% to
24.20% due in installments through 2003................................... 263 292
--------- ---------
23,157 26,627
Less--
Deferred debt discount.................................................... (113) (134)
Current portion of long-term debt......................................... (2,239) (1,624)
--------- ---------
$ 20,805 $ 24,869
--------- ---------
--------- ---------
</TABLE>
Annual principal payments required under long-term debt obligations are as
follows:
<TABLE>
<S> <C>
1999............................................................... $ 2,239
2000............................................................... 4,266
2001............................................................... 3,426
2002............................................................... 4,124
2003............................................................... 4,163
Thereafter......................................................... 4,939
---------
$ 23,157
---------
---------
</TABLE>
Debt issuance costs of approximately $1,204 were incurred in 1997 in
connection with the Nations Credit agreement. In connection with the borrowings,
warrants were issued to the lender to purchase 98,790 shares. The estimated
value of those warrants of approximately $146 has been recorded as deferred debt
discount and warrants outstanding. Amortization of the Nations Credit deferred
financing costs and other intangible assets approximated $286 and $165 for the
year ended December 31, 1998 and the period ended December 31, 1997,
respectively.
F-91
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. LONG-TERM DEBT: (CONTINUED)
The Company maintains a $1,300 letter of credit and a $7,500 working capital
facility with Nations Credit. At December 31, 1998 and 1997, no amounts were
outstanding under these facilities.
The Company is required to meet certain financial and other covenants in
connection with the above obligations, including, among others, restrictions on
new indebtedness, liens, minimum earnings before interest, taxes, depreciation
and amortization, debt coverage and capital expenditures. The Company was in
compliance with all of these covenants as of December 31, 1998. In addition, the
obligations contain mandatory incremental prepayments if certain conditions are
met such as, excess cash flow requirements (as defined), an equity transaction,
or an asset sale. In connection therewith, the company paid $0, $1,853, $0 and
$0 under these provisions for the year ended December 31, 1998, the periods
ended December 31, 1997 and May 30, 1997 and the year ended December 31, 1996,
respectively.
4. EMPLOYEE BENEFIT PLAN:
Thermal maintains a qualified 401(k) and profit-sharing plan covering
substantially all of its employees. Under the terms of the plan, the Company may
contribute up to 25% of the first 8% of each employee's compensation contributed
and may also make discretionary contributions to the plan. Total expense
recorded by the Company was approximately $710, $687, $278 and $534 for the year
ended December 31, 1998, the periods ended December 31, 1997 and May 30, 1997
and the year ended December 31, 1996, respectively.
During 1998, Best Built implemented a qualified 401(k) plan. Under the terms
of the plan, the Company may contribute up to 25% of the first 8% of each
employee's compensation contributed. The total expense recorded by Best Built
was $8 for the year ended December 31, 1998.
5. INCOME TAXES:
The Company records the effect of income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS No.
109), ACCOUNTING FOR INCOME TAXES. Taxes on income, as shown in the accompanying
consolidated statements of operations, include the following components:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------ --------------------------
PERIOD
YEAR ENDED ENDED YEAR ENDED
DECEMBER DECEMBER PERIOD ENDED DECEMBER
31, 31, MAY 30, 31,
1998 1997 1997 1996
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Current provision (benefit):
Federal.................................. $ 2,202 $ 1,765 $ 15 $ 1,403
State.................................... 254 273 95 227
----------- ----------- ----- -----------
Total current provision................ 2,456 2,038 110 1,630
Deferred provision (benefit)............... 63 (21) (408) 4
----------- ----------- ----- -----------
Total provision (benefit).............. $ 2,519 $ 2,017 $ (298) $ 1,634
----------- ----------- ----- -----------
----------- ----------- ----- -----------
</TABLE>
F-92
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. INCOME TAXES: (CONTINUED)
The income tax rate on income before taxes differs from the federal
statutory rate for the following reasons:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------ ------------------------
PERIOD
YEAR ENDED ENDED PERIOD YEAR ENDED
DECEMBER DECEMBER ENDED DECEMBER
31, 31, MAY 30, 31,
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax provision based on the federal
statutory rate........................... $ 2,235 $ 1,715 $ (231) $ 1,421
State income taxes, net of federal
benefit.................................. 168 232 (27) 150
Nondeductible goodwill..................... 101 58 -- --
Other...................................... 15 12 (40) 63
----------- ----------- ----------- -----------
Total provision........................ $ 2,519 $ 2,017 (298) $ 1,634
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The components of the Company's deferred tax accounts are as follows at
December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Depreciation................................................................. $ (368) $ (163)
Vacation accrual............................................................. 318 151
Accrued bonuses.............................................................. 75 136
Warranty accrual............................................................. 257 225
Inventory and bad debt reserve............................................... 199 143
Amortization of goodwill..................................................... (100) (40)
Other nondeductible accruals................................................. 66 250
--------- ---------
Net deferred tax asset....................................................... $ 447 $ 702
--------- ---------
--------- ---------
Deferred tax asset, current.................................................. $ 915 $ 905
Deferred tax liability, long-term............................................ (468) (203)
--------- ---------
$ 447 $ 702
--------- ---------
--------- ---------
</TABLE>
6. STOCKHOLDERS' EQUITY:
VOTING RIGHTS
The holders of the Class A Common Stock are entitled to one vote for each
share of stock held. The holders of Class B Common Stock are not entitled to
vote, except as otherwise required by applicable law, in which case holders of
Class B Common Stock shall vote as a single class.
DIVIDENDS AND LIQUIDATION RIGHTS
The Board of Directors of the Company may pay dividends to both the Class A
and Class B holders out of funds legally available for payments of dividends. In
the event of liquidation, the holders of Class A and Class B stock shall be
entitled to share ratably, according to the number of shares of Common Stock
held by them, in all assets of the Company available for distribution to its
stockholders.
F-93
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
6. STOCKHOLDERS' EQUITY: (CONTINUED)
CONVERSION
Each share of Class A Common Stock is convertible into one share of Class B
Common Stock, and vice versa.
7. STOCK OPTION PLANS:
In October 1984, Thermal adopted an incentive stock option plan (the "Old
Plan") for its key employees. Options granted under the Old Plan were granted
with an exercise price that equaled or exceeded fair market value of Thermal's
common stock at the date of grant.
Ten years from the date the Old Plan was adopted, the Old Plan was
terminated. However, all rights created under options granted continued until
such options were excercised or expired. In connection with acquisition of
Thermal and Best Built by the Company, all options under the Old Plan were
exercised.
On May 30, 1997, the Company adopted a stock option plan pursuant to the
Heat, Inc. 1997 Stock Purchase and Option Plan (the "Plan") for its key
employees, directors, consultants and advisers. The option plan provides for the
grant of up to 250,000 shares of common stock. Under the Plan, certain employees
have received incentive options under the Internal Revenue Service Code Section
422, while others have received nonqualified stock options in accordance with
the Plan.
Generally, all options issued under the Plan vest equally in 25% annual
increments over the four-year period subsequent to the grant date. All options
become fully vested upon a sale of the Company and must be exercised in
connection with the sale of the Company or they shall be forfeited. Options were
granted with an exercise price that equalled or exceed fair value of the
Company's common stock. Options for 22,500 shares were granted at the time of
acquisition, which vest between 1998 and 2005 based upon the Company's future
operating results. The outstanding stock options under the Plan have an average
remaining contractual life of ten years at December 31, 1998.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THE COMPANY PREDECESSOR
------------------------ ------------------------
PERIOD PERIOD
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER DECEMBER MAY 30, DECEMBER
31, 1998 31, 1997 1997 31, 1996
----------- ----------- ----------- -----------
Outstanding options, beginning of period... 86,555 -- 35,500 15,900
Granted.................................... 17,500 86,555 -- 20,000
Exercised.................................. -- -- (800) (400)
----------- ----------- ----------- -----------
Outstanding options, end of period......... 104,055 86,555 34,700 35,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average exercise price of options
exercised................................ $ -- $ -- $ 3.00 $ 3.00
Weighted average exercise price of options
granted.................................. $ 18.29 $ 4.64 $ -- $ 8.75
Weighted average exercise price, end of
period................................... $ 6.93 $ 4.64 $ 6.31 $ 6.24
Options exercisable, end of period......... 21,639 -- 28,434 29,234
Options available for future grant......... 145,945 163,445 -- --
</TABLE>
F-94
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. STOCK OPTION PLANS: (CONTINUED)
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following range of assumptions
used for option grants occurring during the year ended December 31, 1998 and the
period ended December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Volatility..................................................................................... 0% 0%
Risk-free interest rate........................................................................ 5.27% 5.81%
Expected life in years......................................................................... 5.0 5.0
Dividend yield................................................................................. 0% 0%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
- --------------- ----------- ---------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$4.00 79,055 101 $ 4.00 19,764 $ 4.00
$10.00-$12.00 17,500 107-119 $ 11.71 750 $ 11.33
$20.00 2,500 119 $ 20.00 -- --
$30.00 5,000 116 $ 30.00 -- --
-----------
104,055
</TABLE>
In October 1995, the Financial Accounting Standards Board issued STATEMENT
OF FINANCIAL ACCOUNTING STANDARD ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 encourages a fair-value based method of accounting
for employee stock options and similar equity instruments. SFAS No. 123 also
allows an entity to continue to account for stock-based employee compensation
using the intrinsic value for equity instruments using APB Opinion No. 25. As
provided for in SFAS No. 123, the Company elected to continue the intrinsic
value method of expense recognition. Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation expense for the stock
option plans been determined consistent with the provisions of SFAS No. 123, the
Company's net income for the year ended December 31, 1998, the periods ended
December 31, 1997 and May , 1997 and the year ended December , 1996 would not
have been materially different.
In connection with acquisition transactions discussed in Note 1, the Company
also sold 45,000 shares (Class A) to certain employees, at the fair market value
as determined by management and based on the value of the merger transaction.
These shares and any shares issued under the stock option plan, as described
above, are subject to certain terms and conditions including, among others,
restrictions on transfer, repurchase rights and a put feature.
In connection with the sale of the Company (see Note ), all options
outstanding under the Plan were exercised and the Plan was terminated.
8. RELATED PARTY TRANSACTIONS:
In connection with the merger, the Company agreed to pay a management fee to
HIG. These fees totaled approximately $400 and $239 for the year ended December
31, 1998 and the period ended
F-95
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. RELATED PARTY TRANSACTIONS: (CONTINUED)
December 31, 1997, respectively, and are classified as management fees in the
accompanying consolidated statements of operations.
The Company leases certain facilities in Pittsburgh, Pennsylvania from two
members of the board of directors of the Company. Rental expense for these
facilities totaled approximately $137, $78, $56 and $134 for the year ended
December 31, 1998, the periods ended December 31, 1997 and May 30, 1997 and the
year ended December 31, 1996, respectively.
9. FUTURE LEASE OBLIGATIONS:
Future minimum lease payments under operating leases for the Company's main
locations and twenty-one branch locations that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1998 are:
<TABLE>
<S> <C>
1999................................................................ $ 1,399
2000................................................................ 1,329
2001................................................................ 766
2002................................................................ 528
2003................................................................ 350
Thereafter.......................................................... 725
---------
$ 5,097
---------
---------
</TABLE>
Rental expense amounted to approximately $1,523, $685, $426 and $867 for the
year ended December 31, 1998, the periods ended December 31, 1997 and May 30,
1997 and the year ended December 31, 1996, respectively.
10. COMMITMENTS AND CONTINGENCIES:
The Company is currently a defendant in a lawsuit claiming that the Company
is liable and negligent in the design and manufacture of windows installed in a
large condominium project. The case is currently in mediation with a scheduled
trial date of May 1999. Management is of the opinion that the ultimate
resolution of this matter, after considering its insurance coverage and based on
discussions with outside legal counsel, will not have a material adverse effect
on the Company's financial condition or its results of operation.
The Company is involved in various other claims and litigation incidental to
the conduct of its business. Based on consultation with legal counsel,
management does not believe that any claims or litigation to which the Company
is a party will have a material adverse effect on the Company" financial
condition or results of operations.
11. SPECIAL CHARGES:
Included in special charges in the Consolidated Statement of Operations for
the period ended May , 1997 are transportation expenses (primarily consisting of
legal and investment banker fees) paid by Thermal totaling $785.
F-96
<PAGE>
HEAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. THERMAL AND BEST BUILT TRANSACTIONS:
On May 30, 1997, the Company acquired all of the common stock of Thermal and
Best Built. The components of the purchase price are as follows:
<TABLE>
<S> <C>
Cash and cash equivalents.......................................................... $ 1,254
Accounts receivable, net........................................................... 6,212
Inventories........................................................................ 7,344
Prepaid expenses and other current assets.......................................... 1,542
Property, plant and equipment...................................................... 7,050
Goodwill........................................................................... 15,960
Other long term assets............................................................. 1,301
Current liabilities................................................................ (7,467)
Long-term liabilities.............................................................. (3,074)
---------
Total purchase price............................................................. $ 30,122
---------
---------
</TABLE>
The purchase price of $30,122 was financed with net debt proceeds of
$24,870.
13. SUBSEQUENT EVENT:
In connection with the acquisition of Thermal by the Company, certain
shareholders of Thermal exercised their rights to dissent from the merger and to
demand payment of the fair value of their shares. Pursuant to the terms of the
merger, each share of Thermal stock was converted into the right to receive a
cash payment per share, based on the price per share accepted by the
nondissenting shareholders. The dissenting shareholders asserted that they have
certain rights to seek appraisals of the fair value of their shares. In the
aggregate, the dissenting shareholders were the beneficial owners of 144,186
shares of Thermal. On January 22, 1999, the Company entered into a Settlement
and Release Agreement with the dissenting shareholders to pay $2,840 in exchange
for all their shares held. A liability for $2,167 reflecting the anticipated
settlement amount had been previously recorded in the accompanying consolidated
balance sheet at December 31, 1997. As a result of the final settlement of this
matter, the liability was increased to $2,840 and was paid out in January 1999.
This additional amount was reflected as an increase to goodwill.
In connection with the Best Built acquisition, the Company paid the seller
an additional $830 in 1998 as a result of Best Built achieving a defined gross
profit level for the 12-month period ended May 31, 1998. This additional amount
was reflected as an increase to goodwill.
On April 20, 1999, the Company was acquired by Atrium Companies, Inc., a
company engaged in the manufacture and sales of doors, windows, and various
building materials throughout the United States, for approximately $85,000.
F-97
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Atrium Companies, Inc.
Our audits of the financial statements of Atrium Companies, Inc. and
subsidiaries, Atrium Companies, Inc. and subsidiaries (previous registrant),
R.G. Darby Company, Inc. and Total Trim, Inc. and Heat, Inc. referred to in our
reports dated April 4, 1999 (except for Note 18 which is as of May 17, 1999),
June 25, 1999, September 24, 1998, and July 9, 1999, respectively, appearing in
this Registration Statement also included an audit of the related financial
statement schedules. In our opinion, these financial statement schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
April 4, 1999 (except for Note 18 is as of May 17, 1999),
June 25, 1999, September 24, 1998 and July 9, 1999
F-98
<PAGE>
ATRIUM COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1)
BALANCE AT CHARGED TO COLUMN D - COLUMN E -
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS(A) END OF PERIOD
- --------------------------------------------------------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................................. $ 0 $ 1,561 $ (731) $ 830
Year ended December 31, 1997................................. $ 830 $ 1,791 $ (1,896) $ 725
Year ended December 31, 1998................................. $ 725 $ 227 $ (174) $ 778
</TABLE>
- --------------------------
(a) net of recoveries
F-99
<PAGE>
ATRIUM COMPANIES, INC. (PREVIOUS REGISTRANT)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C - ADDITIONS
--------------------------
COLUMN B - (1) (2)
BALANCE AT CHARGED TO ACQUIRED COLUMN D - COLUMN E -
BEGINNING COSTS AND THROUGH DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES ACQUISITION WRITE-OFFS(A) END OF PERIOD
- ---------------------------------------------------- ------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995...................... $ 1,300 $ 486 $ -- $ (631) $ 1,155
Year ended December 31, 1996...................... $ 1,155 $ 49 $ 237 $ 56 $ 1,497
Year ended December 31, 1997...................... $ 1,497 $ 480 $ 250 $ (1,619) $ 608
Period ended October 2, 1998...................... $ 608 $ 195 $ -- $ (12) $ 791
</TABLE>
- --------------------------
(a) net of recoveries
F-100
<PAGE>
R.G. DARBY COMPANY, INC. AND TOTAL TRIM, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1)
BALANCE AT CHARGED TO COLUMN D - COLUMN E -
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS(A) END OF PERIOD
- --------------------------------------------------------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................................. $ 0 $ 183 $ (117) $ 66
Year ended December 31, 1997................................. $ 66 $ 154 $ (45) $ 175
</TABLE>
- --------------------------
(a) net of recoveries
F-101
<PAGE>
HEAT, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C -
ADDITIONS
-------------
COLUMN B - (1)
BALANCE AT CHARGED TO COLUMN D - COLUMN E -
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
COLUMN A - DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS(A) END OF PERIOD
- --------------------------------------------------------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................................. $ 101 $ 133 $ (51) $ 183
Period ended May 30, 1997.................................... $ 183 $ 119 $ (173) $ 129
Period ended December 31, 1997............................... $ 129 $ 105 $ (3) $ 231
Year ended December 31, 1998................................. $ 231 $ 123 $ (11) $ 343
</TABLE>
- --------------------------
(a) net of recoveries
F-102
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS EXCHANGE
OFFER OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
[LOGO]
ATRIUM COMPANIES, INC.
OFFER TO EXCHANGE
10 1/2% SENIOR SUBORDINATED NOTES DUE
2009, SERIES A
FOR ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE
2009, SERIES B
---------------------
PROSPECTUS
---------------------
JULY , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION UNDER THE BY-LAWS OF ATRIUM
The By-Laws of Atrium authorize Atrium to pay or reimburse any of its
present or former directors or officers for any costs or expenses actually and
necessarily incurred by any such director or officer in any action, suit or
proceeding to which such person is made a party by reason of his or her holding
such position. However, no director or officer will be entitled to receive any
indemnification if such director or officer is finally adjudicated to be liable
for negligence or misconduct in office. The indemnification should also extend
to good faith expenditures incurred in anticipation of or preparation for
threatened or proposed litigation. In addition, the By-Laws authorize Atrium to
extend the indemnification to cover the good faith settlement of any such
action, suit or proceeding.
INDEMNIFICATION AGREEMENTS
Pursuant to indemnification agreements entered into with certain of its
officers, Atrium agreed to indemnify such officers to the full extent permitted
by law, and to advance expenses, if either of them 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 director, officer, employee, agent or fiduciary of Atrium, Atrium's
subsidiary or, at Atrium's request, another entity's, unless a reviewing party,
either outside counsel or a director or directors appointed by Atrium's board of
directors, determines that the person would not be entitled to indemnification
under applicable law.
INDEMNIFICATION UNDER THE DELAWARE GENERAL CORPORATION LAW
Section 145 of the Delaware General Corporation Law (the "DGCL"), authorizes
a corporation to indemnify any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding, if the person
acted in good faith and in a manner the person reasonably believed to be in, or
not opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. In addition, the DGCL does not permit indemnification in
any threatened, pending or completed action or suit by or in the right of the
corporation in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses, which such court shall deem proper. To the extent
that a present or former director or officer of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by such person in connection therewith.
Indemnity is mandatory to the extent a claim, issue or matter has been
successfully defended. The DGCL also allows a corporation to provide for the
elimination or limit of the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (1) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3) for
unlawful payments of dividends or unlawful stock purchases or redemptions, or
(4) for any
II-1
<PAGE>
transaction from which the director derived an improper personal benefit. These
provisions will not limit the liability of directors or officers under the
federal securities laws of the United States.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS
<TABLE>
<C> <S>
1.1 Purchase Agreement, dated as of May 10, 1999, by and among Atrium Companies, Inc.,
the Guarantors named therein and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated(6)
1.2 Joinder Agreement to Purchase Agreement, dated as of May 10, 1999, by and among
Heat, Inc., H.I.G. Vinyl, Inc., Champagne Industries, Inc., Thermal Industries,
Inc., Best Built, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated(6)
2.1 Asset Purchase Agreement, dated as of March 4, 1998, among Masterview Window Company
LLC, Atrium Companies, Inc. and, for the limited purposes set forth therein,
BancBoston Ventures, Inc.(3)
2.2 Agreement and Plan of Merger by and among D and W Holdings, Inc., D and W
Acquisition Corp., Atrium Corporation, and the securityholders named therein dated
as of August 3, 1998(4)
2.3 Amendment No. 1, dated as of October 2, 1998, to the Agreement and Plan of Merger by
and among D and W Holdings, Inc., D and W Acquisition Corp., Atrium Corporation
and the securityholders named therein(5)
2.4 Amendment No. 2, dated as of April 14, 1999, to the Agreement and Plan of Merger by
and among D and W Holdings, Inc., D and W Acquisition Corp., Atrium Corporation
and the securityholders named therein(5)
2.5 Stock Purchase Agreement, dated as of May 10, 1999, among Champagne Industries, Inc.
and Atrium Companies, Inc.(6)
2.6 Stock Purchase Agreement, dated as of April 20, 1999, among Heat, Inc., shareholders
and optionholders named therein, H.I.G. Vinyl, Inc., H.I.G. Investment Fund, L.P.,
H.I.G. Capital Management, Inc. and Atrium Companies, Inc.(6)
2.7 Amendment No. 1, dated as of May 17, 1999, to the Stock Purchase Agreement dated, as
of April 20, 1999, among Heat, Inc., shareholders and optionholders named therein,
H.I.G. Vinyl, Inc., H.I.G. Investment Fund, L.P., H.I.G. Capital Management, Inc.
and Atrium Companies, Inc.(6)
3.1 Certificate of Incorporation of Atrium Companies, Inc., as amended(1)
3.2 Bylaws of Atrium Companies, Inc.(1)
3.3 Certificate of Incorporation of Bishop Manufacturing Co. of New York, Inc.
(presently known as Atrium Door and Window Company of New York)(1)
3.4 Bylaws of Bishop Manufacturing Co. of New York, Inc. (presently known as Atrium Door
and Window Company of New York)(1)
3.5 Amendment to Certificate of Incorporation for Atrium Door and Window Company of New
York (formerly Bishop Manufacturing Company of New York, Inc.)(1)
3.6 Certificate of Incorporation of Bishop Manufacturing Company, Incorporated
(presently known as Atrium Door and Window Company of the Northeast)(1)
3.7 Bylaws of Bishop Manufacturing Company, Incorporated (presently known as Atrium Door
and Window Company of the Northeast)(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
3.8 Amendment to Certificate of Incorporation for Atrium Door and Window Company of the
Northeast (formerly Bishop Manufacturing Company, Incorporated)(1)
3.9 Certificate of Incorporation of Bishop Manufacturing Company of New England, Inc.
(presently known as Atrium Door and Window Company of New England, Inc.)(1)
3.10 Bylaws of Bishop Manufacturing Company of New England, Inc. (presently known as
Atrium Door and Window Company of New England, Inc.)(1)
3.11 Amendment to Certificate of Incorporation for Atrium Door and Window Company of the
New England, Inc. (formerly Bishop Manufacturing Company of New England, Inc.)(1)
3.12 Articles of Incorporation of H-R Window Supply, Inc. (presently known as Atrium Door
and Window Company--West Coast)(1)
3.13 Bylaws of H-R Window Supply, Inc. (presently known as Atrium Door and Window
Company--West Coast)(1)
3.14 Amendment to Certificate of Incorporation for Atrium Door and Window Company--West
Coast (formerly H-R Window Supply, Inc.)(1)
3.15 Certificate of Incorporation of Atrium Door and Window Company of Arizona(7)
3.16 Bylaws of Atrium Door and Window Company of Arizona(7)
3.17 Certificate of Incorporation of Door Holdings, Inc.(7)
3.18 Bylaws of Door Holdings, Inc.(7)
3.19 Articles of Incorporation of R. G. Darby Company, Inc.(7)
3.20 Bylaws of R. G. Darby Company, Inc.(7)
3.21 Certificate of Incorporation of R. G. Darby Company--South(7)
3.22 Bylaws of R. G. Darby Company--South(7)
3.23 Articles of Incorporation of Total Trim, Inc.(7)
3.24 Bylaws of Total Trim, Inc.(7)
3.25 Articles of Incorporation of Total Trim, Inc.--South(7)
3.26 Bylaws of Total Trim, Inc.--South(7)
3.27 Certificate of Incorporation of Wing Industries Holdings, Inc.(7)
3.28 Bylaws of Wing Industries Holdings, Inc.
3.29 Articles of Incorporation of Wing Industries, Inc.(7)
3.30 Bylaws of Wing Industries, Inc.(7)
3.31 Certificate of Incorporation of Heat, Inc.(7)
3.32 Bylaws of Heat, Inc.(7)
3.33 Certificate of Incorporation of H.I.G. Vinyl, Inc.(7)
3.34 Bylaws of H.I.G. Vinyl, Inc.(7)
3.35 Articles of Incorporation of Champagne Industries, Inc.(7)
3.36 Bylaws of Champagne Industries, Inc.(7)
3.37 Certificate of Incorporation of Thermal Industries, Inc.(7)
3.38 Bylaws of Thermal Industries, Inc.(7)
3.39 Certificate of Incorporation of Best Built, Inc.(7)
3.40 Bylaws of Best Built, Inc.(7)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
4.1 Indenture, dated as of May 17, 1999, by and among Atrium Companies, Inc., the
Guarantors named therein and the State Street Bank and Trust Company(6)
4.2 Registration Rights Agreement, dated as May 17, 1999, by and among Atrium Companies,
Inc., the Guarantors named therein and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated(6)
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding legality(7)
10.1 Employment Agreement between Atrium Companies, Inc. and Louis W. Simi, Jr. dated as
of January 1, 1998(2)
10.2 Atrium Lease Agreement, as amended(1)
10.3 H-R Windows Lease Agreement(1)
10.4 First Amendment to the H-R Windows Lease Agreement(2)
10.5 Second Amendment to the Atrium Lease Agreement(2)
10.6 Stockholders Agreement, dated as of October 2, 1998, by and among D and W Holdings,
Inc., and the stockholders signatory thereto(4)
10.7 Credit Agreement, dated as of October 2, 1998, by and among Atrium Companies, Inc.,
as Borrower, D and W Holdings, Inc., 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(4)
10.8 Amendment and Consent No. 1, dated as of May 5, 1999, to the Credit Agreement, dated
as of October 2, 1998, by and among Atrium Companies, Inc., D and W Holdings,
Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
BankBoston(6)
10.9 Amendment No. 2, dated as of June 11, 1999, to the Credit Agreement dated as of
October 2, 1998, by and among Atrium Companies, Inc., D and W Holdings, Inc.,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
BankBoston(6)
10.10 Management Agreement, dated as of October 2, 1998, by and among Ardshiel, Inc., D
and W Holdings, Inc., Atrium Corporation and Atrium Companies, Inc.(5)
10.11 Amended and Restated Management Agreement, dated as of May 17, 1999, by and among
Ardshiel, Inc., D and W Holdings, Inc., Atrium Corporation and Atrium Companies,
Inc.(6)
10.12 Employment Agreement, dated as of October 2, 1998, by and between D and W Holdings,
Inc., Jeff L. Hull and Atrium Companies, Inc.(5)
10.13 Employment Agreement, dated as of October 2, 1998, by and between D and W Holdings,
Inc., R. L. Gilmer and Wing Industries, Inc.(5)
10.14 Amendment to Employment Agreement, by and between D and W Holdings, Inc., R. L.
Gilmer(7)
10.15 Employment Agreement, dated as of January 8, 1998, by and between Door Holdings,
Inc. and Cliff Darby(5)
10.16 Buy-Sell Agreement, dated as of October 2, 1998, by and among D and W Holdings,
Inc., GE Investment Private Placement Partners II and R. L. Gilmer(5)
10.17 Buy-Sell Agreement, dated as of October 2, 1998, by and among D and W Holdings,
Inc., GE Investment Private Placement Partners II and Cliff Darby(5)
10.18 D and W Holdings, Inc. 1998 Stock Option Plan(5)
10.19 Amendment No. 1, dated as of May 17, 1999, to the D and W Holdings, Inc. 1998 Stock
Option Plan(6)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.20 D and W Holdings, Inc. 1998 Replacement Stock Option Plan(5)
10.21 Amendment No. 1, dated as of May 17, 1999, to the D and W Holdings, Inc. Replacement
Stock Option Plan(6)
10.22 Termination Agreement, dated as of October 2, 1998, between Atrium Corporation,
Atrium Companies, Inc., Hicks, Muse & Co. Partners, L.P. and Hicks, Muse, Tate &
Furst Incorporated(5)
10.23 Agreement and Release, dated as of March 31, 1999, by and among Randall S. Fojtasek
and D and W Holdings, Inc., Atrium Corporation, Atrium Companies, Inc., Ardshiel,
Inc., GE Investment Management Incorporated, GE Investment Private Placement
Partners II, a Limited Partnership and the parties named therein(5)
10.24 Indemnification Escrow Agreement, dated as of October 2, 1998, by and among Hicks,
Muse Fund III Incorporated, D and W Holdings, Inc. and Northwest Bank Texas,
N.A.(5)
10.25 Amendment No. 1, dated April 14, 1999, to Indemnification Escrow Agreement by and
among Hicks, Muse Fund III Incorporated, D and W Holdings, Inc. and Northwest Bank
Texas, N.A.(5)
10.26 Escrow Agreement, dated April 20, 1999, among Atrium Companies, Inc., H.I.G. Vinyl,
Inc. and Bank One, Texas, N.A.(6)
10.27 Escrow Agreement, dated May 17, 1999, among Atrium Companies, Inc., selling
stockholders named therein and Bank One, Texas, N.A.(6)
12.1 Computation of Ratio of Earnings to Fixed Charges(6)
21.1 Subsidiaries of Atrium Companies, Inc.(6)
23.1 Consent of PricewaterhouseCoopers LLP (6)
24.1 Powers of Attorney (included in part II of the Registration Statement on the
signature page)
25.1 Statement of Eligibility and Qualification (Form T-1) of State Street Bank and Trust
Company(7)
99.1 Form of Letter of Transmittal(7)
99.2 Form of Notice of Guaranteed Delivery(7)
</TABLE>
- ------------------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-4, dated April 4, 1997, SEC File No. 333-20095.
(2) Incorporated by reference from the Registrant's Report on Form 10-K, dated
March 31, 1998.
(3) Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 27, 1998 and filed on April 13, 1998.
(4) Incorporated by reference from the Registrant's Report on Form 8-K, dated
October 2, 1998 and filed on October 19, 1998.
(5) Incorporated by reference from the Registrant's Report on Form 10-K, dated
March 31, 1999 and filed on April 15, 1999.
(6) Filed herewith.
(7) To be filed by amendment.
FINANCIAL STATEMENT SCHEDULES
All financial statement schedules included herein are listed in the Index to
Financial Statements.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) Every prospectus: (i) that is filed pursuant to the immediately
preceding paragraph or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities, other than the payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by then is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Atrium
Companies, Inc. has duly caused this registration statement to be signed by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on
the 15th day of July, 1999.
<TABLE>
<S> <C> <C>
ATRIUM COMPANIES, INC.
By: /s/ JEFF L. HULL
-----------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Jeff L. Hull, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in, and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Executive Vice President,
Chief Financial Officer,
/s/ JEFF L. HULL Secretary, Treasurer and
- ------------------------------ Director (Co-Principal July 15, 1999
Jeff L. Hull Executive Officer and
Principal Financial
Officer)
Executive Vice President,
/s/ R.L. GILMER Chief Operating Officer
- ------------------------------ and Director July 15, 1999
R.L. Gilmer (Co-Principal Executive
Officer)
/s/ ERIC W. LONG Vice President, Corporate
- ------------------------------ Controller (Principal July 15, 1999
Eric W. Long Accounting Officer)
/s/ DANIEL T. MORLEY
- ------------------------------ Director July 15, 1999
Daniel T. Morley
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ROGER A. KNIGHT
- ------------------------------ Director July 15, 1999
Roger A. Knight
/s/ JAMES G. TURNER
- ------------------------------ Director July 15, 1999
James G. Turner
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
1.1 Purchase Agreement, dated as of May 10, 1999, by and among Atrium Companies,
Inc., the Guarantors named therein and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated (6)
1.2 Joinder Agreement to Purchase Agreement, dated as of May 10, 1999 by and among
Heat, Inc., H.I.G. Vinyl, Inc., Champagne Industries, Inc., Thermal
Industries, Inc., Best Built, Inc. and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated (6)
2.1 Asset Purchase Agreement, dated as of March 4, 1998, among Masterview Window
Company LLC, Atrium Companies, Inc. and, for the limited purposes set forth
herein, BancBoston Ventures, Inc. (3)
2.2 Agreement and Plan of Merger by and among D and W Holdings, Inc., D and W
Acquisition Corp., Atrium Corporation, and the securityholders named therein
dated as of August 3, 1998 (4)
2.3 Amendment No. 1, dated as of October 2, 1998, to the Agreement and Plan of
Merger by and among D and W Holdings, Inc., D and W Acquisition Corp.,
Atrium Corporation and the securityholders named therein (5)
2.4 Amendment No. 2, dated as of April 14, 1999, to the Agreement and Plan of
Merger by and among D and W Holdings, Inc., D and W Acquisition Corp.,
Atrium Corporation and the securityholders named therein (5)
2.5 Stock Purchase Agreement, dated as of May 10, 1999, among Champagne
Industries, Inc. and Atrium Companies, Inc. (6)
2.6 Stock Purchase Agreement, dated as of April 20, 1999, among Heat, Inc.,
shareholders and optionholders named therein, H.I.G. Vinyl, Inc., H.I.G.
Investment Fund, L.P., H.I.G. Capital Management, Inc. and Atrium Companies,
Inc. (6)
2.7 Amendment No. 1, dated as of May 17, 1999, to the Stock Purchase Agreement
dated, as of April 20, 1999, among Heat, Inc., shareholders and
optionholders named therein, H.I.G. Vinyl, Inc., H.I.G. Investment Fund,
L.P., H.I.G. Capital Management, Inc. and Atrium Companies, Inc. (6)
3.1 Certificate of Incorporation of Atrium Companies, Inc., as amended (1)
3.2 Bylaws of Atrium Companies, Inc. (1)
3.3 Certificate of Incorporation of Bishop Manufacturing Co. of New York, Inc.
(presently known as Atrium Door and Window Company of New York)(1)
3.4 Bylaws of Bishop Manufacturing Co. of New York, Inc. (presently known as
Atrium Door and Window Company of New York)(1)
3.5 Amendment to Certificate of Incorporation for Atrium Door and Window Company
of New York (formerly Bishop Manufacturing Company of New York, Inc.)(1)
3.6 Certificate of Incorporation of Bishop Manufacturing Company, Incorporated
(presently known as Atrium Door and Window Company of the Northeast)(1)
3.7 Bylaws of Bishop Manufacturing Company, Incorporated (presently known as
Atrium Door and Window Company of the Northeast)(1)
3.8 Amendment to Certificate of Incorporation for Atrium Door and Window Company
of the Northeast (formerly Bishop Manufacturing Company, Incorporated)(1)
3.9 Certificate of Incorporation of Bishop Manufacturing Company of New England,
Inc. (presently known as Atrium Door and Window Company of New England,
Inc.)(1)
3.10 Bylaws of Bishop Manufacturing Company of New England, Inc. (presently known
as Atrium Door and Window Company of New England, Inc.)(1)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
3.11 Amendment to Certificate of Incorporation for Atrium Door and Window Company
of the New England, Inc. (formerly Bishop Manufacturing Company of New
England, Inc.)(1)
3.12 Articles of Incorporation of H-R Window Supply, Inc. (presently known as
Atrium Door and Window Company--West Coast)(1)
3.13 Bylaws of H-R Window Supply, Inc. (presently known as Atrium Door and Window
Company--West Coast)(1)
3.14 Amendment to Certificate of Incorporation for Atrium Door and Window Company--
West Coast (formerly H-R Window Supply, Inc.)(1)
3.15 Certificate of Incorporation of Atrium Door and Window Company of Arizona(7)
3.16 Bylaws of Atrium Door and Window Company of Arizona(7)
3.17 Certificate of Incorporation of Door Holdings, Inc.(7)
3.18 Bylaws of Door Holdings, Inc.(7)
3.19 Articles of Incorporation of R. G. Darby Company, Inc.(7)
3.20 Bylaws of R. G. Darby Company, Inc.(7)
3.21 Certificate of Incorporation of R. G. Darby Company--South(7)
3.22 Bylaws of R. G. Darby Company--South(7)
3.23 Articles of Incorporation of Total Trim, Inc.(7)
3.24 Bylaws of Total Trim, Inc.(7)
3.25 Articles of Incorporation of Total Trim, Inc.--South(7)
3.26 Bylaws of Total Trim, Inc.--South(7)
3.27 Certificate of Incorporation of Wing Industries Holdings, Inc.(7)
3.28 Bylaws of Wing Industries Holdings, Inc.
3.29 Articles of Incorporation of Wing Industries, Inc.(7)
3.30 Bylaws of Wing Industries, Inc.(7)
3.31 Certificate of Incorporation of Heat, Inc.(7)
3.32 Bylaws of Heat, Inc.(7)
3.33 Certificate of Incorporation of H.I.G. Vinyl, Inc.(7)
3.34 Bylaws of H.I.G. Vinyl, Inc.(7)
3.35 Articles of Incorporation of Champagne Industries, Inc.(7)
3.36 Bylaws of Champagne Industries, Inc.(7)
3.37 Certificate of Incorporation of Thermal Industries, Inc.(7)
3.38 Bylaws of Thermal Industries, Inc.(7)
3.39 Certificate of Incorporation of Best Built, Inc.(7)
3.40 Bylaws of Best Built, Inc.(7)
4.1 Indenture, dated as of May 17, 1999, by and among Atrium Companies, Inc., the
Guarantors named therein and the State Street Bank and Trust Company (6)
4.2 Registration Rights Agreement, dated as May 17, 1999, by and among Atrium
Companies, Inc., the Guarantors named therein and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated (6)
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding legality (7)
10.1 Employment Agreement between Atrium Companies, Inc. and Louis W. Simi, Jr.
dated as of January 1, 1998 (2)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.2 Atrium Lease Agreement, as amended (1)
10.3 H-R Windows Lease Agreement (1)
10.4 First Amendment to the H-R Windows Lease Agreement (2)
10.5 Second Amendment to the Atrium Lease Agreement (2)
10.6 Stockholders Agreement, dated as of October 2, 1998, by and among D and W
Holdings, Inc., and the stockholders signatory thereto (4)
10.7 Credit Agreement, dated as of October 2, 1998, by and among Atrium Companies,
Inc., as Borrower, D and W Holdings, Inc., 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 (4)
10.8 Amendment and Consent No. 1, dated as of May 5, 1999, to the Credit Agreement,
dated as of October 2, 1998, by and among Atrium Companies, Inc., D and W
Holdings, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and BankBoston (6)
10.9 Amendment No. 2, dated as of June 11, 1999, to the Credit Agreement dated as
of October 2, 1998, by and among Atrium Companies, Inc., D and W Holdings,
Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and BankBoston (6)
10.10 Management Agreement, dated as of October 2, 1998, by and among Ardshiel,
Inc., D and W Holdings, Inc., Atrium Corporation and Atrium Companies, Inc.
(5)
10.11 Amended and Restated Management Agreement, dated as of May 17, 1999, by and
among Ardshiel, Inc., D and W Holdings, Inc., Atrium Corporation and Atrium
Companies, Inc. (6)
10.12 Employment Agreement, dated as of October 2, 1998, by and between D and W
Holdings, Inc., Jeff L. Hull and Atrium Companies, Inc. (5)
10.13 Employment Agreement, dated as of October 2, 1998, by and between D and W
Holdings, Inc., R. L. Gilmer and Wing Industries, Inc. (5)
10.14 Amendment to Employment Agreement, by and between D and W Holdings, Inc., R.
L. Gilmer (7)
10.15 Employment Agreement, dated as of January 8, 1998, by and between Door
Holdings, Inc. and Cliff Darby (5)
10.16 Buy-Sell Agreement, dated as of October 2, 1998, by and among D and W
Holdings, Inc., GE Investment Private Placement Partners II and R. L. Gilmer
(5)
10.17 Buy-Sell Agreement, dated as of October 2, 1998, by and among D and W
Holdings, Inc., GE Investment Private Placement Partners II and Cliff Darby
(5)
10.18 D and W Holdings, Inc. 1998 Stock Option Plan (5)
10.19 Amendment No. 1, dated as of May 17, 1999, to the D and W Holdings, Inc. 1998
Stock Option Plan (6)
10.20 D and W Holdings, Inc. 1998 Replacement Stock Option Plan (5)
10.21 Amendment No. 1, dated as of May 17, 1999, to the D and W Holdings, Inc.
Replacement Stock Option Plan (6)
10.22 Termination Agreement, dated as of October 2, 1998, between Atrium
Corporation, Atrium Companies, Inc., Hicks, Muse & Co. Partners, L.P. and
Hicks, Muse, Tate & Furst Incorporated (5)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.23 Agreement and Release, dated as of March 31, 1999, by and among Randall S.
Fojtasek and D and W Holdings, Inc., Atrium Corporation, Atrium Companies,
Inc., Ardshiel, Inc., GE Investment Management Incorporated, GE Investment
Private Placement Partners II, a Limited Partnership and the parties named
therein (5)
10.24 Indemnification Escrow Agreement, dated as of October 2, 1998, by and among
Hicks, Muse Fund III Incorporated, D and W Holdings, Inc. and Northwest Bank
Texas, N.A. (5)
10.25 Amendment No. 1, dated April 14, 1999, to Indemnification Escrow Agreement by
and among Hicks, Muse Fund III Incorporated, D and W Holdings, Inc. and
Northwest Bank Texas, N.A. (5)
10.26 Escrow Agreement, dated April 20, 1999, among Atrium Companies, Inc., H.I.G.
Vinyl, Inc. and Bank One, Texas, N.A. (6)
10.27 Escrow Agreement, dated May 17, 1999, among Atrium Companies, Inc., selling
stockholders named therein and Bank One, Texas, N.A. (6)
12.1 Computation of Ratio of Earnings to Fixed Charges (6)
21.1 Subsidiaries of Atrium Companies, Inc.(6)
23.1 Consent of PricewaterhouseCoopers LLP (6)
24.1 Powers of Attorney (included in part II of the Registration Statement on the
signature page)
25.1 Statement of Eligibility and Qualification (Form T-1) of State Street Bank and
Trust Company (7)
99.1 Form of Letter of Transmittal (7)
99.2 Form of Notice of Guaranteed Delivery (7)
</TABLE>
- ------------------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-4, dated April 4, 1997, SEC File No. 333-20095.
(2) Incorporated by reference from the Registrant's Report on Form 10-K, dated
March 31, 1998.
(3) Incorporated by reference from the Registrant's Report on Form 8-K, dated
March 27, 1998 and filed on April 13, 1998.
(4) Incorporated by reference from the Registrant's Report on Form 8-K, dated
October 2, 1998 and filed on October 19, 1998.
(5) Incorporated by reference from the Registrant's Report on Form 10-K, dated
March 31, 1999 and filed on April 15, 1999.
(6) Filed herewith.
(7) To be filed by amendment.
<PAGE>
Exhibit 1.1
================================================================================
ATRIUM COMPANIES, INC.
(a Delaware corporation)
$175,000,000
10 1/2% Senior Subordinated Notes due 2009
PURCHASE AGREEMENT
Dated: May 10, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
PURCHASE AGREEMENT........................................................1
SECTION 1. Representations and Warranties by the Issuers.........3
(a) REPRESENTATIONS AND WARRANTIES........................3
(i) Similar Offerings.................................3
(ii) Offering Memorandum...............................4
(iii) Independent Accountants...........................4
(iv) Financial Statements..............................4
(v) No Material Adverse Change in Business............4
(vi) Good Standing of the Company......................5
(vii) Good Standing of Subsidiaries.....................5
(viii) Guarantors........................................5
(ix) Capitalization....................................6
(x) Authorization of Agreement........................6
(xi) Authorization of the Indenture....................6
(xii) Authorization of the Registration Rights
Agreement.........................................6
(xiii) Authorization of the Securities...................7
(xiv) Authorization of the Bank Amendment...............8
(xv) Description of the Operative Documents
and the Credit Agreement..........................8
(xvi) Absence of Defaults and Conflicts.................8
(xvii) Absence of Labor Dispute..........................9
(xviii) Absence of Proceedings............................9
(xix) Possession of Intellectual Property...............9
(xx) Absence of Further Requirements..................10
(xxi) Possession of Licenses and Permits...............10
(xxii) Title to Property................................11
(xxiii) Environmental Laws...............................11
(xxiv) ERISA Compliance.................................12
(xxv) Tax Returns......................................12
(xxvi) Insurance........................................12
(xxvii) Solvency.........................................13
(xxviii) Contracts........................................13
(xxix) Statistical Market-Related Data..................13
-i-
<PAGE>
Page
(xxx) Compliance with Florida Act......................13
(xxxi) Investment Company Act...........................13
(xxxii) Rule 144A Eligibility............................13
(xxxiii) No General Solicitation..........................14
(xxxiv) No Registration Required.........................14
(xxxv) No Directed Selling Efforts......................14
(b) OFFICER'S CERTIFICATES...............................14
SECTION 2. Sale and Delivery to Initial Purchaser;
Closing..............................................14
(a) SECURITIES...........................................14
(b) PAYMENT..............................................14
(c) QUALIFIED INSTITUTIONAL BUYER........................15
(d) DENOMINATIONS; REGISTRATION..........................15
SECTION 3. Covenants of the Issuers.............................15
(a) OFFERING MEMORANDUM..................................15
(b) NOTICE AND EFFECT OF MATERIAL EVENTS.................15
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS.....16
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE.......16
(e) RATING OF SECURITIES.................................17
(f) DTC..................................................17
(g) USE OF PROCEEDS......................................17
(h) RESTRICTION OF SALE OF SECURITIES....................17
(i) PORTAL DESIGNATION...................................17
(j) PERIODIC REPORTS.....................................17
SECTION 4. Payment of Expenses..................................17
(a) EXPENSES.............................................17
-ii-
<PAGE>
Page
(b) TERMINATION OF AGREEMENT.............................18
SECTION 5. Conditions of Initial Purchaser's Obligations........18
(a) OPINIONS OF COUNSEL FOR ISSUERS......................18
(b) OPINION OF COUNSEL FOR INITIAL PURCHASER.............24
(c) OFFICERS' CERTIFICATE................................24
(d) ACCOUNTANTS' COMFORT LETTER..........................24
(e) BRING-DOWN COMFORT LETTER............................25
(f) MAINTENANCE OF RATING................................25
(g) PORTAL...............................................25
(h) INDENTURE............................................25
(i) REGISTRATION RIGHTS AGREEMENT........................25
(j) BANK AMENDMENT.......................................25
(k) HEAT ACQUISITION; JOINDER AGREEMENT..................25
(l) ADDITIONAL DOCUMENTS.................................26
(m) TERMINATION OF AGREEMENT.............................26
SECTION 6. Subsequent Offers and Resales of the
Securities...........................................26
(a) OFFER AND SALE PROCEDURES............................26
(i) Offers and Sales Only to Qualified
Institutional Buyers or Non-U.S. Persons.........26
(ii) No General Solicitation..........................26
(iii) Purchases by Non-Bank Fiduciaries................26
(iv) Subsequent Purchaser Notification................27
(v) Minimum Principal Amount.........................27
(vi) Restrictions on Transfer.........................27
(vii) Delivery of Offering Memorandum..................27
(b) COVENANTS OF THE ISSUERS.............................27
-iii-
<PAGE>
Page
(i) Due Diligence....................................27
(ii) Integration......................................28
(iii) Rule 144A Information............................28
(iv) Restriction on Repurchases.......................28
(c) RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE
144A..................................................28
SECTION 7. Indemnification......................................29
(a) INDEMNIFICATION OF INITIAL PURCHASER.................29
(b) INDEMNIFICATION OF ISSUERS, DIRECTORS AND OFFICERS...30
(c) ACTIONS AGAINST PARTIES; NOTIFICATION................31
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE...31
SECTION 8. Contribution.........................................32
SECTION 9. Representations, Warranties and Agreements to
Survive Delivery.....................................33
SECTION 10. Termination of Agreement.............................33
(a) TERMINATION; GENERAL.................................33
(b) LIABILITIES..........................................34
SECTION 11. Notices..............................................34
SECTION 12. Parties..............................................34
SECTION 13. Information Supplied by the Initial Purchaser........35
SECTION 13. GOVERNING LAW AND TIME...............................35
SECTION 14. Effect of Heading....................................35
-iv-
<PAGE>
SCHEDULES
Schedule A - List of Guarantors
Schedule B - List of Subsidiaries
EXHIBIT A - Joinder Agreement
-v-
<PAGE>
ATRIUM COMPANIES, INC.
(a Delaware corporation)
$175,000,000
10 1/2% Senior Subordinated Notes due 2009
PURCHASE AGREEMENT
May 10, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Each of Atrium Companies, Inc., a Delaware corporation (the
"COMPANY"), and each of the Guarantors listed on SCHEDULE A hereto other than
those marked with an asterisk (the "GUARANTORS" and, together with the Company,
the "ISSUERS") confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MERRILL LYNCH" or the "INITIAL
PURCHASER"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchaser of $175,000,000 of the Company's 10 1/2% Senior
Subordinated Notes due 2009 (the "NOTES"), which Notes will be unconditionally
and jointly and severally guaranteed (the "GUARANTEES" and, together with the
Notes, the "SECURITIES") on a senior subordinated basis by each of the
Guarantors; PROVIDED, HOWEVER, that each of Heat, Inc. and H.I.G. Vinyl, Inc.
and their respective subsidiaries and Champagne Industries, Inc. are not
executing this Agreement as of the date hereof, but upon consummation of the
Acquisitions (as defined below), the Company agrees to cause such persons to
execute an instrument in substantially the form attached hereto as EXHIBIT A
(the "JOINDER Agreement") pursuant to which such persons will become a party to
this Agreement as a Guarantor (it being understood that upon such persons
becoming a party to this Agreement as a Guarantor, such persons shall be deemed
to have acknowledged and agreed to be bound by all covenants, agreements,
representations, warranties and acknowledgments attributable to a Guarantor as
set forth herein and shall be deemed to have agreed to perform all obligations
and duties required of a Guarantor as set forth herein). The Notes are to be
issued pursuant to an indenture dated as of May 17, 1999 (the "INDENTURE") among
the Company, the Guarantors and State Street Bank and Trust Company, as trustee
(the "TRUSTEE"). Capitalized terms used herein without definition have the
respective meanings specified in the Offering Memorandum referred to below.
Securities issued in book-entry form
<PAGE>
-2-
will be issued to Cede & Co. as nominee of The Depository Trust Company ("DTC")
pursuant to a letter agreement, to be dated as of the Closing Time (as defined
in Section 2(b)) (the "DTC AGREEMENT"), among the Company, the Trustee and DTC.
The Issuers understand that the Initial Purchaser proposes to make
an offering of the Securities on the terms and in the manner set forth herein
and agree that the Initial Purchaser may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("SUBSEQUENT
PURCHASERS") at any time after the date of this Agreement. The Securities are to
be offered and sold through the Initial Purchaser without being registered under
the Securities Act of 1933, as amended (the "1933 ACT"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities and the Indenture,
investors that acquire Securities may only resell or otherwise transfer such
Securities if such Securities are hereafter registered under the 1933 Act or if
an exemption from the registration requirements of the 1933 Act is available
(including the exemption afforded by Rule 144A ("RULE 144A") or Regulation S
("REGULATION S") of the rules and regulations promulgated under the 1933 Act by
the Securities and Exchange Commission (the "COMMISSION")).
The Issuers have prepared and delivered to the Initial Purchaser
copies of a preliminary offering memorandum dated April 26, 1999 (the
"PRELIMINARY OFFERING MEMORANDUM") and have prepared and will deliver to the
Initial Purchaser, on the date hereof or the next succeeding day, copies of a
final offering memorandum dated May 10, 1999 (the "FINAL OFFERING MEMORANDUM"),
each for use by the Initial Purchaser in connection with its solicitation of,
purchases of, or offering of, the Securities. "OFFERING MEMORANDUM" means, with
respect to any date or time referred to in this Agreement, the most recent
offering memorandum (whether the Preliminary Offering Memorandum or the Final
Offering Memorandum, or any amendment or supplement to either such document),
which has been prepared and delivered by the Issuers to the Initial Purchaser in
connection with their solicitation of, purchases of, or offering of, the
Securities. The Issuers hereby confirm that they have authorized the use of the
Offering Memorandum in connection with the offer and resale of the Securities by
the Initial Purchaser.
The holders of the Securities (including the Initial Purchaser and
subsequent transferees) will be entitled to the benefits of the registration
rights agreement (the "REGISTRATION RIGHTS AGREEMENT") to be dated as of the
Closing Time (as defined in Section 2(b) hereof), among the Company, the
Guarantors and the Initial Purchaser, pursuant to which the Issuers will agree
(i) unless the Exchange Offer (as defined in the Registration Rights Agreement)
would not be permitted by applicable law or Commission policy, to file, within
60 days of the Closing Time, a registration statement with the Commission
registering the Exchange Securities (as defined in the Registration Rights
Agreement) under the 1933 Act and to use their best efforts to cause such
registration statement to become effective within 180 days of the Closing Time
and (ii) under certain circumstances set forth therein, to file
<PAGE>
-3-
with the Commission a shelf registration statement pursuant to Rule 415 under
the 1933 Act relating to the resale of the Securities by holders thereof or, if
applicable, relating to the resale of Private Exchange Securities (as defined in
the Registration Rights Agreement) by the Initial Purchaser pursuant to an
exchange of the Securities for Private Exchange Securities, and to use its best
efforts to cause such shelf registration statement to be declared effective.
At the Closing Time (or, in the case of the Champagne
Acquisition (as defined below), at or after the Closing Time), (i) the
Issuers will enter into an amendment (the "BANK AMENDMENT") to the Credit
Agreement, dated as of October 2, 1998, by and among the Company, D and W
Holdings, Inc., the Guarantors party thereto, the Lenders party thereto
from time to time, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as Lead Arranger, Syndication and Documentation Agent,
and BankBoston, N.A., as Administrative Agent (as amended, the "CREDIT
AGREEMENT"), permitting, among other things, the issuance of the
Securities and the consummation of the Acquisitions (as defined below) and
(ii) the Company will acquire all of the outstanding capital stock of
Heat, Inc. and H.I.G. Vinyl, Inc. (the "HEAT ACQUISITION") and Champagne
Industries, Inc. (the "CHAMPAGNE ACQUISITION") and, together with the Heat
Acquisition, the "ACQUISITIONS").
This agreement (this "AGREEMENT" or the "PURCHASE AGREEMENT"), the
Indenture, the Securities, the Exchange Securities, the Private Exchange
Securities, the Registration Rights Agreement, the Bank Amendment and the DTC
Agreement are referred to collectively as the "OPERATIVE DOCUMENTS."
SECTION 1. REPRESENTATIONS AND WARRANTIES BY THE ISSUERS.
(a) REPRESENTATIONS AND WARRANTIES. Each of the Issuers, jointly and
severally, represents and warrants to the Initial Purchaser as of the date
hereof and as of the Closing Time referred to in Section 2(b) hereof (after
giving effect to the Acquisitions and the Bank Amendment), and agrees with the
Initial Purchaser, as follows:
(i) SIMILAR OFFERINGS. Neither the Issuers nor any of their
respective affiliates, as such term is defined in Rule 501(b) under the
1933 Act (each, an "AFFILIATE"), has, directly or indirectly, solicited
any offer to buy, sold or offered to sell or otherwise negotiated in
respect of, or will solicit any offer to buy or offer to sell or otherwise
negotiate in respect of, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the
sale of the Securities in a manner that would require the Securities to be
registered under the 1933 Act.
<PAGE>
-4-
(ii) OFFERING MEMORANDUM. The Preliminary Offering Memorandum as of
its date did not, and the Final Offering Memorandum as of the date hereof
does not, and at the Closing Time will not, include an untrue statement of
a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED that this representation,
warranty and agreement shall not apply to statements in or omissions from
the Preliminary Offering Memorandum or the Final Offering Memorandum, as
applicable, made in reliance upon and in conformity with information
furnished to the Issuers in writing by or on behalf of the Initial
Purchaser expressly for use in the Offering Memorandum.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who audited the
financial statements and supporting schedules included in the Offering
Memorandum are independent public accountants with respect to the relevant
Issuer and its respective subsidiaries within the meaning of Regulation
S-X under the 1933 Act.
(iv) FINANCIAL STATEMENTS. The financial statements, together with
the related schedules and notes, included in the Offering Memorandum
present fairly the financial position of the relevant Issuer and its
consolidated subsidiaries at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the relevant Issuer and
its consolidated subsidiaries for the periods specified; except as
disclosed therein, said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Offering Memorandum present fairly in
accordance with GAAP the information required to be stated therein. The
selected consolidated historical financial data and the summary historical
and pro forma financial data included in the Offering Memorandum present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Offering Memorandum. The pro forma financial statements and the related
notes thereto included in the Offering Memorandum present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the basis described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Offering Memorandum, except
as otherwise stated therein, (A) there has been no material adverse
change, or any condition or event that has resulted or could reasonably be
expected to result in a material ad-
<PAGE>
-5-
verse change, in the financial condition or in the earnings or business
affairs of the Company and its subsidiaries considered as one enterprise
(a "MATERIAL ADVERSE EFFECT"), whether or not arising in the ordinary
course of business, (B) there have been no transactions entered into by
the Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under the Operative Documents to which it is a party; and the
Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. The entities listed on SCHEDULE
B hereto are the only subsidiaries, direct or indirect, of the Company
(each a "SUBSIDIARY," and collectively, the "Subsidiaries"). Each
Subsidiary has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Offering Memorandum, all of
the issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through Subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity (except for any security interest securing the Credit Agreement);
none of the outstanding shares of capital stock of the Subsidiaries was
issued in violation of any preemptive or similar rights of any
securityholder of such Subsidiary.
(viii) GUARANTORS. Each Subsidiary which is or will be a guarantor or
otherwise obligated under the Credit Agreement will be a Guarantor of the
Notes and is
<PAGE>
-6-
listed on SCHEDULE A hereto. Each of the Guarantors has all requisite
corporate power and authority to enter into and perform its respective
obligations under the Operative Documents to which it is a party.
(ix) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is as set forth in the column entitled "Actual" under
the caption "Capitalization" in the Offering Memorandum and in the
financial statements, including the notes thereto, included in the
Offering Memorandum. All of the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; none of the outstanding shares of capital
stock of the Company was issued in violation of any preemptive or other
similar rights of any securityholder of the Company.
(x) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by each of the Issuers (other than
Heat, Inc. and H.I.G. Vinyl, Inc. and their respective subsidiaries and
Champagne Industries, Inc.). The Joinder Agreement will be duly
authorized, executed and delivered by each of Heat, Inc. and H.I.G. Vinyl,
Inc. and their respective subsidiaries and, if the Champagne Acquisition
shall have been consummated on or prior to the Closing Time, Champagne
Industries, Inc.
(xi) AUTHORIZATION OF THE INDENTURE. The Indenture has been duly
authorized by each of the Issuers, and, at the Closing Time, will have
been duly executed and delivered by each of the Issuers and (assuming the
due authorization, execution and delivery thereof by the Trustee) will
constitute a valid and binding agreement of each of the Issuers,
enforceable against each of the Issuers in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(xii) AUTHORIZATION OF THE REGISTRATION RIGHTS AGREEMENT. The
Registration Rights Agreement has been duly authorized by each of the
Issuers, and, at the Closing Time, will have been duly executed and
delivered by each of the Issuers and (assuming the due authorization,
execution and delivery thereof by the Initial Purchaser) will constitute a
valid and binding agreement of each of the Issuers, enforceable against
each of the Issuers in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement
<PAGE>
-7-
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and except
as rights to indemnity and contribution thereunder may be limited by
Federal and state securities laws.
(xiii) AUTHORIZATION OF THE SECURITIES. The Notes, the Exchange
Securities and the Private Exchange Securities, if any, have been duly
authorized by the Company; the Guarantees have been duly authorized by
each of the Guarantors and each of the Guarantors has all requisite
corporate power and authority to execute, issue and deliver the Guarantees
and to incur and perform its obligations provided for therein. At the
Closing Time, the Notes will have been duly executed by the Company and,
when authenticated, issued and delivered in the manner provided for in the
Indenture (assuming the due authorization, execution and delivery of the
Indenture by the Trustee) and delivered against payment of the purchase
price therefor as provided in this Agreement, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws or affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law),
and will be in the form contemplated by, and entitled to the benefits of,
the Indenture. At the Closing Time, the Guarantees of each Guarantor will
have been duly endorsed on the Notes by each such Guarantor and, when the
Securities are authenticated, issued and delivered in the manner provided
for in the Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) and delivered against payment of
the purchase price therefor as provided in this Agreement, upon such
endorsement, the Guarantees will constitute valid and binding obligations
of the Guarantors, enforceable against the Guarantors in accordance with
their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or similar laws or
affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law),
and will be in the form contemplated by, and entitled to the benefits of,
the Indenture. The Exchange Securities and the Private Exchange
Securities, if any, when executed, authenticated, issued, endorsed and
delivered (assuming the due authorization, execution and delivery of the
Indenture by the Trustee) in exchange for the Securities pursuant to the
Exchange Offer (as defined in the Registration Rights Agreement), will
constitute valid and binding obligations of each of the Issuers,
enforceable against each of the Issuers in accordance with their terms,
except as the
<PAGE>
-8-
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws or affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law), and will be in the form
contemplated by, and entitled to the benefits of, the Indenture.
(xiv) AUTHORIZATION OF THE BANK AMENDMENT. The Bank Amendment
has been duly authorized by each of the Issuers (other than Heat,
Inc. and H.I.G. Vinyl, Inc. and their respective subsidiaries and
Champagne Industries, Inc.), and, at the Closing Time, will have
been duly executed and delivered by each of the Issuers (other than
Heat, Inc. and H.I.G. Vinyl, Inc. and their respective subsidiaries
and Champagne Industries, Inc.).
(xv) DESCRIPTION OF THE OPERATIVE DOCUMENTS AND THE CREDIT
AGREEMENT. The Securities, the Exchange Securities, the Private Exchange
Securities, if any, the Indenture, the Registration Rights Agreement and
the Bank Amendment will conform in all material respects to the respective
statements relating thereto contained in the Offering Memorandum and will
be substantially in the respective forms previously delivered to the
Initial Purchaser. The Credit Agreement conforms in all material respects
to the statements relating thereto contained in the Offering Memorandum.
(xvi) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any
of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or
by which or any or them may be bound, or to which any of the property or
assets of the Company or any of its Subsidiaries is subject (collectively,
"AGREEMENTS AND INSTRUMENTS"), except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement, the Indenture, the Registration Rights
Agreement, the Bank Amendment and the Securities and any other agreement
or instrument entered into or issued or to be entered into or issued by
the Company or the Guarantors in connection with the transactions
contemplated hereby or thereby or in connection with the Acquisitions and
the consummation of the transactions contemplated herein (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Offering Memorandum under the
caption "Use of Proceeds") and compliance by each of the Issuers with its
respective obligations hereunder do not and will not, whether with or
without the giving of notice or pas-
<PAGE>
-9-
sage of time or both, conflict with or constitute a breach of, or default
or a Repayment Event (as defined below) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its Subsidiaries pursuant to the
Agreements and Instruments, except for such conflicts, breaches or
defaults or liens, charges or encumbrances that are cured prior to the
Closing Time or that, singly or in the aggregate, would not result in a
Material Adverse Effect, nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any of its
Subsidiaries or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any of
its Subsidiaries or any of their assets or properties. As used herein, a
"REPAYMENT EVENT" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right, pursuant to the express written
provisions thereof, to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any of its
Subsidiaries.
(xvii) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees
of the Company or any of its Subsidiaries exists or, to the knowledge of
any of the Issuers, is imminent, and none of the Issuers is aware of any
existing or imminent labor disturbance by the employees of any of its or
any of the Subsidiaries' principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result
in a Material Adverse Effect.
(xviii) ABSENCE OF PROCEEDINGS. Except as disclosed in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or investigation
before or by any court or government agency or body, domestic or foreign,
now pending, or, to the knowledge of any of the Issuers, threatened,
against or affecting the Company or any of its Subsidiaries which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets of the Company or any of its Subsidiaries or the
consummation of the transactions contemplated by this Agreement or the
performance by the Issuers of their obligations under the Operative
Documents. The aggregate of all pending legal or governmental proceedings
to which the Company or any of its Subsidiaries is a party or of which any
of their respective property or assets is the subject which are not
described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xix) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent
<PAGE>
-10-
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"INTELLECTUAL PROPERTY") necessary to carry on the business now operated
by them, and neither the Company nor any of its Subsidiaries has received
any notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xx) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Issuers of their
obligations hereunder, in connection with the offering, issuance or sale
of the Securities, the Exchange Securities or the Private Exchange
Securities, for the performance by the Issuers of their respective
obligations under the Operative Documents, or the consummation of the
transactions contemplated hereby or thereby or for the due execution,
delivery or performance by the Issuers of any of the Operative Documents,
except as may be required (A) in connection with the registration of the
Exchange Securities or the Private Exchange Securities under the 1933 Act
or the qualification of the Indenture under the 1939 Act (as defined
below), in each case pursuant to the Registration Rights Agreement or (B)
pursuant to state securities or "blue sky" laws.
(xxi) POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "GOVERNMENTAL LICENSES") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them, except where the
failure to possess such Governmental Licenses would not, singly or in the
aggregate, have a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except where
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate,
<PAGE>
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if the subject of an unfavorable decision, ruling or finding, would result
in a Material Adverse Effect.
(xxii) TITLE TO PROPERTY. The Company and its Subsidiaries have good
and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Offering Memorandum or securing the Credit Agreement or
(b) do not, singly or in the aggregate, materially affect the value of
such property and do not interfere with the use made and proposed to be
made of such property by the Company or any of its Subsidiaries; and all
of the leases and subleases material to the business of the Company and
its Subsidiaries, considered as one enterprise, and under which the
Company or any of its Subsidiaries holds properties described in the
Offering Memorandum, are in full force and effect, and neither the Company
nor any of its Subsidiaries has any notice of any material claim of any
sort that has been asserted by anyone adverse to the rights of the Company
or any of its Subsidiaries under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or any of its
Subsidiaries to the continued possession of the leased or subleased
premises under any such lease or sublease.
(xxiii) ENVIRONMENTAL LAWS. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law, including any judicial or administrative order, consent,
decree or judgment, relating to pollution or protection of human health,
the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "HAZARDOUS MATERIALS") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "ENVIRONMENTAL LAWS"), (B)
the Company and its Subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation, or proceedings relating to any Environmental Law against
the Company or any of its Subsidiaries, (D) there are no events or circum-
<PAGE>
-12-
stances that might reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its Subsidiaries relating to Hazardous Materials or
Environmental Laws and (E) neither the Company nor any of its Subsidiaries
has assumed by contract or agreement any liabilities or obligations
arising under any Environmental Law including, without limitation, any
such liabilities or obligations with respect to formerly owned, leased or
operated real property or facilities, or former divisions or subsidiaries.
(xxiv) ERISA COMPLIANCE. Except as described in the Offering
Memorandum, none of the Company nor any of its Subsidiaries has incurred
any liability for any prohibited transaction or funding deficiency or any
complete or partial withdrawal liability with respect to any pension,
profit sharing or other plan which is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which the Company or
any of its Subsidiaries makes or ever has made a contribution and in which
any employee of the Company or any Subsidiary is or has ever been a
participant, which, individually in the aggregate, could reasonably be
expected to have or result in a Material Adverse Effect. With respect to
such plans, each of the Company and its Subsidiaries is in compliance in
all respects with all applicable provisions of ERISA, except where the
failure to so comply could not, individually or in the aggregate,
reasonably be expected to have or a result in a Material Adverse Effect.
(xxv) TAX RETURNS. The Company and its Subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be
filed or have duly requested extensions thereof and have paid all taxes
required to be paid by any of them and any related assessments, fines or
penalties, except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings and for which
adequate reserves have been made in accordance with GAAP; and adequate
charges, accruals and reserves have been provided for in the financial
statements included in the Offering Memorandum in respect of all federal,
state, local and foreign taxes for all periods as to which the tax
liability of the Company or any of its Subsidiaries has not been finally
determined or remains open to examination by applicable taxing
authorities.
(xxvi) INSURANCE. The Company and its Subsidiaries carry or are
entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the
same or similar business, and all such insurance is in full force and
effect.
<PAGE>
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(xxvii) SOLVENCY. Each of the Issuers is, and immediately after the
Closing Time will be, Solvent. As used herein, the term "Solvent" means,
with respect to each Issuer, on a particular date, that on such date (A)
the fair market value of the assets of each Issuer is greater than the
total amount of its liabilities (including contingent liabilities) of such
Issuer, (B) the present fair salable value of the assets of each Issuer is
greater than the amount that will be required to pay its probable
liabilities of such Issuer on its debts as they become absolute and
mature, (C) each of the Issuers is able to realize upon its assets and pay
its debts and other liabilities, including contingent obligations, as they
mature, and (D) each Issuer does not have unreasonably small capital.
(xxviii) CONTRACTS. All descriptions in the Offering Memorandum of
contracts and other documents to which the Company or any of its
Subsidiaries are a party are accurate in all material respects; there are
no franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments that would be required to be described in a
registration statement on Form S-1 under the 1933 Act that are not
described or referred to in the Offering Memorandum, and the descriptions
thereof or references thereto are correct and fairly and accurately
summarize such agreements and instruments in all material respects.
(xxix) STATISTICAL MARKET-RELATED DATA. The statistical and
market-related data included in the Offering Memorandum are based on or
derived from independent sources which the Issuers believe to be reliable
in all material respects or represent the Issuers' good faith estimates.
(xxx) COMPLIANCE WITH FLORIDA ACT. Each of the Company and its
Subsidiaries has complied with, and is and will, at the Closing Time, be
in compliance with, the provisions of Section 517.075 of the Florida
statutes, relating to doing business with or in Cuba.
(xxxi) INVESTMENT COMPANY ACT. None of the Issuers is, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum, none will be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended (the "1940 ACT").
(xxxii) RULE 144A ELIGIBILITY. The Securities are eligible for resale
pursuant to Rule 144A and will not be, at the Closing Time, of the same
class as securities listed on a national securities exchange registered
under Section 6 of the 1934 Act, or quoted in a U.S. automated interdealer
quotation system.
<PAGE>
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(xxxiii) NO GENERAL SOLICITATION. None of the Issuers, any of their
respective Affiliates or any person acting on its or any of their behalf
(other than the Initial Purchaser, as to whom the Issuers make no
representation) has engaged or will engage, in connection with the
offering of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act.
(xxxiv) NO REGISTRATION REQUIRED. Subject to compliance by the Initial
Purchaser with the representations and warranties and the procedures set
forth in Section 6 hereof, it is not necessary in connection with the
offer, sale and delivery of the Securities to the Initial Purchaser and to
each Subsequent Purchaser in the manner contemplated by this Agreement and
the Offering Memorandum to register the Securities under the 1933 Act or
to qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "1939 ACT").
(xxxv) NO DIRECTED SELLING EFFORTS. With respect to those Securities
sold in reliance on Regulation S, (A) none of the Company, its Affiliates
or any person acting on its or their behalf (other than the Initial
Purchaser, as to whom the Issuers make no representation) has engaged or
will engage in any directed selling efforts within the meaning of
Regulation S and (B) each of the Issuers and their Affiliates and any
person acting on their behalf (other than the Initial Purchaser, as to
whom the Issuers make no representation) has complied and will comply with
the offering restrictions requirement of Regulation S.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
any of the Issuers delivered to the Initial Purchaser or to counsel for the
Initial Purchaser shall be deemed a representation and warranty by each of the
Issuers to the Initial Purchaser as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASER; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Initial Purchaser, and the Initial Purchaser
agrees to purchase from the Company, the Notes, at a purchase price of 95.996%
of the principal amount thereof. Each of the Guarantors will issue its Guarantee
at the time of issuance and sale of the Notes.
(b) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Paul, Hastings,
Janofsky & Walker LLP at 399 Park Avenue, New York, NY 10022, or at such other
place as shall be agreed upon by the Initial Purchaser and the Company, at 9:00
A.M. (eastern time) on the fifth business
<PAGE>
-15-
day after the date hereof, or such other time not later than ten business days
after such date as shall be agreed upon by the Initial Purchaser and the Company
(such time and date of payment and delivery being herein called the "CLOSING
TIME").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Initial Purchaser of certificates for the Securities to be purchased by it.
(c) QUALIFIED INSTITUTIONAL BUYER. The Initial Purchaser represents
and warrants to, and agrees with, the Issuers that it is a "qualified
institutional buyer" within the meaning of Rule 144A under the 1933 Act (a
"QUALIFIED INSTITUTIONAL BUYER").
(d) DENOMINATIONS; REGISTRATION. Certificates representing the Notes
shall be in such denominations ($1,000 or integral multiples thereof) and
registered in such names as the Initial Purchaser may request in writing at
least one full business day before the Closing Time. The certificates
representing the Notes shall be registered in the name of Cede & Co. pursuant to
the DTC Agreement and shall be made available for examination by the Initial
Purchaser in The City of New York not later than 10:00 A.M. on the last business
day prior to the Closing Time.
SECTION 3. COVENANTS OF THE ISSUERS. Each of the Issuers, jointly
and severally, covenants with the Initial Purchaser as follows:
(a) OFFERING MEMORANDUM. The Issuers, as promptly as possible, will
furnish to the Initial Purchaser, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto as the Initial Purchaser may reasonably
request.
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Issuers will
immediately notify the Initial Purchaser, and confirm such notice in writing, of
(x) any filing made by any Issuer of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchaser as evidenced by a notice in
writing from the Initial Purchaser to the Company, any material changes, or any
condition or event that has resulted or could reasonably be expected to result
in a material change, in or affecting the financial condition or the earnings or
business affairs of the Company and its Subsidiaries which (i) make any
statement in the Offering Memorandum false or misleading or (ii) are not
disclosed in the Offering Memorandum. In such event or if during such time any
event shall occur as a result of which it is necessary, in the reasonable
opinion of the Company, its counsel, the Initial Purchaser or counsel for the
Initial Purchaser, to amend or supplement the Final Offering Memorandum in order
that the Final
<PAGE>
-16-
Offering Memorandum not include any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances then existing, the Issuers will
forthwith amend or supplement the Final Offering Memorandum by preparing and
furnishing, at the expense of the Issuers, to the Initial Purchaser an amendment
or amendments of, or a supplement or supplements to, the Final Offering
Memorandum (in form and substance satisfactory in the reasonable opinion of
counsel for the Initial Purchaser) so that, as so amended or supplemented, the
Final Offering Memorandum will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a Subsequent Purchaser, not misleading. The Issuers will furnish to the
Initial Purchaser such number of copies of such amendment or supplement as the
Initial Purchaser may reasonably request. The Company agrees to notify the
Initial Purchaser in writing to suspend use of the Offering Memorandum as
promptly as practicable after the occurrence of an event specified in the second
immediately preceding sentence of this paragraph (b), and the Initial Purchaser
hereby agrees upon receipt of such notice from the Company to suspend use of the
Offering Memorandum until the Issuers have amended or supplemented the Offering
Memorandum to correct such misstatement or omission or to effect such
compliance.
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Issuers
will advise the Initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchaser (which consent shall not
be unreasonably withheld). Neither the consent of the Initial Purchaser, nor the
Initial Purchaser's delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE. The Issuers will
use their respective best efforts, in cooperation with the Initial Purchaser, to
qualify the Securities for offering and sale under the applicable securities
laws of such jurisdictions as the Initial Purchaser may designate and will
maintain such qualifications in effect as long as required for the sale of the
Securities; PROVIDED, HOWEVER, that no Issuer shall be obligated to file any
general consent to service of process or to qualify as a foreign corporation or
as a dealer in securities in any jurisdiction in which it is not so qualified or
to subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject. The Issuers will file such statements
and reports as may be required by the laws of each jurisdiction in which the
Securities have been qualified as above provided. The Issuers shall promptly
advise the Initial Purchaser of the receipt by any Issuer of any notification
with respect to the suspension of the qualification or exemption from
qualification of the Securities for offering or sale in any jurisdiction or the
institution, threatening or contemplation of any proceeding for such purpose.
<PAGE>
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(e) RATING OF SECURITIES. The Issuers shall take all reasonable
action necessary to enable Standard & Poor's Ratings Services, a division of
McGraw Hill, Inc. ("S&P"), and Moody's Investors Service Inc. ("MOODY'S") to
provide their respective credit ratings of the Securities.
(f) DTC. The Issuers will cooperate with the Initial Purchaser and
use their best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
(g) USE OF PROCEEDS. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds."
(h) RESTRICTION OF SALE OF SECURITIES. During a period of 120 days
from the date of the Final Offering Memorandum, the Issuers will not, without
the prior written consent of the Initial Purchaser, directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any contract or option to sell, grant any option, right, or warrant for
the sale of, or otherwise dispose of or transfer, any other debt securities of
any of the Issuers or securities of any of the Issuers that are convertible
into, or exchangeable for, the Securities or such other debt securities, or,
except as provided in the Registration Rights Agreement, file a registration
statement under the 1933 Act with respect to the foregoing.
(i) PORTAL DESIGNATION. The Issuers will use their respective best
efforts to permit the Securities to be designated PORTAL securities in
accordance with the rules and regulations adopted by the National Association of
Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market.
(j) PERIODIC REPORTS. For so long as the Securities or Exchange
Securities or Private Exchange Securities are outstanding, the Company will
furnish to the Initial Purchaser copies of all documents, reports, forms and
information required to be delivered to holders of Notes as set forth in the
Indenture.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, the Issuers agree, jointly and severally, to pay all
expenses incident to the performance of their obligations under this Agreement,
including (i) the preparation and printing of the Preliminary Offering
Memorandum and the Final Offering Memorandum (including financial statements and
any schedules) and of each amendment or supplement thereto (but excluding the
fees and disbursements of counsel to the Initial Purchaser in
<PAGE>
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connection therewith), (ii) the preparation, printing and delivery to the
Initial Purchaser of this Agreement, the Indenture, the Registration Rights
Agreement, the DTC Agreement and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities (but excluding the fees and disbursements of counsel to the Initial
Purchaser in connection therewith), (iii) the preparation, issuance and delivery
of the certificates for the Securities to the Initial Purchaser, including any
charges of DTC in connection therewith (but excluding the fees and disbursements
of counsel to the Initial Purchaser in connection therewith), (iv) the fees and
disbursements of the Issuers' counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Initial Purchaser in connection therewith
and in connection with the preparation of the Blue Sky Survey, any supplement
thereto and any Legal Investment Survey, (vi) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture, the Securities and the Exchange Securities, (vii)
any fees payable in connection with the rating of the Securities, (viii) any
fees and expenses payable in connection with the initial and continued
designation of the Securities as PORTAL securities under the PORTAL Market Rules
and to permit the Securities, the Exchange Securities and the Private Exchange
Securities to be eligible for clearance through DTC, and (ix) all expenses
(including travel expenses, provided that the costs of any chartered airplane
shall be split evenly with the Initial Purchaser) of the Issuers in connection
with any meetings with prospective investors in the Securities.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Initial Purchaser in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Issuers, jointly and severally, shall reimburse the Initial
Purchaser for all of their out-of-pocket expenses incurred in connection with
the transactions contemplated by this Agreement, including the reasonable fees
and disbursements of counsel for the Initial Purchaser.
SECTION 5. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The
obligations of the Initial Purchaser hereunder are subject to the accuracy of
the representations and warranties of the Issuers contained in Section 1 hereof
or in certificates of any officer of any Issuer delivered pursuant to the
provisions hereof, to the performance by the Issuers of their covenants and
other obligations hereunder and to the following further conditions:
(a) OPINIONS OF COUNSEL FOR ISSUERS. At the Closing Time, the
Initial Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of each of Paul, Hastings, Janofsky & Walker LLP, Boyar, Simon &
Miller, Sirotte and Permutte, and Morrison & Forrester, counsel for the Issuers,
in the form and substance covering in total the items set forth below and
otherwise reasonably satisfactory to the Initial Purchaser and counsel for the
Initial Purchaser to the effect that:
<PAGE>
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(1) Each of the Company and its Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its respective state of incorporation, with corporate
power and authority to own, lease and operate its assets and properties
and conduct its business as described in the Offering Memorandum;
(2) Each of the Issuers has the corporate power and authority to
enter into and perform its obligations under each of the Operative
Documents to which it is a party;
(3) Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect;
(4) The authorized, issued and outstanding capital stock of the
Company is as set forth in the caption entitled "Capitalization" under the
column entitled "Actual" in the Offering Memorandum;
(5) All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, except as set forth in the Offering Memorandum, is
owned by the Company, directly or through Subsidiaries, and in the case of
each Subsidiary, (i) based solely on the results of a lien search by a
third party search service at the Office of the Secretary of State of the
state of incorporation of such Subsidiary and without any independent
investigation of such counsel and (ii) assuming all of the issued and
outstanding capital stock of such Subsidiary is in the possession of the
Administrative Agent (as defined in the Credit Agreement) in the State of
New York, on behalf of the Secured Parties (as defined in the Credit
Agreement), pursuant to the Credit Agreement, is free and clear of any
perfected security interest under the Uniform Commercial Code as in effect
in the State of New York (except any security interest securing the Credit
Agreement);
(6) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of any federal or relevant
state court or governmental authority or agency is necessary or required
for the execution and delivery by each of the Issuers of this Agreement,
the Indenture, the Registration Rights Agreement, the Bank Amendment or
the DTC Agreement or for the offering, issuance, sale and delivery of the
Securities, the resale of the Securities by the Initial Purchaser in
accordance with this Agreement, the issuance of the Exchange Securi-
<PAGE>
-20-
ties or the Private Exchange Securities, if any, or the performance by the
Issuers of their obligations under the Operative Documents, or for the
consummation of any of the transactions contemplated hereby or thereby,
except such as may be required (A) in connection with the registration
under the 1933 Act of the Exchange Securities or the Private Exchange
Securities, if any, under the Registration Rights Agreement, (B) in order
to qualify the Indenture under the Trust Indenture Act and (C) by state
securities or "blue sky" laws in connection with the purchase and
distribution of the Securities by the Initial Purchaser (as to which such
counsel need not express an opinion);
(7) The issuance, sale and delivery of the Securities, the Exchange
Securities and the Private Exchange Securities, if any, the execution,
delivery and performance of this Agreement, the Registration Rights
Agreement, the Indenture, the Bank Amendment, the DTC Agreement and the
Securities and the consummation of the transactions contemplated in the
Operative Documents and in connection with the Acquisitions (including the
use of the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption "Use of Proceeds") and compliance by
the Issuers with their obligations under the Operative Documents will not,
whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event
under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
Subsidiaries pursuant to the Agreements or Instruments known to such
counsel (which include, without limitation, all Agreements or Instruments
publicly filed by the Company) (except for such conflicts, breaches,
defaults or liens, charges or encumbrances that are cured prior to the
Closing Time or that would not have a Material Adverse Effect) nor will
such action result in any violation of the provisions of (i) the charter
or by-laws of the Company or its Subsidiaries, (ii) any applicable law,
statute, rule or regulation of the United States or the State of New York
(except for such violations that would not have a Material Adverse
Effect), or (iii) any judgment, order, writ or decree binding on the
Company or any of its Subsidiaries and known to such counsel of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of the Guarantors or any of
their respective properties, assets or operations;
(8) The Securities, the Exchange Securities, the Private Exchange
Securities, the Registration Rights Agreement, the Indenture and the
Credit Agreement conform in all material respects to the descriptions
thereof contained in the Offering Memorandum;
<PAGE>
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(9) The Purchase Agreement has been duly authorized,
executed and delivered by each of the Issuers (other than Heat, Inc.
and H.I.G. Vinyl, Inc. and their respective subsidiaries and
Champagne Industries, Inc.);
(10) The Joinder Agreement has been duly authorized, executed
and delivered by each of Heat, Inc. and H.I.G. Vinyl, Inc. and their
respective subsidiaries and, if the Champagne Acquisition shall have
been consummated on or prior to the Closing Time, Champagne
Industries, Inc.;
(11) The Indenture has been duly authorized, executed and delivered
by each of the Issuers and (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and binding agreement
of each of the Issuers, enforceable against each of the Issuers in
accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws affecting enforcement of creditors' rights generally and
except as the enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law);
(12) The Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Issuers and (assuming the due
authorization, execution and delivery thereof by the Initial Purchaser)
constitutes a valid and binding agreement of each of the Issuers,
enforceable against each of the Issuers in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) and except
as rights to indemnity and contribution thereunder may be limited by
Federal or state securities laws or principles of public policy;
(13) The Notes are in the form contemplated by the Indenture and
have been duly authorized and executed by the Company and when
authenticated by the Trustee in the manner provided in the Indenture
(assuming the due authorization, execution and delivery of the Indenture
by the Trustee and assuming the due authentication of the Notes by the
Trustee) and delivered against payment of the purchase price therefor in
accordance with this Agreement, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms and entitled to the benefits of the Indenture, except as
the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar
<PAGE>
-22-
laws affecting enforcement of creditors' rights generally and except as
the enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law);
(14) The Guarantees are in the form contemplated by the Indenture
and have been duly authorized and executed by each of the Guarantors and,
when delivered by each of the Guarantors in accordance with the provisions
of the Indenture (assuming the due authorization, execution and delivery
of the Indenture by the Trustee and assuming the due authentication of the
Notes by the Trustee), will constitute valid and binding obligations of
each of the Guarantors, enforceable against each of the Guarantors in
accordance with their terms and entitled to the benefits of the Indenture,
except as such enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and except as the enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law);
(15) The Exchange Securities and the Private Exchange Securities
have been duly authorized by the Issuers and, when executed or endorsed,
as applicable, by each of the Issuers and authenticated by the Trustee in
the manner provided for in the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee and assuming due
authentication of the Exchange Securities and Private Exchange Securities
by the Trustee) and delivered in exchange for the Securities in accordance
with the terms of the Registration Rights Agreement, will constitute valid
and binding obligations of each of the Issuers, enforceable against each
of the Issuers in accordance with their terms and entitled to the benefits
of the Indenture, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights generally and except as the
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law);
(16) The Bank Amendment has been duly authorized, executed
and delivered by each of the Issuers (other than Heat, Inc. and
H.I.G. Vinyl, Inc. and their respective subsidiaries and Champagne
Industries, Inc.);
(17) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries of a character
<PAGE>
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required to be disclosed in a prospectus pursuant to the 1933 Act if the
Notes were registered thereunder, except as set forth in the Offering
Memorandum;
(18) Assuming that the representations and warranties of the Initial
Purchaser contained in Section 6 of this Agreement and the representations
and warranties of the Company contained in Sections 1(a)(i) and
1(a)(xxxiii) of this Agreement are true, correct and complete, and
assuming compliance by the Initial Purchaser with its covenants in Section
6 of this Agreement, it is not necessary in connection with the offer,
sale and delivery of the Securities to the Initial Purchaser under, or in
connection with the initial resale of such Securities by the Initial
Purchaser in accordance with, this Agreement to register the Securities
under the 1933 Act or to qualify the Indenture under the 1939 Act;
(19) None of the Issuers is an "investment company" or required to
register as an investment company as such term is defined in the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder; and
(20) When the Securities are issued and delivered pursuant to this
Agreement, such Securities will not be of the same class (within the
meaning of Rule 144A) as securities of the Company which are listed on a
national securities exchange registered under Section 6 of the 1934 Act or
quoted in a U.S. automated inter-dealer quotation system.
In addition such counsel shall state that such counsel has
participated in conferences with representatives of the Initial Purchaser,
officers and other representatives of the Company and its Subsidiaries and
representatives of the independent certified public accountants of the
Company and its Subsidiaries, at which conferences the contents of the
Offering Memorandum and the business and affairs of the Company and its
Subsidiaries were discussed, and although such counsel does not pass upon
or assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Offering Memorandum (except and only to
the extent set forth in subclause (8) above), on the basis of the
foregoing, no facts have come to the attention of such counsel which lead
such counsel to believe that the Offering Memorandum at the date thereof
or as of the Closing Time, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading (it being understood that such counsel need
not express any comment with respect to the financial statements,
including the notes thereto and supporting schedules, or any other
financial data set forth or referred to in the Offering Memorandum).
<PAGE>
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In rendering such opinions, such counsel may rely, as to matters of
fact (but not as to legal conclusions), to the extent they deem proper on
representations or certificates of responsible officers of the Issuers and
certificates of public officials.
References to the Offering Memorandum in this subsection (a) include
any supplements thereto at or prior to the Closing Time.
(b) OPINION OF COUNSEL FOR INITIAL PURCHASER. At the Closing Time,
the Initial Purchaser shall have received the favorable opinion, dated as of the
Closing Time, of Cahill Gordon & Reindel, counsel for the Initial Purchaser in
form and substance reasonably satisfactory to the Initial Purchaser. In giving
such opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the Federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Initial Purchaser. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its Subsidiaries and certificates of public officials.
(c) OFFICERS' CERTIFICATE. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any 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 financial condition or in the
earnings or business affairs of the Company and its Subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, and
the Initial Purchaser shall have received a certificate of an Executive Vice
President or a Vice President of the Company and of the chief financial or chief
accounting officer of the Company and the similar officials of each of the
Guarantors, dated as of the Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, and (iii) each of the Company and
the Guarantors has complied with all agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Closing Time.
(d) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of
this Agreement, the Initial Purchaser shall have received from each of
PricewaterhouseCoopers LLP and Arthur Andersen LLP, a letter dated such date, in
form and substance reasonably satisfactory to the Initial Purchaser and counsel
for the Initial Purchaser containing statements and information of the type
ordinarily included in accountants' "comfort letters" to Initial Purchaser with
respect to the financial statements and certain financial information contained
in the Offering Memorandum.
<PAGE>
-25-
(e) BRING-DOWN COMFORT LETTER. At the Closing Time, the Initial
Purchaser shall have received from each of PricewaterhouseCoopers LLP and Arthur
Andersen LLP, a letter dated as of the Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (d)
of this Section as of the Closing Time, except that the specified dates referred
to shall be dated not more than three business days prior to the Closing Time.
(f) MAINTENANCE OF RATING. At the Closing Time, the Securities shall
be rated at least BBB by Moody's Investors Service Inc. and B by Standard &
Poor's Ratings Services, and the Issuers shall have delivered to the Initial
Purchaser a letter dated the Closing Time, from each such rating agency, or
other evidence satisfactory to the Initial Purchaser, confirming that the
Securities have such ratings; and since the date of this Agreement, there shall
not have occurred a downgrading in the rating assigned to the Securities or any
of the other debt securities of any of the Issuers by any "nationally recognized
statistical rating agency," as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the 1933 Act, and no such securities rating
agency shall have publicly announced that it has under surveillance or review,
with possible negative implications, its rating of the Securities or any of the
other debt securities of any of the Issuers.
(g) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(h) INDENTURE. Each of the Issuers and the Trustee shall have
entered into the Indenture, in form and substance satisfactory to the Initial
Purchaser and counsel to the Initial Purchaser.
(i) REGISTRATION RIGHTS AGREEMENT. Each of the Issuers and the
Initial Purchaser shall have entered into the Registration Rights Agreement, in
form and substance satisfactory to the Initial Purchaser and counsel to the
Initial Purchaser.
(j) BANK AMENDMENT. Each of the Issuers and the requisite lenders
under the Credit Agreement shall have entered into the Bank Amendment in form
and substance reasonably satisfactory to the Initial Purchaser in order for the
Issuers to execute, deliver and perform their obligations under the Securities
and the Indenture and consummate the Acquisitions without any conflict or
default under the Credit Agreement.
(k) HEAT ACQUISITION; JOINDER AGREEMENT. The Heat
Acquisition shall have been or shall simultaneously with the Closing Time
be consummated in accordance with the terms described in the Offering
Memorandum and the terms of the definitive agreements with respect thereto
previously provided to the Initial Purchaser (as in effect at such time
provided to the Initial Purchaser); each of Heat, Inc. and H.I.G. Vinyl,
Inc. and their re-
<PAGE>
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spective subsidiaries and, if the Champagne Acquisition shall have been
consummated, Champagne Industries, Inc., shall have become parties to this
Agreement as a Guarantor pursuant to the Joinder Agreement.
(l) ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the
Initial Purchaser shall have been furnished with such documents and opinions as
they may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Issuers in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Initial Purchaser and counsel for the Initial Purchaser.
(m) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchaser by notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7, 8, 9 and 14 shall survive any such termination and
remain in full force and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
(a) OFFER AND SALE PROCEDURES. The Initial Purchaser represents and
agrees to observe the following procedures in connection with the offer and sale
of the Securities:
(i) OFFERS AND SALES ONLY TO QUALIFIED INSTITUTIONAL BUYERS OR
NON-U.S. PERSONS. Offers and sales of the Securities shall only be made
(A) to persons whom the offeror or seller reasonably believes to be
Qualified Institutional Buyers or (B) to non-U.S. persons outside the
United States, as defined in Regulation S under the 1933 Act, to whom the
offeror or seller reasonably believes offers and sale of the Securities
may be made in reliance upon Regulation S under the 1933 Act.
(ii) NO GENERAL SOLICITATION. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will be
used in the United States in connection with the offering or sale of the
Securities.
(iii) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a non-bank
Subsequent Purchaser of a Security acting as a fiduciary for one or more
third parties, each third party shall, in the judgment of the Initial
Purchaser, be a Qualified Institutional Buyer or a non-U.S. person outside
the United States.
<PAGE>
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(iv) SUBSEQUENT PURCHASER NOTIFICATION. The Initial Purchaser will
take reasonable steps to inform, and cause each of its affiliates to take
reasonable steps to inform, persons acquiring Securities from the Initial
Purchaser or such affiliate, as the case may be, that the Securities (A)
have not been and will not be registered under the 1933 Act, (B) are being
sold to them without registration under the 1933 Act in reliance on Rule
144A or in accordance with another exemption from registration under the
1933 Act, as the case may be, and (C) may not be offered, sold or
otherwise transferred except (1) to the Company, (2) outside the United
States in accordance with Regulation S, or (3) inside the United States in
accordance with (x) Rule 144A to a person who the seller reasonably
believes is a Qualified Institutional Buyer that is purchasing such
Securities for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or
transfer is being made in reliance on Rule 144A or (y) pursuant to another
available exemption from registration under the 1933 Act.
(v) MINIMUM PRINCIPAL AMOUNT. No sale of the Notes to any one
Subsequent Purchaser will be for less than U.S. $1,000 principal amount
and no Note will be issued in a smaller principal amount. If the
Subsequent Purchaser is a non-bank fiduciary acting on behalf of others,
each person for whom it is acting must purchase at least U.S. $1,000
principal amount of the Notes.
(vi) RESTRICTIONS ON TRANSFER. The transfer restrictions and the
other provisions set forth in Section Two of the Indenture, including the
legend required thereby, shall apply to the Securities except as otherwise
agreed by the Company and the Initial Purchaser. Following the sale of the
Securities by the Initial Purchaser to Subsequent Purchasers pursuant to
and in compliance with the terms hereof, the Initial Purchaser shall not
be liable or responsible to the Issuers for any losses, damages or
liabilities suffered or incurred by the Issuers, including any losses,
damages or liabilities under the 1933 Act, arising from or relating to any
resale or transfer of any Security occurring after such sale by the
Initial Purchaser.
(vii) DELIVERY OF OFFERING MEMORANDUM. The Initial Purchaser will
deliver to each purchaser of the Securities from the Initial Purchaser, in
connection with its original distribution of the Securities, a copy of the
Offering Memorandum, as amended and supplemented at the date of such
delivery.
(b) COVENANTS OF THE ISSUERS. Each of the Issuers, jointly and
severally, covenant with the Initial Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original distribution of
the Securities, the Issuers agree that, prior to any offer or resale of
the Securities by the
<PAGE>
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Initial Purchaser, the Initial Purchaser and counsel for the Initial
Purchaser shall have the right to make reasonable inquiries into the
business of the Issuers and their Subsidiaries. The Issuers also agree to
provide answers to each prospective Subsequent Purchaser of Securities who
so requests concerning the Issuers and their Subsidiaries (to the extent
that such information is available or can be acquired and made available
to prospective Subsequent Purchasers without unreasonable effort or
expense and to the extent the provision thereof is not prohibited by
applicable law) and the terms and conditions of the offering of the
Securities, as provided in the Offering Memorandum.
(ii) INTEGRATION. Each of the Issuers agrees that it will not and
will cause its Affiliates not to solicit any offer to buy or make any
offer or sale of, or otherwise negotiate in respect of, securities of any
of the Issuers of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 under the 1933 Act, such offer or
sale would render invalid (for the purpose of (i) the sale of the
Securities by the Issuers to the Initial Purchaser, (ii) the resale of the
Securities by the Initial Purchaser to Subsequent Purchasers or (iii) the
resale of the Securities by such Subsequent Purchasers to others) the
exemption from the registration requirements of the 1933 Act provided by
Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or
otherwise.
(iii) RULE 144A INFORMATION. The Issuers agree that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the Securities remain outstanding, they will make
available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Issuers furnish information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "ADDITIONAL INFORMATION").
(iv) RESTRICTION ON REPURCHASES. Until the expiration of two years
after the original issuance of the Securities, the Issuers will not, and
will cause their Affiliates not to, purchase or agree to purchase or
otherwise acquire any Securities which are "restricted securities" (as
such term is defined under Rule 144(a)(3) under the 1933 Act), whether as
beneficial owner or otherwise (except as agent acting as a securities
broker on behalf of and for the account of customers in the ordinary
course of business in unsolicited broker's transactions).
(c) RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE 144A. The
Initial Purchaser understands that the Securities have not been and will not be
registered under the 1933 Act and may not be offered or sold within the United
States or to, or for the account
<PAGE>
-29-
or benefit of, U.S. persons except in accordance with Regulation S under the
1933 Act or pursuant to an exemption from the registration requirements of the
1933 Act. The Initial Purchaser represents and agrees, that, except as permitted
by Section 6(a) above, it has offered and sold Securities and will offer and
sell Securities (i) as part of its distribution at any time and (ii) otherwise
until forty days after the later of the date upon which the offering of the
Securities commences and the Closing Time, in each case only in accordance with
Rule 903 of Regulation S, or another applicable exemption from the registration
provisions of the 1933 Act or Rule 144A under the 1933 Act. Accordingly, neither
the Initial Purchaser, its affiliates nor any persons acting on its behalf have
engaged or will engage in any directed selling efforts with respect to
Securities, and the Initial Purchaser, its affiliates and any person acting on
its behalf have complied and will comply with the offering restriction
requirements of Regulation S. The Initial Purchaser agrees that, at or prior to
confirmation of a sale of Securities (other than a sale of Securities pursuant
to Rule 144A) it will have sent to each distributor, dealer or person receiving
a selling concession, fee or other remuneration that purchases Securities from
it or through it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under the United
States Securities Act of 1933 (the "SECURITIES ACT") and may not be
offered or sold within the United States or to or for the account or
benefit of U.S. persons (i) as part of their distribution at any time and
(ii) otherwise until forty days after the later of the date upon which the
offering of the Securities commenced and the date of closing, except in
either case in accordance with Regulation S, Rule 144A under the
Securities Act or another exemption from the registration requirements of
the 1933 Act. Terms used above have the meaning given to them by
Regulation S."
Terms used in the above paragraph have the meanings given to them by Regulation
S.
SECTION 7. INDEMNIFICATION.
(a) INDEMNIFICATION OF INITIAL PURCHASER. The Issuers agree, jointly
and severally, to indemnify and hold harmless the Initial Purchaser and each
person, if any, who controls the Initial Purchaser within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or
<PAGE>
-30-
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; PROVIDED that (subject to Section
7(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Initial Purchaser in writing expressly for use in the Offering Memorandum
(or any amendment thereto) and PROVIDED, FURTHER, that the Issuers will not be
liable to the Initial Purchaser hereunder with respect to any such loss,
liability, claim, damage or expense that resulted from the fact that the Initial
Purchaser sold Securities to a person to whom the Initial Purchaser failed to
send or give, at or prior to the Closing Time, a copy of the Final Offering
Memorandum, as then amended or supplemented, if the Issuers have previously
furnished copies thereof (sufficiently in advance of the Closing Time to allow
for distribution by the Closing Time) to the Initial Purchaser and the loss,
liability, claim, damage or expense of the Initial Purchaser resulted from an
untrue statement or omission or alleged untrue statement or omission of a
material fact contained in or omitted from the Preliminary Offering Memorandum
that was corrected in the Final Offering Memorandum or, if applicable, amended
or supplemented prior to the Closing Time.
(b) INDEMNIFICATION OF ISSUERS, DIRECTORS AND OFFICERS. The Initial
Purchaser agrees to indemnify and hold harmless the Issuers and each person, if
any, who controls the Issuers within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity
<PAGE>
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contained in subsection (a) of this Section, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Offering Memorandum in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of the Initial
Purchaser expressly for use in the Offering Memorandum.
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 7(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 7(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered
<PAGE>
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into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 8. CONTRIBUTION. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers on the one hand and the Initial Purchaser on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Issuers on the one hand and of the
Initial Purchaser on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Issuers on the one hand and
the Initial Purchaser on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Issuers and the total underwriting discount received by the Initial
Purchaser, bear to the aggregate initial offering price of the Securities.
The relative fault of the Issuers on the one hand and the Initial
Purchaser on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuers or by the Initial Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
Each of the Issuers and the Initial Purchaser agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Initial Purchaser were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 8 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any
<PAGE>
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claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission.
Notwithstanding the provisions of this Section 8, the Initial
Purchaser shall not be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which the Initial Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls
the Initial Purchaser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Initial Purchaser, and each person, if any, who controls the Issuers within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Issuers.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of any of the Issuers submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Initial Purchaser or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities to the Initial Purchaser.
SECTION 10. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Initial Purchaser may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any 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 financial condition or in the earnings or business affairs of the Company
and its Subsidiaries (including Heat, Inc. and H.I.G. Vinyl, Inc. and their
respective subsidiaries and Champagne Industries, Inc.) considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political,
<PAGE>
-34-
financial or economic conditions, in each case the effect of which is such as to
make it, in the judgment of the Initial Purchaser, impracticable to market the
Securities or to enforce contracts for the sale of the Securities, or (iii) if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market System has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7, 8, 9 and 14 shall survive such termination and remain in full force and
effect.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchaser shall be directed to Merrill Lynch at North Tower, World Financial
Center, New York, New York 10281-1201, attention of Scott Gutterman, with a copy
to Cahill Gordon & Reindel, 80 Pine Street, New York, NY 10005, Attention:
Michael E. Michetti, Esq.; notices to the Issuers shall be directed to the
Company at 1341 West Mockingbird Lane, Suite 1200W, Dallas, Texas 75247,
attention of Jeff Hull, with a copy to Paul, Hastings, Janofsky, & Walker LLP,
399 Park Avenue, New York, NY 10022, Attention: Joel Simon, Esq. and Marie
Censoplano, Esq.
SECTION 12. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Initial Purchaser and the Issuers and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchaser and the Issuers and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchaser and the
Issuers and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
the Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
<PAGE>
-35-
SECTION 13. INFORMATION SUPPLIED BY THE INITIAL PURCHASER. The
statements set forth in the second paragraph, in the second sentence of the
fourth paragraph, in the seventh and eighth paragraphs and in the second
sentence in the tenth paragraph, in each case under the heading "Plan of
Distribution" in the Offering Memorandum (in each case, to the extent such
statements relate to the Initial Purchaser) constitute the only information
furnished by the Initial Purchaser to the Company for use in the Offering
Memorandum for the purposes of Sections 1,7 and 8 hereof.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADING. The Section headings herein and the
Table of Contents are for convenience only and shall not affect the construction
hereof.
[Signature Pages Follow]
<PAGE>
S-1
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchaser, the Company and the Guarantors in accordance with
its terms.
Very truly yours,
ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY -
WEST COAST
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY
OF THE NORTHEAST
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY
OF NEW YORK
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-2
ATRIUM DOOR AND WINDOW COMPANY
OF ARIZONA
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY
OF NEW ENGLAND
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
DOOR HOLDINGS, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
R.G. DARBY COMPANY, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
R.G. DARBY COMPANY, INC.- SOUTH
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-3
TOTAL TRIM, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
TOTAL TRIM, INC.- SOUTH
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
WING INDUSTRIES HOLDINGS, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
WING INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-4
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Scott P. Guetterman
-------------------------------
Name: Scott P. Guetterman
Title: Vice President
<PAGE>
SCHEDULE A
GUARANTORS
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.G. Darby Company, Inc.
R.G. Darby Company, Inc.-South
Total Trim, Inc.
Total Trim, Inc.-South
Wing Industries Holdings, Inc.
Wing Industries, Inc.
Heat, Inc.(1)
H.I.G. Vinyl, Inc.*
Champagne Industries, Inc.*
Thermal Industries, Inc.*
Best Built, Inc.*
- ----------
(1) To become Guarantors pursuant to the Joinder Agreement.
<PAGE>
SCHEDULE B
SUBSIDIARIES
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.G. Darby Company, Inc.
R.G. Darby Company, Inc.-South
Total Trim, Inc.
Total Trim, Inc.-South
Wing Industries Holdings, Inc.
Wing Industries, Inc.
Heat, Inc.(2)
H.I.G. Vinyl, Inc.*
Champagne Industries, Inc.*
Thermal Industries, Inc.*
Best Built, Inc.*
- ----------
(2) To become Guarantors pursuant to the Joinder Agreement.
<PAGE>
EXHIBIT A
ATRIUM COMPANIES, INC.
(a Delaware corporation)
$175,000,000
10 1/2% Senior Subordinated Notes due 2009
JOINDER AGREEMENT
May [ ], 1999
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Reference is hereby made to that certain purchase agreement (the
"PURCHASE AGREEMENT") dated as of May 10, 1999 among Atrium Companies, Inc., a
Delaware corporation (the "COMPANY"), the guarantors named therein (the
"GUARANTORS") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Purchase Agreement.
Each of the undersigned hereby acknowledges that it has received and
reviewed a copy of the Purchase Agreement, and acknowledges and agrees to (i)
join and become a party to the Purchase Agreement as a Guarantor as indicated by
its signature below and to execute and deliver the Indenture and the
Registration Rights Agreement and to deliver a notation of its Guarantee to be
endorsed on each Note authenticated under the Indenture; (ii) be bound by all
covenants, agreements, representations, warranties and acknowledgments
attributable to a Guarantor in the Purchase Agreement; and (iii) perform all
obligations and duties required of a Guarantor pursuant to the Purchase
Agreement. Each of the undersigned hereby makes as of the date hereof all of the
representations and warranties of a Guarantor in the Purchase Agreement.
The jurisdiction of incorporation of each of the undersigned is as
set forth on ANNEX A hereto.
THIS JOINDER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[Signature page follows]
<PAGE>
S-1
IN WITNESS WHEREOF, each of the undersigned has caused this Joinder
Agreement to be duly executed and delivered in New York, New York, by its proper
and duly authorized officer as of the date set forth above.
HEAT, INC.
H.I.G. VINYL, INC.
CHAMPAGNE INDUSTRIES, INC.
THERMAL INDUSTRIES, INC.
BEST BUILT, INC.
By:
------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------
Name:
Title:
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
Subsidiary State of Incorporation States Where Qualified
- ---------- ---------------------- ----------------------
<S> <C> <C>
Heat, Inc. Delaware
H.I.G. Vinyl, Inc. Delaware
Champagne Industries, Inc. Colorado
Thermal Industries, Inc. Delaware Connecticut, Florida,
Georgia, Illinois,
Massachusetts, Michigan,
Missouri, New York, North
Carolina, Ohio,
Pennsylvania, Tennessee,
Virginia
Best Built, Inc. Delaware Washington
</TABLE>
<PAGE>
Exhibit 1.2
ATRIUM COMPANIES, INC.
(a Delaware corporation)
$175,000,000
10 1/2% Senior Subordinated Notes due 2009
JOINDER AGREEMENT
May 17, 1999
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Reference is hereby made to that certain purchase agreement (the
"PURCHASE AGREEMENT") dated as of May 10, 1999 among Atrium Companies, Inc., a
Delaware corporation (the "COMPANY"), the guarantors named therein (the
"GUARANTORS") and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Purchase Agreement.
Each of the undersigned hereby acknowledges that it has received and
reviewed a copy of the Purchase Agreement, and acknowledges and agrees to (i)
join and become a party to the Purchase Agreement as a Guarantor as indicated
by its signature below and to execute and deliver the Indenture and the
Registration Rights Agreement and to deliver a notation of its Guarantee to
be endorsed on each Note authenticated under the Indenture; (ii) be bound by
all covenants, agreements, representations, warranties and acknowledgments
attributable to a Guarantor in the Purchase Agreement; and (iii) perform
<PAGE>
all obligations and duties required of a Guarantor pursuant to the Purchase
Agreement. Each of the undersigned hereby makes as of the date hereof all of
the representations and warranties of a Guarantor in the Purchase Agreement.
The jurisdiction of incorporation of each of the undersigned is as set
forth on ANNEX A hereto.
THIS JOINDER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
[Signature page follows]
<PAGE>
S-3
IN WITNESS WHEREOF, each of the undersigned has caused this Joinder
Agreement to be duly executed and delivered in New York, New York, by its
proper and duly authorized officer as of the date set forth above.
HEAT, INC.
H.I.G. VINYL, INC.
CHAMPAGNE INDUSTRIES, INC.
THERMAL INDUSTRIES, INC.
BEST BUILT, INC.
By: /s/ Jeff L. Hull
-----------------------------
Name: JEFF L. HULL
Title: Executive Vice President
Treasurer and Secretary
<PAGE>
S-4
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Scott P. Gutterman
-----------------------------------
Name: Scott P. Gutterman
Title: Vice President
<PAGE>
S-5
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION STATES WHERE QUALIFIED
- ---------- ---------------------- ----------------------
<S> <C> <C>
Heat, Inc. Delaware
H.I.G. Vinyl, Inc. Delaware
Champagne Industries, Inc. Colorado
Thermal Industries, Inc. Delaware Connecticut, Florida, Georgia,
Illinois, Massachusetts,
Michigan, Missouri, New York,
North Carolina, Ohio,
Pennsylvania, Tennessee,
Virginia
Best Built, Inc. Delaware Washington
</TABLE>
<PAGE>
Exhibit 2.5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this 10TH day of MAY, 1999 by and among CHAMPAGNE INDUSTRIES,
INC., a Colorado corporation (the "Company"), DONALD SLOANE and DAVID
HILLIARD (the "Selling Stockholders"), and ATRIUM COMPANIES, INC., a Delaware
corporation ("Buyer").
RECITALS:
WHEREAS, the total authorized capital stock of the Company
consists of 50,000 shares of common stock, no par value (the "Common Stock"),
of which 6,000 shares are issued and outstanding; and
WHEREAS, the Selling Stockholders own all of the issued and
outstanding shares of Common Stock; and
WHEREAS, as of the Closing Date (defined below), 6,000
shares of Common Stock will be issued and outstanding; and
WHEREAS, the Selling Stockholders desire to sell all of the
shares of Common Stock owned by them to Buyer, upon the terms and subject to
the conditions hereinafter set forth, which aggregate shares of Common Stock
to be sold are sometimes referred to herein as the "Company Stock."
NOW, THEREFORE, in consideration of the mutual promises,
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:
1. DEFINITIONS.
For purposes of this Agreement and the Schedules attached
hereto, the following terms shall have the meaning specified or referred to
below unless the context requires otherwise:
(a) BREACH. A BREACH of a representation, warranty,
covenant, obligation or other provision of this Agreement or any Related
Agreement will be deemed to have occurred if there is, or has been, any
inaccuracy in or misrepresentation of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation or other provision.
<PAGE>
(b) BUYER. Has the meaning assigned to such term in the
first paragraph hereof.
(c) BUYER LOSS OR BUYER LOSSES. Have the meanings assigned
to such terms in Section 14(a) hereof.
(d) CASH ADJUSTMENT. Has the meaning assigned to such term
in Section 3.2(a)(i) hereof.
(e) CLAIM. Has the meaning assigned to such term in Section
14(c)(i) hereof.
(f) CLOSING. The consummation of the Contemplated
Transactions.
(g) CLOSING BALANCE SHEET. Has the meaning assigned to such
term in Section 3.2(a)(i) hereof.
(h) CLOSING DATE. The close of business on the date the
Closing actually takes place.
(i) CODE. Has the meaning assigned to such term in Section
6.15(b) hereof.
(j) COMMON STOCK. Has the meaning assigned to such term in
the first recital hereof.
(k) COMPANY. Has the meaning assigned to such term in the
first paragraph hereof.
(l) COMPANY STOCK. Has the meaning assigned to such term in
the fourth recital hereof.
(m) CONFIDENTIAL INFORMATION. Has the meaning assigned to
such term in Section 26 hereof.
(n) CONTEMPLATED TRANSACTIONS. Collectively, all of the
transactions contemplated by this Agreement and each of the Related
Agreements.
(o) CONTRACT. Any agreement or contract, whether written or
oral, that is legally binding, including any commitment to purchase.
(p) DISCLOSER. Has the meaning assigned to such term in
Section 26 hereof.
-2-
<PAGE>
(q) ENCUMBRANCE. Any mortgage, deed of trust, assessment,
judgment, government or municipal restriction, charge, claim, equitable
interest, lien, option, pledge, security interest, right of first refusal or
other encumbrance.
(r) ENVIRONMENTAL CLAIM. Has the meaning assigned to such
term in Section 6.20(g) hereof.
(s) ENVIRONMENTAL CONSULTANT. Has the meaning assigned to
such term in Section 16 hereof.
(t) ENVIRONMENTAL LAWS. Has the meaning assigned to such
term in Section 6.20(g) hereof.
(u) ENVIRONMENTAL REVIEW. Has the meaning assigned to such
term in Section 16 hereof.
(v) ERISA. The Employee Retirement Income Security Act of
1974, as amended, or any successor law, and the regulations and rules issued
pursuant to that act or to any successor law.
(w) ERISA AFFILIATE. Has the meaning assigned to such term
in Section 6.15(a) hereof.
(x) ESCROW AGENT. Has the meaning assigned to such term in
Section 2(a) hereof.
(y) ESCROW AGREEMENT. Has the meaning assigned to such term
in Section 2(a) hereof.
(z) ESTIMATED TAX AMOUNT. Has the meaning assigned to such
term in Section 15(c)(i) hereof.
(aa) EXCHANGE ACT. Has the meaning assigned to such term in
Section 5.2 hereof.
(bb) FINANCIAL STATEMENTS. Collectively, the Company's
consolidated balance sheets and related reviewed statements of operations,
changes in stockholders' equity and statements of cash flows as of and for
the fiscal years ended December 31, 1996, 1997 and 1998, including the notes
thereto and the reports prepared in connection therewith by independent
certified public accountants, and the Company's consolidated internally
prepared unaudited interim balance sheets and related unaudited interim
statements of operations and changes in stockholders' equity for the three
months ended March 31, 1999. The term "Financial Statements" shall include
the financial statements delivered to Buyer pursuant to Section 6.3(b) hereof.
-3-
<PAGE>
(cc) GAAP. At any particular time, United States generally
accepted accounting principles as in effect at such time; provided, however,
that, if it were permissible to use more than one principle at such time in
respect of a particular accounting matter, GAAP shall refer to the principle
which was then employed by the Company.
(dd) HAZARDOUS MATERIAL. Has the meaning assigned to such
term in Section 6.20(g) hereof.
(ee) HSR ACT. Has the meaning assigned to such term in
Section 28 hereof.
(ff) INSIDER or INSIDERS. Has the meaning assigned to such
term in Section 5.2 hereof.
(gg) INTELLECTUAL PROPERTY RIGHTS. Has the meaning assigned
to such term in Section 6.8(a) hereof.
(hh) IRS. Has the meaning assigned to such term in Section
6.5 hereof.
(ii) LEASED REAL PROPERTY. Collectively, the real estate
leased by the Company, together with the Company's leasehold interests in and
to all buildings and improvements erected thereon, and all fixtures and
appliances installed in, attached to, or situated in or upon such real estate
and any and all appurtenances relating to such real estate.
(jj) LIABILITIES. Collectively, any debt, obligation, or
liability.
(kk) LOSSES. Buyer Losses or Seller Losses, as applicable.
(ll) NET WORKING CAPITAL. (i) the sum of accounts
receivable, inventories, prepaids and other current assets (excluding cash,
cash equivalents and the current portion of any notes receivable) less (ii)
the sum of all outstanding checks, accounts payable, accrued wages and all
other current Liabilities, excluding those relating to Taxes, debt,
capitalized leases and interest, in each case in (i) and (ii) above, as
recorded on the Closing Balance Sheet in accordance with GAAP.
(mm) OBSOLETE INVENTORY. All inventory that (i) is damaged
or modified beyond use, (ii) was purchased in connection with a discontinued
product, (iii) cannot be sold in the ordinary
-4-
<PAGE>
course of business consistent with past practices of the Company, (iv) did
not turn over during the previous six (6) month period, or (v) will not turn
over in the next six (6) month period.
(nn) PERSON. Any individual, corporation, general or
limited partnership, limited liability company, limited liability
partnership, joint venture, estate, trust, association, organization,
governmental body or other entity or body.
(oo) PLANS. Has the meaning assigned to such term in
Section 6.15(a) hereof.
(pp) PROCEEDING. Any action, arbitration, audit, claim,
charge, complaint, investigation, petition, litigation or suit (whether
civil, criminal, administrative, investigative or informal) commenced,
brought, conducted, or heard by or before, or otherwise involving, any court,
or federal, state, municipal or governmental department or any commission,
board, bureau, agency, instrumentality, administrator or arbitrator.
(qq) PROPERTIES. Has the meaning assigned to such term in
Section 16 hereof.
(rr) PURCHASE PRICE. Subject to adjustment as set forth
herein the aggregate amount of consideration payable by Buyer upon the
delivery by the Selling Stockholders of the Company Stock owned by them.
(ss) REAL PROPERTY. Collectively, the real estate owned by
the Company, together with all of the Company's rights, title and interests
in and to all buildings and improvements erected thereon, and all fixtures
and appliances installed in, attached to, or situated in or upon such real
estate and any and all appurtenances relating to such real estate.
(tt) RECIPIENT. Has the meaning assigned to such term in
Section 26 hereof.
(uu) RELATED AGREEMENTS. Collectively, all agreements,
documents, certificates and instruments to be delivered pursuant to or in
connection with this Agreement or the Contemplated Transactions, including
the Exhibits hereto.
(vv) SELLER LOSS OR SELLER LOSSES. Have the meanings
assigned to such terms in Section 14(b) hereof.
(ww) SELLING STOCKHOLDERS. Has the meaning assigned to such
term in the first paragraph hereof.
-5-
<PAGE>
(xx) STRADDLE PERIOD. Has the meaning assigned to such term
in Section 15(a) hereof.
(yy) SYSTEMS. Has the meaning assigned to such term in
Section 6.25 hereof.
(zz) TAX OR TAXES. All Federal, state, local or foreign
taxes of any kind, charges, fees, customs, duties, imposts, levies, required
deposits or other assessments, including, without limitation, all net or
gross income, gross receipts, ad valorem, value added, transfer, gains,
franchise, profits, inventory, worth, capital stock, asset, sales, use,
license, estimated, withholding, payroll, transaction, capital, employment
(including required deposits), social security, workers compensation,
unemployment, excise, severance, stamp, occupation, real estate and real and
personal property taxes, together with any interest and any penalties, fines,
additions to tax or additional amounts imposed by any taxing authority
(domestic or foreign) including any obligations under Treasury Regulations
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.
(aaa) TAX LIABILITIES. Any Liabilities for Taxes.
(bbb) TAX RETURN. Any return, report, declaration, form or
other documents or information filed with or submitted to, or required to be
filed with or submitted to, any governmental body in connection with the
determination, assessment, collection or payment of any Tax (including all
filings with respect to employment-related Taxes).
(ccc) TERMINATING LIABILITIES. Has the meaning assigned to
such term in Section 2 hereof.
(ddd) THIRD PARTY ACCOUNTING FIRM. Has the meaning assigned
to such term in Section 3.2(a)(ii) hereof.
(eee) THREATENED. A Proceeding, claim, dispute or other
matter will be deemed to have been THREATENED with respect to a Person, if
such Person has received any demand, statement or other notice with respect
to such Proceeding, claim, dispute or other matter.
(fff) TRADE SECRET. Has the meaning assigned to such term
in Section 6.8(b) hereof.
(ggg) UNPAID TAXES. Has the meaning assigned to such
-6-
<PAGE>
term in Section 15(c)(i) hereof.
(hhh) WELFARE PLAN. Has the meaning assigned to such term
in Section 6.15(l)
2. PURCHASE AND SALE OF COMPANY STOCK. At the Closing, (i) the
Selling Stockholders, in reliance on the representations, warranties and
covenants of Buyer contained herein and subject to the terms and conditions
of this Agreement, shall sell to Buyer all of the shares of the Company
Stock; and (ii) Buyer, in reliance on the representations, warranties and
covenants of the Company and the Selling Stockholders contained herein and
subject to the terms and conditions of this Agreement, shall purchase such
shares of Company Stock from the Selling Stockholders for the aggregate
Purchase Price of $3,632,780 in cash, which includes an amount sufficient for
the Selling Stockholders to repay the Liabilities of the Company set forth in
Sections 9.9, 9.12, 9.19 and 15(c) hereof (the "Terminating Liabilities").
The Purchase Price will be paid by Buyer at the Closing as follows:
(a) In order to secure the Selling Stockholders'
obligations to indemnify Buyer, Buyer shall deliver or cause to be delivered
to Bank One Texas, N.A. (the "Escrow Agent") $250,000 in cash by wire
transfer of immediately available funds, and such amounts shall be held by
the Escrow Agent, subject to the terms and conditions of, and for the period
set forth in, an Escrow Agreement substantially in the form of Exhibit A
hereto (the "Escrow Agreement"); and
(b) Buyer shall deliver or cause to be delivered to the
Escrow Agent the $3,382,780 in cash by wire transfer of immediately available
funds, with funds in the amounts set forth in Schedule B to the Escrow
Agreement being paid to the parties set forth opposite such amounts.
3. CLOSING. The Closing of such purchase and sale of Company Stock
shall take place at the offices of Paul, Hastings, Janofsky & Walker LLP, New
York, New York on or about the 17th day of May, 1999, at 10:00 A.M., or at
such other time and place as shall be mutually agreed upon by Buyer, the
Company and the Selling Stockholders.
3.1 DELIVERY OF COMPANY STOCK. At the Closing, each Selling
Stockholder shall deliver or cause to be delivered to Buyer, free and clear
of all Encumbrances thereon of every kind, the certificates for the shares of
the Company Stock owned by him in negotiable form for valid transfer, duly
endorsed in blank or with separate executed stock transfer powers attached.
3.2 ADJUSTMENTS TO THE PURCHASE PRICE.
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<PAGE>
(a) (i) Within sixty (60) days subsequent to the Closing
Date, the Company shall prepare in accordance with GAAP a consolidated
balance sheet of the Company as of the close of business on the Closing Date,
including all normal year-end adjustments based on methodologies consistent
with those used in connection with preparing the reviewed balance sheet of
the Company dated as of December 31, 1998 (the "Closing Balance Sheet"). Upon
completion of the Closing Balance Sheet, the Company shall determine the
post-closing cash adjustment (the "Cash Adjustment"). The Company shall
promptly deliver to Buyer and the Selling Stockholders (i) a copy of the
Closing Balance Sheet and (ii) a reasonably detailed calculation of the Cash
Adjustment along with the basis for such calculations. The Cash Adjustment
shall be equal to the Company's cash and cash equivalents as set forth on the
Closing Balance Sheet. In the event that the Company shall have failed to
make the payments required by Section 4 hereof, the Cash Adjustment shall be
decreased by an amount equal to any such payments. If the Selling
Stockholders do not object to the amount of the Cash Adjustment within twenty
(20) business days of receipt thereof, the Selling Stockholders shall pay to
Buyer, or Buyer shall pay to the Selling Stockholders, as the case may be, no
later than the fifth business day after the twentieth business day following
receipt of the calculation of the Cash Adjustment an amount in cash equal to
the Cash Adjustment, if any.
(ii) If the Selling Stockholders object to the Cash
Adjustment, if any, they shall notify Buyer within twenty (20) business days
following receipt thereof, setting forth in specific detail the basis for
their objection and their proposal for any adjustments to the Cash
Adjustment. Buyer and the Selling Stockholders shall seek in good faith to
reach agreement as to any such proposed adjustment or that no such adjustment
is necessary within thirty (30) days following receipt of notice of the
Selling Stockholders' objection. If agreement is reached in writing within
such period as to all proposed further adjustments, or that no adjustments
are necessary, the parties shall make such adjustments, if any, and the Cash
Adjustment shall be based thereon. If Buyer and the Selling Stockholders are
unable to reach agreement within thirty (30) days following receipt of notice
of the Selling Stockholders' objection, then a "Big-5" accounting firm as
agreed upon by Buyer and the Selling Stockholders (the "Third Party
Accounting Firm") shall be engaged to review the proposed Cash Adjustment
and, to the extent necessary, the Closing Balance Sheet, and shall make a
determination as to the resolution of any adjustments necessary to cause the
Cash Adjustment to have been properly prepared in accordance with this
Agreement. All such resolutions shall relate only to such matters as are
still in dispute and shall represent either agreement with the position taken
by Buyer or
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the Selling Stockholders or a compromise between such positions. The
determination of the Third Party Accounting Firm shall be delivered as soon
as practicable following selection of the Third Party Accounting Firm and
shall be final, conclusive and binding upon Buyer. Thereafter, the Selling
Stockholders shall pay to Buyer, or Buyer shall pay to the Selling
Stockholders, as the case may be, not later than five days following the
determination of adjustments by the Third Party Accounting Firm, an amount in
cash equal to the Cash Adjustment, as the case may be, if any, as determined
by the Third Party Accounting Firm. All fees and expenses of the Third Party
Accounting Firm shall be borne pro rata by the Company and the Selling
Stockholders in proportion to the allocation of the dollar amount of changes
made by the Third Party Accounting Firm such that the prevailing party pays a
lesser portion of such fees and expenses.
(iii) The Selling Stockholders and accountants and
representatives designated by them (which shall not, in any event, be
employees of the Company) shall be permitted full access to examine the books
and records of the Company upon their reasonable request in connection with
their review of the Closing Balance Sheet and the Cash Adjustment at such
reasonable times and in a reasonable manner mutually acceptable to Buyer and
the Selling Stockholders during the twenty (20) business day period following
delivery to the Selling Stockholders of the calculation of the Cash
Adjustment, if any.
(iv) At least two (2) business days prior to the Closing
Date, the Selling Stockholders shall provide Buyer with a list of all checks
written by the Company during the sixty (60) day period prior to the Closing
Date. The list shall indicate which checks have been cashed.
(b) The Purchase Price shall be reduced on the Closing Date
by the amount of any obligation described in Section 9.9 hereof which Buyer
agrees will not be repaid at or prior to the Closing and will remain with the
Company after the Closing.
4. PAYMENTS TO BE MADE. The Selling Stockholders and the Company
agree to cause all providers of services relating to the Contemplated
Transactions to deliver to the Company their invoices in respect of such
services prior to Closing. The Company shall, immediately prior to the
Closing, pay (i) all fees and expenses incurred by the Company and the
Selling Stockholders relating to the Contemplated Transactions, and (ii) the
Terminating Liabilities, in each case, out of the Company's cash and cash
equivalents. In the event the payments made pursuant to this Section 4, prior
to giving effect thereto, exceed the Company's cash and cash equivalents as
set forth on the Closing Balance Sheet, such excess shall be paid directly by
the Selling Stockholders to Buyer.
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5. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders represents and warrants to Buyer as follows:
5.1 STOCK OWNERSHIP AND OTHER MATTERS.
(a) Such Selling Stockholder is the lawful owner of record
and beneficially of the number of shares of Common Stock set forth opposite
his name on Schedule 5.1 hereto, free and clear of all Encumbrances of every
kind, and such Selling Stockholder has full legal power and capacity and all
authorization required by law to transfer and deliver such shares of Common
Stock owned by him in accordance with this Agreement. At the Closing, such
Selling Stockholder will be the lawful owner of record and beneficially of
the number of shares of Common Stock set forth opposite his name on Schedule
5.1 hereto and shall validly convey and transfer to Buyer such shares of
Common Stock owned by him, free and clear of all Encumbrances. Such Selling
Stockholder does not and, at the Closing, will not, own any capital stock of
the Company except as set forth above. None of the Common Stock owned by such
Selling Stockholder is, or at the Closing, will be, subject to restrictions
on the transfer thereof, except for restrictions imposed by applicable
Federal and state securities laws. Such Selling Stockholder is not, and, at
the Closing, will not be, a party to or bound by any Contract which grants to
any Person an option or right of first refusal or other right of any
character to acquire at any time, or upon the happening of any stated events,
shares of capital stock or other securities of the Company whether or not
presently issued and outstanding.
(b) Such Selling Stockholder is not a "foreign person"
within the meaning of Internal Revenue Code Section 1445(f)(3) and Treasury
Regulation Section 1.1445-2(b)(2)(i). There is no pending action or
Proceeding that has been commenced against such Selling Stockholder that may
have the effect of preventing, delaying or making illegal the Contemplated
Transactions and, to the best knowledge of such Selling Stockholder, no such
action or Proceeding has been Threatened. Except as set forth on Schedule 5.1
hereto, neither the execution and delivery of this Agreement or the Related
Agreements by such Selling Stockholder nor the consummation by such Selling
Stockholder of the transactions provided for herein or therein will conflict
with, violate, or result in a breach of, default under or the creation of any
Encumbrance pursuant to, any agreement to which such Selling Stockholder is a
party or by which it is bound or any law, order, judgment or decree or any
provision of the Articles of Incorporation or By-Laws of the Company or such
Selling Stockholder or any Contract to which the
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Company or such Selling Stockholder is a party. Such Selling Stockholder has
full power and legal authority and full legal capacity to execute and deliver
this Agreement and the Related Agreements and to consummate and perform the
transactions contemplated hereby and thereby to be performed by him. The
execution and delivery of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby are within
the power of such Selling Stockholder and have been duly executed and
delivered by such Selling Stockholder and constitute the legal, valid and
binding obligations of such Selling Stockholder, enforceable against him in
accordance with their respective terms. Except as set forth on Schedule 5.1
hereto, no permit, authorization, consent or approval of, or filing with or
notification to, any governmental, regulatory or administrative body or any
other third party is required in connection with the execution and delivery
of this Agreement and the Related Agreements by such Selling Stockholder. No
representation or warranty by such Selling Stockholder in this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make any statement herein
not misleading.
5.2 TRANSACTIONS WITH AFFILIATES. Schedule 5.2 hereto sets forth,
for (i) such Selling Stockholder, or (ii) any corporation, partnership,
limited liability company, trust or other entity in which such Selling
Stockholder owns any beneficial interest (other than any publicly-held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than five percent (5%) of the stock of which
is beneficially owned by such Selling Stockholder), or is a trustee, partner
or holder of more than five percent (5%) of the outstanding capital stock
thereof or is otherwise an "affiliate" (as such term is defined in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) thereof (collectively "Insiders" and, each individually, an
"Insider"), every agreement, undertaking, understanding or compensation
arrangement of any Insider with the Company (other than normal employment
arrangements) and any interest of any Insider in any property, real, personal
or mixed, tangible or intangible, used in or pertaining to the business of
the Company (other than ownership of capital stock of the Company). Except as
set forth on Schedule 5.2 hereto, none of the Insiders has any direct or
indirect interest exceeding five percent (5%) in any competitor or supplier
of the Company or in any Person from whom or to whom the Company leases any
property, or in any other Person with whom the Company transacts business of
any nature.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The Company and the Selling Stockholders represent and warrant to
Buyer as follows:
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6.1 ORGANIZATION, STANDING, QUALIFICATION AND CAPITALIZATION. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado, and has all requisite
corporate power and authority to conduct its business as presently conducted
and to own and lease the properties and assets used in connection therewith.
A complete and accurate copy of (i) the Articles of Incorporation of the
Company, and all amendments thereto certified by the Secretary of State of
the State of Colorado, and (ii) the By-Laws of the Company, and all
amendments thereto certified by the Company's Secretary will be delivered to
Buyer at least ten (10) days prior to the Closing Date. The Company is in
good standing in the jurisdictions listed in Schedule 6.1 hereto and there
are no jurisdiction in which the Company is required to be qualified to do
business as a foreign corporation where failure to so qualify would,
individually or in the aggregate, have a material adverse effect on the
business, operations, properties, assets, Liabilities or financial condition
of the Company (a "Material Adverse Effect").
The total authorized capital stock of the Company consists
of 50,000 shares of Common Stock, no par value, of which 6,000 shares are
issued and outstanding. All of such shares were duly authorized and validly
issued and are fully paid and nonassessable. There are no shares of capital
stock of the Company issued and outstanding except for such shares. None of
such shares was issued in violation of any preemptive or preferential right.
There are currently no outstanding conversion or exchange rights,
subscriptions, options, warrants or other arrangements or commitments
obligating the Company to issue or transfer any shares of capital stock or
other securities. The Company is not and, at the Closing, will not be, nor
does the Company or any of the Selling Stockholders have any knowledge that
any holder of Common Stock is, a party to or bound by any Contract which
grants to any Person an option or right of first refusal or other right of
any character to acquire at any time, or upon the happening of any stated
events, shares of capital stock or other securities of the Company whether or
not presently issued or outstanding. A total of 6,000 shares of Common Stock
will be issued and outstanding as of the Closing Date. As of the Closing
Date, all of such shares will be duly authorized and validly issued, fully
paid and nonassessable and will not have been issued in violation of any
preemptive or preferential right.
6.2 EQUITY OWNED BY THE COMPANY. Except as set forth on Schedule 6.2
hereto, the Company, directly or indirectly, owns no shares of any
corporation and has no interest in any partnership, limited liability
company, joint venture or other legal entity.
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6.3 FINANCIAL STATEMENTS. Schedule 6.3 hereto includes complete and
accurate copies of the Financial Statements, all of which have been prepared
in accordance with GAAP applied on a basis consistent with that of the
preceding fiscal year subject, in the case of interim financial statements,
to (i) the absence of footnote disclosures and notes, and (ii) changes
resulting from year-end adjustments consistent with year-end adjustments made
in connection with the year-end periods referred to in the Financial
Statements.
(a) The Financial Statements heretofore furnished to Buyer
do, and the financial statements furnished to Buyer after the date hereof
pursuant to Section 6.3(b) will, fairly present the financial condition and
results of operations, equity and cash flow of the Company as of the
respective dates of and for the respective periods referred to in the
Financial Statements, all in accordance with GAAP consistently applied
subject, in the case of interim financial statements to (i) the absence of
footnote disclosures and notes, and (ii) changes resulting from year-end
adjustments consistent with year-end adjustments made in connection with the
year-end periods referred to in the Financial Statements.
(b) Within 15 days following the end of each month, the
Company will deliver to Buyer complete and accurate copies of unaudited
balance sheet of the Company as of the end of each month ending subsequent to
the date hereof and prior to the Closing Date and the related statements of
operations and changes in stockholders' equity and statements of cash flows
for each month then ended.
(c) All inventory of the Company as set forth in the
Financial Statements consisted of, and all inventory as of the Closing Date
will consist of, raw materials, work-in-process and finished goods of a
quality and quantity usable or salable in the ordinary course of business of
the Company. The value at which inventories were reflected in the Financial
Statements was the lower of cost or market value adjusted to conform to FIFO
inventory valuation principles, with adequate provision for obsolete
material, all in accordance with GAAP applied on a basis consistent with that
of the preceding fiscal year.
(d) All accounts receivable of the Company as set forth in
the Financial Statements are, and all accounts receivable which arise between
the date hereof and the Closing Date will be, genuine, valid, binding and
subsisting, having arisen or arising out of bona fide sales and deliveries of
products or the performance of services in the ordinary course of business
consistent with past practice and are collectible in the ordinary course of
business consistent with the Company's historical collection practices,
subject to no defenses,
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counterclaims or set-offs (other than in the ordinary course), but subject to
allowances and accruals as reflected in the Financial Statements. Such
allowances and accruals are reasonable and appropriate on the basis of the
Company's prior experience and are in accordance with GAAP applied on a basis
consistent with that of the preceding fiscal year.
(e) The Company's Net Working Capital is greater than $1.1
million.
6.4 PROPERTIES AND PERMITS. The Company has good and marketable
title to all its properties and assets reflected in the December 31, 1998
reviewed balance sheet, (except, in each case, properties and assets sold or
otherwise disposed of in the ordinary course of business, consistent with
past practice) in each case free and clear of all Encumbrances of any nature
whatsoever, except (i) any Encumbrances disclosed in the Financial
Statements, (ii) liens for current Taxes not yet due and payable, or (iii)
those Encumbrances set forth on Schedule 6.4 hereto. All plants, facilities,
structures and equipment owned or used by the Company are, subject to
ordinary wear and tear, in good operating condition and repair. Schedule 6.4
hereto sets forth a true, correct and complete list of all Real Property and
all Leased Real Property owned or used by the Company, together with a list
of each lease, sublease, license or any other instrument under which the
Company claims or holds such leasehold or other interest or right to the use
thereof, and with respect to the leases, subleases, licenses and other
instruments on Schedule 6.4, identifying which of those leases, subleases,
licenses or other instruments, if any, require that a consent be obtained
(from any lessors, guarantors or any other third parties) before a valid
transfer of the Company Stock may be obtained and identifying in each
instance the party which is required to grant consent thereto, the location
of the premises, the date and term of the agreement and the amount of the
monthly rent. Such leases, subleases, licenses and other agreements are
valid, subsisting, in full force and effect and binding upon the parties
thereto in accordance with their terms. Prior to the date hereof, the Company
has delivered to Buyer true, correct and complete copies of all of the
leases, subleases, licenses and other instruments set forth on Schedule 6.4
and any related agreements. The Company has paid in full all amounts due, and
have each satisfied in full all Liabilities due and payable, under such
leases, subleases, licenses and other agreements. Neither the Company nor any
Subsidiary is, or as of the Closing Date will be, in default under any of
such leases, subleases, licenses or other agreements, nor, to the best
knowledge of the Company or the Selling Stockholders, is any other party in
default thereunder, and, to the best knowledge of the Company and the Selling
Stockholders, no facts or circumstances have occurred which, with the giving
of notice or the passage of time or both,
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would constitute a default under any of such leases, subleases, licenses or
other agreements.
6.5 TAXES. The amounts recorded as provisions for Taxes in the
Financial Statements are sufficient for the payment of all Taxes, whether
disputed or not, owed or to be owed by the Company with respect to the time
up to the date of the latest Financial Statements, including with respect to
income earned up to the date of the latest Financial Statements. The Company
has duly and timely filed all Tax Returns with the appropriate governmental
authorities which were required to be filed by them, due on or prior to the
date hereof (without regard to any extensions), and such Tax Returns were
true and correct in all respects. Except as set forth on Schedule 6.5, no
extension of time within which to file any Tax Return which has not been
filed has been requested or granted. The Company has paid in full, or
recorded adequate reserves in accordance with GAAP on the Financial
Statements for the payment of, all Taxes shown on all Tax Returns. Any such
reserves are reflected in the Financial Statements. The Estimated Tax Amount
(as defined in Section 15(c)(i) hereof) will be, as of the Closing Date, true
and accurate to the best knowledge of the Selling Stockholders. Except as set
forth on Schedule 6.5 hereto, no Tax Return of the Company has been examined
or audited by the Internal Revenue Service (the "IRS") or any state, local,
foreign or other Taxing authority and there are no open, pending or
Threatened tax-related Proceedings, audits, examinations, assessments,
asserted deficiencies or claims for additional Taxes with respect to the
Company. Except as set forth on Schedule 6.5, there are no past or current
revenue agents' reports or any other assertions of deficiencies or other
Liabilities for Taxes (including any reports, statements, summaries and other
communications or assertions or claims of deficiencies or other Liabilities)
with respect to the Company. There are no waivers or extensions of any
applicable statutes of limitation for the assessment and collection of Taxes
for which the Company may be liable that are in effect and no requests for
such waivers are pending. The Company has not received any Tax rulings, made
any request for rulings, or entered into any closing agreements with any
Taxing authority. The Company is not required to make any adjustments with
respect to a change in accounting method and no such adjustments have been
proposed by the IRS or requested by the Company. The Company is not party to
any Tax sharing or allocation agreement, nor is potentially required to
indemnify any person with respect to Taxes. The Company is not party to any
arrangement that is treated as a partnership for Tax purposes. Schedule 6.5
lists all states, territories and jurisdictions (whether foreign or domestic)
in which the Company is required to file Tax Returns. No claim or inquiry has
been made by any Taxing authority in a jurisdiction where the Company does
not file Tax Returns that either is or may be subject to Tax
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in such jurisdiction. There are no liens for Taxes upon the assets of the
Company, or with respect to the capital stock of the Company, except for
liens for current Taxes not yet due and payable. No power of attorney related
to Taxes has been granted by, or with respect to, the Company that will
remain in force after the Closing Date. The Company is not and never has been
a member of an "affiliated group" within the meaning of Section 1504(a)(1) of
the Code, nor has it been required or elected to join in any consolidated,
combined, unitary or Federal, state or local Tax filings.
The Company is not a "collapsible corporation" under
Section 341 of the Code, nor has it filed a consent with the IRS pursuant to
Section 341(f) of the Code concerning collapsible corporations. The Company
has not made any payment, is not obligated to make any payment, and is not a
party to any agreement that under certain circumstances could obligate it to
make any payments that will be limited as to deductibility under Section 280G
of the Code. The Company has disclosed on its Federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement
of Federal income Tax within the meaning of Section 6662 of the Code. The
Company has no 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. None of
the presently outstanding debt of the Company is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code. 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 the Company
for any period ending in 1994, 1995, 1996, 1997 and 1998.
6.6 LITIGATION AND LABOR MATTERS. Except as set forth on
Schedule 6.6 hereto:
(a) there is no litigation, Proceeding or governmental
investigation pending or Threatened, against or related to the Company or its
properties or businesses;
(b) there is no litigation, Proceeding or governmental
investigation pending or Threatened, against or related to any Selling
Stockholder or any of such Selling Stockholder's properties or businesses
that could reasonably be expected to have an adverse impact on the Company;
(c) the Company is not in default with respect to any
order, writ, injunction or decree of any court or Federal, state, municipal
or governmental department, commission, board,
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bureau, agency or instrumentality;
(d) the Company has not committed, and neither any Selling
Stockholder nor the Company has received any notice of or claim that the
Company has committed any unfair labor practice under applicable Federal or
state law;
(e) there are no collective bargaining agreements between
the Company and any persons employed by the Company, and the Company does not
have a duty to bargain with any labor organization with respect to any
employee. There is not pending any demand for recognition or any other
request or demand from a labor organization for representative status with
respect to any persons employed by the Company.
(f) there is no pending action or Proceeding that has been
commenced against the Company that may have the effect of preventing,
delaying or making illegal the Contemplated Transactions and, to the best
knowledge of the Company and the Selling Stockholders, no such action or
Proceeding has been Threatened.
6.7 INSURANCE. The Company is insured under various policies of
fire, liability and other forms of insurance, as set forth on Schedule 6.7
hereto, which policies are valid and enforceable in accordance with their
terms. At no time was there a period in which the Company lacked insurance
coverage. The Company shall continue to carry all such policies or similar
policies during the pendency of this Agreement, and all outstanding claims
under such policies are described in Schedule 6.7 hereto. There is no
recorded liability for retrospective insurance premium adjustments for any
period prior to the date hereof. Schedule 6.7 hereto sets forth a complete
and accurate list of the following, each of which have been made available to
Buyer for its review:
(a) All comprehensive general liability and other policies
of insurance under which the Company is or has been insured at any time
within the five (5) year period immediately preceding the date of this
Agreement.
(b) All property and casualty policies of insurance under
which the Company is presently insured.
(c) The expiration date of each insurance policy under
which the Company is currently insured.
6.8 INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 6.8 hereto sets forth all patents and patent
applications; all trademarks, service marks, trade names
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(whether registered or unregistered) and applications for registration and
registrations therefor; all copyrights (whether registered or unregistered)
and applications for registration and registrations therefor; all Internet
domain names, 1-800 and 1-888 telephone numbers; all inventions and other
intellectual property rights and all licenses with respect to any of the
foregoing, used or developed by the Company, or in which the Company has an
interest (collectively, the "Intellectual Property Rights"). No other patent,
trademark, service mark, trade name or copyright, or license under any
thereof, is necessary to permit the business of the Company to be conducted
as now conducted or as heretofore or proposed to be conducted. Except as set
forth on Schedule 6.8, the Company owns exclusively and/or has the exclusive
and unrestricted right to use, free and clear of all Encumbrances, all
Intellectual Property Rights, and all renewals therefor and claims for
infringement thereof, without to the best knowledge of the Company and the
Selling Stockholders infringing upon or otherwise acting adversely to the
right or claimed right of any third party. The Company is not obligated or
under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright or other intangible asset,
with respect to the use of any of the Intellectual Property Rights, in
connection with the conduct of the Company's respective business or otherwise.
(b) Except as set forth on Schedule 6.8, the Company owns
exclusively and has the exclusive and unrestricted right to use all "trade
secrets" required for or incident to the development, manufacture,
distribution and sale of all products, and the offering and rendering of all
services, proposed to be sold or offered by the Company free and clear of any
Encumbrances, including, without limitation, of any former employer of its
employees. "Trade secrets" shall mean all trade secrets, "know-how,"
inventions, discoveries, designs, customer lists, supplier lists, marketing
strategies, processes, computer programs (including source code), technical
data, confidential data and other information which is of value.
(c) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of all of its "trade secrets."
(d) The Company and the Selling Stockholders have no
knowledge, and have not received any communication alleging, that the Company
has violated or, by conducting its business as now conducted, would violate
any of the patents, licenses, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights of any person or
entity. Except as
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set forth on Schedule 6.8 hereto, neither the Company nor the Selling
Stockholders are aware of any third party that is infringing upon or
violating any of the Company's Intellectual Property Rights, "trade secrets"
or other proprietary rights.
6.9 CONTRACTS AND COMMITMENTS. Schedule 6.9 hereto sets forth a
complete and accurate list of, and the Company has made available to Buyer
for its review complete and correct copies of or, in the case of an oral
Contract, a complete and correct description of:
(a) Each Contract (other than open purchase orders) that
involves the performance of services or the delivery of goods or materials to
the Company of an amount or value in excess of $20,000;
(b) Each Contract (other than open sales orders) that
involves the performance of services for or the delivery of goods or
materials by the Company of amount or value in excess of $20,000;
(c) Each Contract that was not entered into in the ordinary
course of business that involves expenditures or receipts in excess of $5,000
to which the Company is a party;
(d) Each license or other Contract with respect to
intellectual property, including without limitation the Intellectual Property
Rights and franchise agreements, to which the Company is a party;
(e) Each Contract to which any employee of the Company is a
party relating to wages, hours and other conditions of employment;
(f) Each Contract for capital expenditures in excess of
$20,000 to which the Company is a party;
(g) Each Contract or commitment relating to the borrowing
of money or a line of credit to which Company is a party or by which it or
any of its assets are bound;
(h) Each Contract or commitment with any present or former
officer, director, stockholder, employee or consultant of the Company,
pursuant to which any payment is or may become due to any such person;
(i) Each lease agreement pertaining to any personal
property leased by or from the Company, and each lease agreement pertaining
to any Real Property or Leased Real Property involving the Company as a
landlord;
(j) Each representative or sales agency Contract or
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commitment to which the Company is a party;
(k) Each Contract restricting a Person from competing with
the Company;
(l) Each Contract with respect to environmental Remediation
at any facility or property now or formerly owned by the Company, and each
Contract relating to bringing any current facility or property of the Company
into compliance with applicable requirements relating to underground storage
tank systems.
(m) Each Contract relating to the purchase by the Company
of raw materials from any vendor or supplier.
Except for delays, minor failures to meet specifications or
other minor defaults which are normal in the conduct of business between the
Company, as the case may be, and other parties to the above Contracts, all
parties to the above Contracts have complied with the provisions thereof, no
party is in default thereunder, and, to the best knowledge of the Company and
the Selling Stockholders, no event has occurred which but for the passage of
time or the giving of notice would constitute a default thereunder. The
Company has not received any written notice of any default with respect to
any of the above Contracts.
6.10 ABSENCE OF UNDISCLOSED LIABILITIES. There are no Liabilities or
obligations of the Company either accrued, absolute, contingent or otherwise,
including, but not limited to, any Liabilities for Taxes due or to become
due, except:
(1) to the extent reflected in the December 31, 1998
audited balance sheets and not heretofore paid or discharged, and
(2) those incurred, consistently with past business
practice, in or as a result of the normal and ordinary course of business
since December 31, 1998, and
(3) those set forth on Schedule 6.10 hereto.
6.11 ABSENCE OF DEFAULT. The Company is not in default in the
performance, observance or fulfillment of any obligation, covenant or
condition contained in any debenture or note, or contained in any conditional
sale or equipment trust agreement, or loan or other borrowing agreement to
which the Company is a party.
6.12 EXISTING CONDITION. Except as disclosed in Schedule 6.12 hereto,
since December 31, 1998 there has not been (i) any material adverse change in
the business, operations, properties, assets, Liabilities or financial
condition, of the Company; (ii) any damage, destruction or loss, whether covered
by insurance or
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not, materially and adversely affecting the business, operations, properties,
assets, Liabilities or financial condition, of the Company; (iii) any
redemption, purchase or other acquisition of any capital stock of the
Company; (iv) any increase in the compensation payable or to become payable
by the Company to any of its respective officers, directors, employees,
partners or agents; (v) any change in the terms of any bonus, insurance,
pension or other benefit plan for or with any of the Company's officers,
directors or employees which increases amounts paid, payable or to become
payable thereunder; or (vi) any complaints or other concerns which relate to
the Company's labor relations.
6.13 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except as set forth on
Schedules 5.1 and 6.13 hereto, neither the execution and delivery of this
Agreement or the Related Agreements by the Company nor the consummation by
the Company of the transactions provided for herein or therein will conflict
with, violate, or result in a breach or default or the creation of any
Encumbrance pursuant to, any Contract to which the Company is a party or by
which the Company, or its assets are bound or any law, order, judgment or
decree or any provision of its Articles of Incorporation or By-Laws. The
Company has full power and legal authority to execute and deliver this
Agreement and the Related Agreements and to consummate and perform the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby are within the corporate power
of the Company and have been duly authorized by all necessary corporate
action on the part of the Company. This Agreement and the Related Agreements
to which the Company is a party have been duly executed and delivered by the
Company and constitute the legal, valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms.
6.14 RESTRICTIONS. The Company is not subject to any charter or
other corporate or partnership restriction, any agreement or any judgment,
order, writ, injunction or decree, which materially and adversely affects the
business, operations, properties, assets, Liabilities or financial condition
of the Company.
6.15 EMPLOYEE BENEFITS.
(a) Except as set forth on Schedule 6.15 hereto, the
Company does not maintain and has not maintained, any bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance
or termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit sharing, pension, or
retirement plan, program, agreement or arrangement, or other employee benefit
plan,
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program, agreement or arrangement (other than arrangements involving the
payment of wages) sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an "ERISA Affiliate") that together with the Company would be
deemed a "single employer" within the meaning of Section 4001(a)(14) of
ERISA, for the benefit of any current or former employee, director, partner
or independent contractor of the Company or any ERISA Affiliate, whether
formal or informal (the "Plans") with respect to which the Company or any
ERISA Affiliate has or may in the future have any liability or obligation to
contribute or make payments of any kind. No "leased employee," as that term
is defined in Section 414(n) of the Code, performs services for the Company.
(b) Each Plan is in writing and the Company has furnished
to Buyer a copy of each Plan and any amendments thereto and, if applicable,
with respect to each Plan (i) a copy of each trust or other funding
arrangement and all amendments thereto, (ii) each summary plan description
and summary of material modifications, (iii) the three most recently filed
Forms 5500 under ERISA or the Internal Revenue Code of 1986, as amended (the
"Code"), (iv) all determination letters, rulings, information letters and any
other material document or correspondence relating to a Plan from the IRS,
the United States Department of Labor, or the Pension Benefit Guaranty
Corporation, (v) the three most recently prepared financial statements and
(vi) all Contracts relating to the Plans with respect to which the Company,
or any ERISA Affiliate may have any liability, including, without limitation,
insurance contracts, investment management agreements, subscription and
participation agreements and record keeping agreements. The Company has no
express or implied commitment to create or incur liability with respect to or
cause to exist any other employee benefit plan, program, agreement or
arrangement, or to enter into any Contract or agreement to provide
compensation or benefits to any individual or to modify or change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
(c) Each Plan is now and has been operated in material
compliance with its terms and the requirements of all applicable laws, orders,
rules and regulations, including, without limitation, ERISA and the Code. The
Company has performed all material obligations required to be performed by it
under, is not in any material respect in default under or in violation of, and
has no knowledge of any default or violation by any party to, any Plan. No
governmental investigation or legal action, suit or claim (other than claims for
benefits under the Plans) is pending or, to the best knowledge of the Company
and
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the Selling Stockholders, Threatened with respect to any Plan and, to the
best knowledge of the Company and the Selling Stockholders, no fact or event
exists that could give rise to any such investigation, action, suit or claim.
(d) None of the Plans is (i) subject to Title IV of ERISA,
(ii) a "multi employer pension plan" as such term is defined in Section 3(37)
of ERISA, (iii) subject to the laws of a country or jurisdiction other than
the United States, or (iv) subject to Section 302 of ERISA or Section 412 of
the Code.
(e) Neither the Company, nor, to the best of the Company's
and the Selling Stockholders' knowledge, any ERISA Affiliate, any of the
Plans, any trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which the Company or any
ERISA Affiliate, any of the Plans, any such trust, or any trustee or
administrator thereof, or any party dealing with the Plans or any such trust
could be subject to either a civil liability or penalty pursuant to Section
409, 502(i) or 502(1) of ERISA or a tax imposed pursuant to Chapter 43 of the
Code.
(f) Full payment has been made, or will be made, in
accordance with the terms of each of the Plans and any applicable collective
bargaining agreement, of all amounts which the Company or any ERISA Affiliate
is required to pay, and all such amounts properly accrued through the Closing
Date with respect to the current plan year thereof will be paid by the
Company on or prior to the Closing Date or will be properly recorded on the
Company's Financial Statements.
(g) Each of the Plans that is intended to be "qualified" in
form within the meaning of Section 401(a) of the Code is so qualified and has
been the subject of a favorable determination letter from the IRS regarding
such qualification, no such determination letter has been revoked and
revocation has not been Threatened, no event has occurred and no
circumstances exist that would adversely affect the tax-qualification of such
Plan and such Plan has not been amended since the effective date of its most
recent determination letter in any respect that might adversely affect its
qualification or materially increase its cost.
(h) No employee of the Company will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any Plan as a result of the Contemplated Transactions. The
Company has not taken any action that would create any obligation to provide
severance benefits of any kind upon the termination of any employee for any
reason.
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(i) No amounts payable under the Plans will fail to be
deductible for Federal income tax purposes by virtue of Section 280G of the
Code.
(j) No Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with respect
to current or former employees upon retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as Liabilities on the books of the Company or an ERISA
Affiliate, or (iv) benefits the full cost of which is borne by the current or
former employee (or his beneficiary)).
(k) Schedule 6.15 discloses whether each Plan that is an
"employee welfare benefit plan" as defined in Section 3(1) of ERISA ("Welfare
Plan") is (i) unfunded, (ii) funded through a "welfare benefit fund," as such
term is defined in Section 419(e) of the Code, or other funding mechanism, or
(iii) insured. Each such Welfare Plan may be amended or terminated without
liability to the Company at any time after the Closing Date. Each of the
Plans that is intended to satisfy the requirements of Section 501(c)(9) of
the Code has satisfied such requirements.
(l) With respect to each Plan that is funded wholly or
partially through an insurance policy, there will be no liability of the
Company or an ERISA Affiliate, as of the Closing Date, under any such
insurance policy or ancillary agreement with respect to such insurance policy
in the nature of a retroactive rate adjustment loss sharing arrangement or
other actual or contingent liability arising wholly or partially out of
events occurring prior to the Closing Date.
(m) Except as otherwise disclosed on the Closing Balance
Sheet, neither the Company nor any ERISA Affiliate has, or will have, any
current or contingent liability with respect to any Plan.
6.16 PERSONAL PROPERTY. Schedule 6.16 hereto contains a correct and
complete list of each item of tangible personal property owned or used by the
Company, other than tools, inventory, office furniture and supplies and
miscellaneous items of personal property with an individual book value of
less than $5,000. Schedule 6.16 indicates which items are owned by the
Company. Except as set forth on Schedule 6.16 hereto, each item of tangible
personal property owned by the Company is owned free and clear of all
Encumbrances.
6.17 BANK ACCOUNTS AND DIRECTORS AND OFFICERS.
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Schedule 6.17 contains a true and complete list of the name and location of
each bank in which the Company has an account, each safety deposit box or
custody agreement and the names of the Persons authorized to draw thereon or
to withdraw therefrom. Schedule 6.17 also sets forth the names of all
directors and officers of the Company.
6.18 COMPLIANCE WITH LAWS AND INSTRUMENTS. The Company, and each of its
facilities, properties and/or operations, has complied in all material respects
with, and is in compliance in all material respects with, and neither the
Company, nor any of its facilities, properties or operations has received any
notice of any violation or delinquency, with respect to, any laws,
ordinances, rules, regulations, orders, permits or authorizations (including,
without limitation, any safety, health, wage, hour, employment and trade
laws, ordinances, rules, regulations, orders, permits or authorizations)
applicable to the business, operations or properties of the Company. All
approvals, authorizations, consents, licenses, permits, tank registrations or
orders with respect to the business, operations and properties of the Company
have been obtained, were validly issued, accurately reflect the currently
existing operations, are in full force and effect as of the date hereof and
are set forth on Schedules 6.4 and 6.20 hereto, and all such approvals,
authorizations, consents, licenses, permits, registrations and orders shall
transfer to Buyer with and as part of the Contemplated Transactions with no
further consent or authorization, except where the failure to obtain such
approvals, authorizations, consents, licenses, permits, registrations or
orders or of such approvals, authorizations, consents, licenses, permits,
registrations or orders, to be so issued, be in full force and effect or
transfer would not, individually or in the aggregate, have a Material Adverse
Effect. Neither the ownership or use of the Company's properties, nor the
conduct of its business, violates, or with or without the giving of notice or
the passage of time, or both, will violate, conflict with or result in a
breach, default, right to accelerate or loss of rights under, or result in
the creation of any Encumbrance pursuant to, any term or provision of the
Articles of Incorporation or By-Laws of the Company as presently in effect,
or any note, mortgage, deed of trust, indenture, lease, permit, license,
consent, approval, agreement, instrument, insurance policy, law, statute,
rule or regulation or any order, judgment, award or decree to which the
Company is a party or by which the Company, its business or its properties
and assets may be bound or affected, except where such violation, conflict,
breach, default, right to accelerate, loss of rights or creation of
Encumbrance would not, individually or in the aggregate, cause a Material
Adverse Effect.
6.19 AUTHORIZATIONS. Except as set forth on Schedules 6.4
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and 6.13 hereto, no permit, authorization, consent or approval of, or filing
with or notification to, any governmental, regulatory or administrative body
or any other third party is required in connection with the execution and
delivery of this Agreement and the Related Agreements by the Company or the
consummation of the transactions contemplated hereby and thereby.
6.20 ENVIRONMENTAL COMPLIANCE
(a) The Company, and each of its facilities, properties and/or
operations, has complied in all material respects and is in compliance with, and
neither the Company, nor any of its facilities, properties or operations has
received any notice of any violation or delinquency, with respect to, any
decree, order or arbitration award or any law, statute, ordinance, rule or
regulation of or agreement with, or any license, permit or authorization from,
any governmental, regulatory or administrative authority to which it or its
properties, assets, personnel or business are subject and which relates to the
environment including, without limitation, Environmental Laws. To the best
knowledge of the Company and the Selling Stockholders, there are no
circumstances or conditions existing that are reasonably likely to prevent or
interfere with such compliance in the future.
(b) The Company has no underground or above ground storage
tanks now or previously located at its facility.
(c) The Company has obtained all approvals, consents, permits,
licenses and other authorizations required under Environmental Laws. Schedule
6.20 hereto sets forth each environmental approval, consent, permit, license and
authorization held by the Company, including, without limitation, the tank
registration for each facility and each permit or other administrative order or
other arrangement under which Remediation is currently being conducted. Each
permit is validly issued and in full force and effect and will transfer to Buyer
as part of the Contemplated Transactions without further authorization or
consent.
(d) There is no Environmental Claim pending or, to the best
knowledge of the Company and the Selling Stockholders, Threatened against the
Company, or its assets (whether owned or leased) or any facility previously
owned or operated by the Company. There are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the Release, presence or disposal of any pollutant, contaminant,
waste, toxic substance, hazardous substance or petroleum, that could form the
basis of any Environmental Claim against the Company, or its assets.
(e) Schedule 6.20 hereto contains a true and
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complete list of each facility previously owned or operated by the Company.
Each facility previously owned or operated by the Company was operated by the
Company, and, to the best knowledge of the Company and the Selling
Stockholders, by others, in compliance in all material respects with
applicable Environmental Laws, and during the Company's ownership or
operation of each such facility there was no storage, disposal or Release of
any Hazardous Materials at such facility.
(f) There are no surveys, reports (including, without
limitation, reports from underground storage tank closures or removals,
Remediation programs or assessments and tank replacements), assessments, audits,
evaluations, sampling results, regulatory agency correspondence or other
documents relating to the presence, migration or disposal of any Hazardous
Material, that were prepared for or at the request of the Company or are or were
in its possession or at or relating to any of its assets (the "Environmental
Reports").
(g) "Environmental Claim" means any claim, complaint, action,
suit, Proceeding, investigation or notice by any Person alleging potential
liability arising out of, based on, or resulting from (i) the Release or
disposal into, or the presence in, the environment, whether surface or
subservice, including, without limitation, the indoor environment, of any
pollutant, contaminant, waste, toxic substance, hazardous substance or petroleum
at any location, whether or not owned by the Company or (ii) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law. "Environmental Laws" means all applicable Federal, state or local laws,
statutes, ordinances, orders, decrees, or other binding obligations related to
the protection of the environment or human health (including worker health and
safety), including but not limited to the Resource Compensation and Recovery
Act, the Comprehensive Environmental Response Conservation and Liability Act,
the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, and
the Occupational Safety and Health Act, and any other laws, statutes,
ordinances, or provisions related to Releases or threatened Releases of any
pollutant, contaminant, Hazardous Material or petroleum, or the use, treatment,
storage, disposal, transport or handling of any Hazardous Material, all
rules, regulations, orders, permits, licenses, or any term or provision
thereof, promulgated pursuant to authority granted therein, and all Federal,
state, county, municipal or local requirements issued or promulgated pursuant
to authority granted therein or delegated thereunder, all as they may have
been amended and exist as of the effective date of this Agreement, unless
otherwise stated. "Hazardous Material" means any pollutant, toxic substance,
contaminant, hazardous waste, hazardous material, hazardous substance,
extremely hazardous
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material, or other substance or compound, including, without limitation,
petroleum or any refined product or fraction thereof, asbestos or
polychlorinated biphenyls regulated under Environmental Laws.
(h) No Remedial Investigation has been commenced at or in
relation to any of the Properties.
6.21 NON-COMPETITION AGREEMENTS. The Company is not a party to any
agreement or other commitment imposing any restriction on the manner or in the
geographic location in which it conducts or may conduct its business or uses or
may use its properties and assets in competition with any third party.
6.22 CHANGE OF CONTROL PROVISIONS. Except as set forth on Schedules 6.4
and 6.13 hereto, neither the execution and delivery of this Agreement or the
Related Agreements nor the consummation of the transactions provided for herein
or therein will trigger any obligation of the Company to any Person, including,
without limitation, the obligation to make payments to any Person pursuant to
any Contract or agreement to which the Company is a party or by which it or its
assets are bound.
6.23 DIVIDENDS AND DISTRIBUTIONS. Since December 31, 1998, the Company
has not declared, paid, set aside or made any dividend or other distribution or
payment in respect of its capital stock or any other securities.
6.24 DISCLOSURE. No representation or warranty by the Company or the
Selling Stockholders in this Agreement or the Related Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make any statement herein or therein not
misleading. The Company has made available for inspection by Buyer and its
representatives complete and correct copies of the corporate minute books of the
Company. Such minute books contain the minutes of all meetings of stockholders,
the board of directors and any committees thereof of the Company that have been
held prior to the date hereof and all written consents to action executed in
lieu thereof. All documents furnished to Buyer hereunder are true and complete
copies of the originals therefor, and any originals delivered are true and
complete.
6.25 YEAR 2000. All of the equipment, systems, software, data and
databases, including, without limitation, accounting systems, but excluding any
"off-the-shelf" software that any consumer can purchase not altered by the
Company (collectively, the "Systems"), of the Company comply with the following
"Standards for Year 2000" to the extent that other systems, information or
technology used with the Systems properly exchange date/time with it, and to the
extent that events do not occur
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which affect the Systems that are outside the control of the Company: (i) the
occurrence in or use by the Systems of dates before, on or after January 1,
2000 will not adversely affect the performance of the Systems with respect to
date-dependent data, computations, output or other functions, including,
without limitation, calculating, comparing and sequencing; (ii) the Systems
will not abnormally end or provide invalid or incorrect results as a result
of date-dependent data; and (iii) the Systems can accurately recognize,
manage, accommodate and manipulate datedependent data, including, without
limitation, single century formulas and leap years.
6.26 RELATIONSHIP WITH GENERAL ELECTRIC COMPANY. Neither the Company
nor any Selling Stockholders has 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 or ownership in any mutual fund or similar investment which owns
less than 5% of the stock of General Electric Company or its subsidiaries, with
General Electric Company or any entity known by the Company or the Selling
Stockholders to be a Subsidiary of General Electric Company.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Selling Stockholders that:
7.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Buyer is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to conduct
its business as presently conducted and to own and lease the properties and
assets used in connection therewith. The execution and delivery of this
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby and thereby are within the corporate power of Buyer and have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement and the Related Agreements to which Buyer is a party constitute
the legal, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms.
7.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Except as set forth on
Schedule 7.2 hereto, neither the execution and delivery of this Agreement or the
Related Agreements by Buyer nor the consummation by Buyer of the transactions
provided for herein or therein will conflict with, violate, or result in a
breach of or default under any Contract to which Buyer is a party or by which it
or its assets are bound or any law, order, judgment or decree or any provision
of the Certificate of Incorporation or By-Laws of Buyer.
7.3. AUTHORIZATIONS. Except as set forth on Schedule 7.2
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hereto, no permit, authorization, consent or approval of, or filing with or
notification to, any governmental, regulatory or administrative body or any
other third party is required in connection with the execution and delivery
of this Agreement and the Related Agreements by Buyer or the consummation of
the transaction contemplated hereby and thereby.
7.4 INVESTMENT REPRESENTATIONS. The Company Stock being delivered
pursuant to the provisions of this Agreement will be held by Buyer for its own
account and not with a view to, or for resale in connection with, the
distribution thereof.
7.5 LITIGATION. There is no pending action or Proceeding that has been
commenced against Buyer and that may have the effect of preventing, delaying, or
making illegal the Contemplated Transactions and, to the best knowledge of
Buyer, no such action or Proceeding has been Threatened.
8. CONDUCT OF BUSINESS PENDING CLOSING. The Company and the Selling
Stockholders represent, warrant and agree with respect to the Company that, from
the date hereof and pending the Closing and except as otherwise approved in
writing by Buyer:
8.1 BUSINESS IN THE ORDINARY COURSE. The Company shall refrain from
engaging in transactions other than in the ordinary course of business
consistent with past practice. The Company shall operate its business in
accordance and in compliance in all material respects with all applicable laws,
ordinances, rules or regulations or orders, including, without limitation
Environmental Laws, and all permits, authorizations, consents and approvals. The
Company shall maintain all permits and licenses in effect and, if necessary,
make all appropriate filings for the renewal of any permits or licenses. The
Company shall also refrain from entering into any transaction involving capital
expenditures or commitments therefor (including any borrowings in connection
with such transaction) of more than $15,000, individually, or $50,000 in the
aggregate, or the disposal of any properties or assets (other than inventory in
the ordinary course) with a value of more than $10,000, individually, or
$25,000, in the aggregate.
8.2 ACCOUNTING AND CREDIT CHANGES. The Company shall not make any
change in its accounting procedures and practices or its credit criteria from
those in existence at December 31, 1998.
8.3 CAPITALIZATION, OPTIONS, DIVIDENDS AND PAYMENTS. No change shall be
made in the Articles of Incorporation or By-laws of the Company; the Company
shall not issue or reclassify or alter any shares of its outstanding or unissued
capital stock or other securities; and the Company shall not grant options,
warrants or other rights of any kind to purchase any of its
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securities, or agree to issue any shares of its capital stock or any other
securities, or purchase, redeem or otherwise acquire for consideration any
shares of its capital stock or any other securities or, except as set forth
on Schedules 6.23 hereto, declare, pay, set aside or make any dividends or
other distributions or payments in respect of its capital stock or any other
securities, or make any payments to officers of the Company. The Selling
Stockholders shall not sell or transfer any of the Company Stock.
8.4 ENCUMBRANCE OF ASSETS. No Encumbrance on any of the properties or
assets of the Company shall be made other than in the ordinary course of
business consistent with past practice.
8.5 REAL PROPERTY ACQUISITIONS, DISPOSITIONS AND LEASES. The Company
shall refrain from acquiring or agreeing to acquire, or disposing or agreeing to
dispose of, real estate and from entering into or agreeing to enter into
leases of real estate or equipment, and from creating any modification,
amendment or termination of the leases for the leased Real Property.
8.6 LITIGATION DURING INTERIM PERIOD. The Company shall promptly advise
Buyer in writing of the commencement or threat against the Company of (i) any
Tax audit, and (ii) any claim, litigation or Proceeding not covered by insurance
when the amount claimed is in any individual claim, litigation or Proceeding in
excess of $5,000 or, in the aggregate, $25,000.
8.7 ACCESS. Buyer, Buyer's potential financing sources and their
respective officers, directors, attorneys, accountants and representatives shall
be permitted to inspect and examine the property, books and records of the
Company, and its title to any real estate, and such officers, directors,
attorneys, accountants and representatives shall be afforded access to such
property, books, records and titles, and the Company and the Selling
Stockholders will upon request furnish Buyer with any information reasonably
required with respect to the Company's properties, assets and business and will
provide Buyer with copies of any Contract, document or instrument listed in any
Schedule hereto.
8.8 GOOD WILL. The Company shall use its best efforts to preserve the
Company's business, organization and relationships with its respective vendors,
customers and suppliers and others having business relations with it.
8.9 LOANS. The Company shall not (a) make any loans or advances to, or
assume, guarantee or otherwise become liable for any indebtedness, except that
the Company may continue to borrow against its existing line of credit in the
ordinary course of its business, or other obligations of any stockholder,
director, officer, partner or employee of the Company; or (b) incur any
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indebtedness other than in the ordinary course of business consistent with past
practice.
8.10 EMPLOYEE MATTERS. The Company shall not make, amend or enter into
any employment Contract other than hiring hourly at will employees in the
ordinary course of business.
8.11 PRESERVATION OF BUSINESS AND ASSETS. The Company shall preserve
intact, for the ongoing benefit of Buyer after the Closing, the Company's
business and assets, including without limitation, all permits, licenses and
authorizations, and the Intellectual Property Rights and trade secrets of the
Company. The Company shall protect and maintain all patents, copyrights,
trademarks and trade secrets of the Company, and all registrations and
applications for registration therefor. The Company shall maintain its equipment
in proper condition in accordance with all applicable laws, permits and
warranties, and shall maintain all records required by law, including, without
limitation, tank monitoring permits.
8.12 AFFILIATE TRANSACTIONS. The Company shall not enter into any
transaction with any of the Persons described in Section 5.2.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. All obligations of
Buyer under this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES. The Company's and the Selling
Stockholders' representations and warranties contained in this Agreement and the
Related Agreements shall be true and correct at and as of the time of Closing as
though such representations and warranties were made at and as of such time
(except to the extent that they are stated therein to be true as of some other
date). The Selling Stockholders shall have delivered to Buyer a certificate
dated the Closing Date to such effect.
9.2 COMPLIANCE WITH AGREEMENTS. The Company and the Selling
Stockholders shall have performed or complied with all agreements and conditions
required by this Agreement to be performed or complied with by them prior to or
at the Closing. The Selling Stockholders shall have delivered to Buyer a
certificate dated the Closing Date to such effect.
9.3 OPINION OF COUNSEL. The Selling Stockholders and the Company shall
have delivered to Buyer an opinion of their counsel, Minor & Brown P.C. dated
the Closing Date in form and substance satisfactory to Buyer.
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9.4 MATERIAL DAMAGE. The business, properties and assets of the Company
shall not have been and shall not be threatened to be materially adversely
affected in any way as a result of fire, explosion, earthquake, disaster,
accident, labor dispute, flood, drought, embargo, riot, civil disturbance,
uprising, activity of armed forces or act of God or public enemy.
9.5 APPROVAL OF COUNSEL. All steps to be taken and all resolutions,
papers and documents to be executed, and all other legal matters in connection
with the purchase and sale of the Company Stock and related matters, including
compliance with applicable state securities laws, shall be subject to the
reasonable approval of Buyer's counsel.
9.6 RESIGNATIONS. Each director of the Company requested to resign by
Buyer shall have executed and delivered to Buyer resignation letters in form and
substance satisfactory to Buyer.
9.7 CERTIFICATES. The Company shall have furnished to Buyer (a) at
least ten (10) days prior to the Closing Date, copies, certified by the
Secretary of State of the State of Colorado, as of a date not more than thirty
(30) days prior to the Closing Date, of each of the Articles of Incorporation of
the Company and each of the Subsidiaries, and all amendments thereto, (b)
copies, certified by the Secretary of the Company, as of the Closing Date, of
the By-Laws of the Company, (c) certificates of good standing issued with
respect to the Company by the appropriate governmental and taxing officials of
the States of Colorado, as of a date not more than ten (10) days prior to the
Closing Date, accompanied by bring-down certificates dated as of the Closing
Date, and (d) a certificate of the Secretary of the Company relating to the
incumbency and corporate proceedings in connection with the consummation of the
Contemplated Transactions, and the absence of changes in the Company's Articles
of Incorporation and By-Laws.
9.8 EARN-OUT AGREEMENT. The Selling Stockholders shall have executed
and delivered to Buyer the Earn-Out Agreement, substantially in the form of
Exhibit B hereto.
9.9 SATISFACTION OF OBLIGATIONS AND RELEASE OF ENCUMBRANCES. Except as
set forth on Schedule 9.9 hereof, the Company shall have satisfied in full (i)
all of its indebtedness and guarantees of indebtedness for money borrowed
outstanding and all prepayment penalties, accrued interest and other obligations
relating thereto, including, without limitation, all real estate debt, contracts
for deed and notes payable to stockholders, (ii) all of its capitalized lease
obligations and all prepayment penalties, accrued interest and other obligations
relating thereto, and (iii) all of its obligations pursuant to mortgages and all
prepayment penalties, accrued interest and other
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obligations relating thereto. Buyer shall have received satisfactory evidence
of the satisfaction of each of the Liabilities set forth in this Section 9.9
and of the release of all Encumbrances on assets of the Company.
9.10 LITIGATION. There shall be no pending action or Proceeding
commenced against the Company or the Selling Stockholders that may have the
effect of preventing, delaying or making illegal the Contemplated Transactions
and no such action or Proceeding shall have been Threatened.
9.11 MATERIAL ADVERSE CHANGE. There shall not be any material adverse
change in the business, operations, prospects, properties, assets, Liabilities
or condition, financial or otherwise, of the Company.
9.12 ACCRUED COMPENSATION. The Company shall have made all bonus or
other extraordinary payments to employees accrued as of the Closing Date in
respect of compensation or otherwise. Buyer shall have received acknowledgments
from such employees of satisfaction and discharge of all such payments.
9.13 LEASES. All leases to which the Company is a party and which
expire prior to the Closing Date shall have been renegotiated to Buyer's
satisfaction. The Company shall, upon the request of Buyer, deliver estoppels in
form and substance reasonably satisfactory to Buyer.
9.14 EMPLOYMENT AGREEMENTS. Donald Sloane, Loren Sloane, David Hilliard
and Steve Dobler shall have executed and delivered to Buyer Employment and
Non-Competition Agreements in form and substance satisfactory to Buyer.
9.15 DUE DILIGENCE. Buyer shall be satisfied in its sole discretion as
to the results of its due diligence investigation of the business, properties,
assets and Liabilities of the Company, including, without limiting the
generality of the foregoing, the results of the Environmental Review.
9.16 ESCROW AGREEMENT. The Selling Stockholders shall have executed and
delivered to Buyer the Escrow Agreement.
9.17 RIGHTS OF FIRST REFUSAL. The Company shall have executed and
delivered to Buyer evidence, satisfactory to Buyer in its sole discretion, of
the elimination of rights of first refusal to purchase its capital stock from
the Selling Stockholders.
9.18 NOTIFICATIONS AND THIRD PARTY CONSENTS. The Company shall have
notified any Person that leases equipment to the Company as to the sale of the
Company Stock if so required by the
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terms of any equipment lease to which the Company is a party. Buyer shall
have received satisfactory evidence of such notifications. Buyer shall have
received satisfactory evidence of the receipt by the Selling Stockholders of
all permits, authorizations, consents, approvals and waivers from third
parties and governmental, regulatory or administrative authorities necessary
to permit the consummation of the Contemplated Transactions and the operation
of the business of the Company, including, without limitation, the consents
set forth on Schedules 6.4 and 6.13 hereto. Buyer shall have received
satisfactory evidence that all notices to, and filings and registrations
with, all governmental agencies required to be made by the Selling
Stockholders shall have been made. Buyer agrees to cooperate with the Selling
Stockholders in connection with procuring any permits or authorizations that
are required to be executed by Buyer.
9.19 FEES AND EXPENSES. Buyer shall have received satisfactory evidence
that all fees and expenses of the Selling Stockholders and the Company relating
to the Contemplated Transactions have been paid in full.
9.20 HART-SCOTT-RODINO ACT FILINGS. Any person required in connection
with the Contemplated Transactions to file a notification and report form in
compliance with the HSR Act shall have filed such form and the applicable
waiting period with respect to each such form (including any extension thereof
by reason of a request for additional information) shall have expired or been
terminated.
9.21 FIRPTA CERTIFICATE. The Selling Stockholders shall have executed
and delivered to Buyer a certificate containing the information, under penalties
of perjury, set forth in Treasury Regulation Section 1.1445-2(b)(2)(i).
9.22 NET WORKING CAPITAL. The Company shall have Net Working Capital in
excess of $1.1 million. The Selling Stockholders shall have delivered to Buyer a
certificate dated the Closing Date to such effect.
10. CONDITIONS PRECEDENT TO THE SELLING STOCKHOLDERS' OBLIGATIONS. All
obligations of the Selling Stockholders under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. Buyer's representations and
warranties contained in this Agreement and the Related Agreements shall be true
and correct at and as of the time of Closing as though such representations and
warranties were made at and as of such time. Buyer shall have delivered to the
Selling Stockholders a certificate dated the Closing Date and
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signed by its President or a Vice President to such effect.
10.2 COMPLIANCE WITH AGREEMENT. Buyer shall have performed and complied
with all agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing. Buyer shall have delivered to
the Selling Stockholders a certificate dated the Closing Date and signed by its
President or a Vice President to such effect.
10.3 OPINION OF COUNSEL. Buyer shall have delivered to the Selling
Stockholders an opinion of Buyer's counsel dated the Closing Date, in form and
substance satisfactory to the Selling Stockholders.
10.4 HART-SCOTT-RODINO ACT FILINGS. Any person required in connection
with the Contemplated Transactions to file a notification and report form in
compliance with the HSR Act shall have filed such form and the applicable
waiting period with respect to each such form (including any extension thereof
by reason of a request for additional information) shall have expired or been
terminated.
10.5 EARN-OUT AGREEMENT. Buyer shall have executed and delivered to the
Selling Stockholders the Earn-Out Agreement, substantially in the form of
Exhibit B hereto.
10.6 EMPLOYMENT AGREEMENTS. Buyer shall have executed and delivered
Employment and Non-Competition Agreements referred to in Section 9.14 hereof.
10.7 THIRD PARTY CONSENTS. The Selling Stockholders shall have received
evidence of the receipt by Buyer of all consents set forth on Schedule 7.2
hereof.
11. BROKER AND FINDER FEES. The Company and the Selling Stockholders
represent and warrant to Buyer that they have not engaged or dealt with any
broker or other Person who may be entitled to any brokerage fee or commission in
respect of the execution of this Agreement or the consummation of the
transactions contemplated hereby. Buyer represents and warrants to the Company
and the Selling Stockholders that neither it nor any of its corporate affiliates
has engaged or dealt with any broker or other Person who may be entitled to any
brokerage fee or commission in respect of the execution of this Agreement or the
consummation of the transactions contemplated hereby.
Each of the parties hereto shall indemnify and hold the others harmless
against any and all claims, losses, Liabilities or expenses which may be
asserted against such other parties as a result of such first mentioned party's
dealings, arrangements or agreements with any such broker or Person.
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12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Buyer, the Company and the Selling Stockholders in this
Agreement or pursuant hereto shall survive the Closing until the date which is
the second anniversary date of the Closing, except for (a) the representations
and warranties (i) contained in Section 6.20 and (ii) relating to Taxes of all
kinds, which shall, in each case, survive the Closing until claims based thereon
shall have been barred by the relevant statutes of limitations, and (b) the
representations and warranties contained in Section 5.1(a) which shall
survive the Closing indefinitely; provided, that in the event that any claim
for a Breach of a representation or warranty has been asserted prior to the
last day such representation or warranty would otherwise survive pursuant to
this Section 12 such representation and warranty shall survive until the
final disposition of such claim.
13. TERMINATION.
13.1 TERMINATION EVENTS. This Agreement may, by written notice given
prior to or at the Closing, be terminated:
(i) By Buyer if a material Breach of any of the
representations, warranties, covenants or obligations of the Selling
Stockholders or the Company set forth in this Agreement has been
committed by the Selling Stockholders or the Company and such Breach
has not been (1) waived by Buyer, or (2) cured by the Company or the
Selling Stockholders, as the case may be, within ten (10) days after
receipt of written notice thereof to the Selling Stockholders from
Buyer;
(ii) By Buyer if the Selling Stockholders fail to acquire at
least one hundred percent (100%) of the issued and outstanding shares
of capital stock of the Company;
(iii) By the Selling Stockholders if a material Breach of any
of the representations, warranties, covenants or obligations of Buyer
set forth in this Agreement has been committed by Buyer and such Breach
has not been (1) waived by the Selling Stockholders, or (2) cured by
Buyer within ten (10) days after receipt of written notice thereof from
the Selling Stockholders;
(iv) By mutual written consent of Buyer and the Selling
Stockholders;
(v) By Buyer on or before May 18, 1999, if it fails to obtain
a commitment on terms satisfactory to Buyer in its sole discretion to
procure the financing required to consummate the Contemplated
Transactions; or
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(vi) By either Buyer or the Selling Stockholders if the
Closing has not occurred (other than through the failure of any party
seeking to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before June 15, 1999, or such
later date as the parties may agree upon in writing.
13.2 EFFECT OF TERMINATION. Anything to the contrary set forth in this
Agreement notwithstanding, the sole and exclusive right and remedy of any of the
parties hereto for and with respect to any Breach of a representation, warranty,
covenant, obligation or agreement of any of the other parties hereto under this
Agreement or any of the Related Agreements that occurs before the Closing and
with respect to which any of the parties hereto terminates this Agreement shall
be to terminate this Agreement pursuant to and in accordance with the provisions
of this Section 13; provided, however, that if this Agreement is terminated
because (a) Buyer terminates this Agreement pursuant to Section 13(i) hereof,
(b) Buyer terminates this Agreement pursuant to Section 13.1(ii) hereof, or
(c) the Selling Stockholders terminate this Agreement or otherwise declines
to close the Contemplated Transactions when, in the case of this clause (c),
all conditions set forth in Section 10 hereof shall have been satisfied on or
prior to the last date under this Agreement when such conditions could have
been satisfied, Buyer shall, in any such case, be entitled to receive from
the Company and the Selling Stockholders an amount equal to all reasonable
out-of-pocket fees and expenses (including fees and expenses of its counsel)
incurred by Buyer and its affiliates in connection herewith without prejudice
to the right of Buyer to pursue any equitable remedy; provided, further, that
if this Agreement is terminated because (a) the Selling Stockholders
terminate this Agreement pursuant to Section 13.1(iii) hereof, or (b) Buyer
terminates this Agreement or otherwise declines to close the Contemplated
Transactions when, in the case of this clause (b), all conditions set forth
in Section 9 hereof shall have been satisfied on or prior to the last date
under this Agreement when such conditions could have been satisfied, the
Selling Stockholders shall, in any such case, be entitled to receive from
Buyer an amount equal to all reasonable out-of-pocket fees and expenses
(including fees and expenses of its counsel) incurred by the Selling
Stockholders or the Company in connection herewith.
14. INDEMNIFICATION.
(a) Each Selling Stockholder shall indemnify and hold harmless
Buyer and its officers, directors, employees, stockholders, representatives and
agents, from and against any claims, damages, losses, Liabilities, Taxes, fines,
penalties, costs and expenses (including, without limitation, settlement
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costs, any reasonable legal, accounting or other expenses incurred in
connection with investigating or defending any actions or Threatened actions
and court costs) (a "Buyer Loss" or "Buyer Losses") sustained or required to
be paid by reason of, arising out of or caused by (i) any misrepresentation
or Breach of any representation or warranty made by the Selling Stockholders
or the Company in this Agreement or any Related Agreement, or (ii) any Breach
of or failure to perform any covenant, agreement or obligation of the Selling
Stockholders or the Company contained in this Agreement or any Related
Agreement, (iii) whether or not disclosed on any Schedule hereto, any income
Taxes, imposed by any Taxing authority, with respect to any period ending on
or prior to the Closing Date, or allocated to the Selling Stockholders
pursuant to Section 15(a) hereof, for which Buyer or any affiliate of Buyer,
including the Company, is or becomes liable or which results in a lien on any
assets of the Company, whether or not known to Buyer at the Closing
(including, without limitation, any income Taxes owed for the Tax periods of
the Company ending as of the Closing Date), (iv) whether or not disclosed on
any Schedule hereto, any Taxes of the Company of any kind, imposed by any
Taxing authority, with respect to any period ending on or prior to the
Closing Date for which Buyer or any affiliate of Buyer, including the
Company, is or becomes liable or which results in a lien on any asset of the
Company, whether or not known to Buyer at Closing, to the extent the amount
disclosed to Buyer prior to the Closing Date as the amount properly accrued
or accruable for each such Tax item was not adequate to satisfy the actual
payment of any such Taxes or to the extent any estimated or periodic payments
due on or prior to the Closing Date with respect to any such Taxes is or is
later determined not to be sufficiently paid, (v) whether or not disclosed on
any Schedule hereto, any audits or examinations, including, without
limitation, the reopening of past audits, made in respect of Taxes or Plans
relating to any period ending on or prior to the Closing Date or any
penalties asserted by, or fees under voluntary compliance programs payable
to, the Internal Revenue Service or Department of Labor, including, without
limitation, for failure to file Forms 5500 on any due date for such forms
occurring prior to the Closing Date, (vi) whether or not disclosed on any
Schedule hereto, any off-site disposal of Hazardous Materials, or (vii) the
litigation described on Schedule 6.6.
(b) Buyer shall indemnify and hold harmless each Selling
Stockholder from and against any claims, damages, losses, Liabilities,
Regulatory Actions, Remediation costs, injuries to Persons, property or natural
resources, fines, penalties, costs and expenses (including, without limitation,
settlement costs, any reasonable legal, accounting or other expenses incurred in
connection with investigating or defending any actions or Threatened actions and
court costs) (a "Seller Loss" or "Seller
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Losses") sustained or required to be paid by reason of, arising out of or
caused by (i) any misrepresentation or Breach of any representation or
warranty made by Buyer in this Agreement or any Related Agreement, or (ii)
any Breach of any covenant, agreement or obligation of Buyer contained in
this Agreement or any Related Agreement.
(c) (i) In the event that any indemnified party is made a
defendant in or party to any claim, action, suit or Proceeding, judicial or
administrative, instituted by any third party for Losses, or otherwise receives
any demand from any third party for Losses (any such third party claim, action,
suit or Proceeding being referred to as a "Claim"), the indemnified party
(referred to in this clause (c)(i) as the "notifying party") shall give the
indemnifying party prompt notice thereof. The failure to give such notice shall
not affect whether an indemnifying party is liable for reimbursement unless such
failure has resulted in the loss of substantive rights with respect to the
indemnifying party's ability to defend such Claim, and then only to the extent
of such Loss. The indemnifying party shall be entitled to contest and defend
such Claim; provided, that the indemnifying party (A) diligently contests and
defends such Claim, and (B) acknowledges in writing that it is obligated to
provide indemnification with respect to such Claim. Notice of the intention so
to contest and defend shall be given by the indemnifying party to the notifying
party within twenty (20) business days after the notifying party's notice of
such Claim (but, in all events, at least five (5) business days prior to the
date that an answer to such Claim is due to be filed). Such contest and defense
shall be conducted by reputable attorneys employed by the indemnifying party.
The notifying party shall be entitled at any time, at its own cost and expense
(which expense shall not constitute a Loss unless the notifying party reasonably
determines that the indemnifying party is not adequately representing or,
because of a conflict of interest, may not adequately represent, the interests
of the indemnified parties, and only to the extent that such expenses are
reasonable), to participate in such contest and defense and to be represented by
attorneys of its or their own choosing. If the notifying party elects to
participate in such defense, the notifying party will cooperate with the
indemnifying party in the conduct of such defense. Neither the notifying party
nor the indemnifying party may concede, settle or compromise any Claim without
the consent of the other party, which consent will not be unreasonably withheld.
Notwithstanding the foregoing, if the indemnifying party fails to acknowledge in
writing its obligation to provide indemnification in respect of such Claim, then
the notifying party alone shall be entitled to contest, defend and settle such
Claim in the first instance (in which case, expenses incurred in connection
therewith shall constitute a Loss) and, only if the
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notifying party chooses not to contest, defend or settle such Claim, the
indemnifying party shall then have the right to contest and defend (but not
settle) such Claim.
(ii) In the event any indemnified party should have a
claim against any indemnifying party that does not involve a Claim, the
indemnified party shall deliver a notice of such claim with reasonable
promptness to the indemnifying party. Such notice shall state that the
indemnifying party has thirty (30) days to dispute the claim or such claim
shall be conclusively deemed a liability of such party. The failure to give
such notice shall not affect whether an indemnifying party is liable for
reimbursement unless such failure has resulted in the loss of substantive
rights with respect to the indemnifying party's ability to defend such Claim,
and then only to the extent of such Loss. If the indemnifying party notifies
the indemnified party that it does not dispute the claim described in such
notice or fails to notify the indemnified party within thirty (30) days after
delivery of such notice by the indemnified party whether the indemnifying
party disputes the claim described in such notice, the Loss in the amount
specified in the indemnified party's notice will be conclusively deemed a
liability of the indemnifying party and the indemnifying party shall pay the
amount of such Loss to the indemnified party on demand.
(iii) After the Closing, the rights set forth in this
Section 14 shall be the indemnified parties' sole and exclusive remedies
against the other for misrepresentations or Breaches of covenants contained
in this Agreement. Notwithstanding the foregoing, nothing herein shall
prevent any of the indemnified parties from bringing an action based upon
allegations of fraud, bad faith or willful misconduct in connection with this
Agreement. In the event action is brought in accordance with the preceding
sentence of this clause (iii), the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(d) In connection with any indemnification claim by Buyer
under this Agreement, Buyer (except as set forth in the next sentence) shall be
required to seek recovery for Losses out of the funds held in the Escrow Fund
(as defined in the Escrow Agreement) pursuant to the Escrow Agreement until such
funds are exhausted and is entitled to seek such recovery regardless of whether
such Losses are attributable to the actions or Breaches of the Company or any
Selling Stockholders. Upon exhaustion of the funds held in the Escrow Fund,
Buyer may then seek additional recovery from the Selling Stockholders; provided,
however, that with respect to any such additional recovery, each of the Selling
Stockholders shall not be liable in an amount which, if added to all other
amounts paid as indemnification payments, would exceed
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the net proceeds received by such Selling Stockholders from the sale of their
shares of Company Stock, including proceeds used to pay the Terminating
Liabilities plus payments made pursuant to the Earn-Out Agreement, except as
set forth in the next sentence. Buyer shall not be entitled to pursue any
indemnification claim or recovery against the Selling Stockholders beyond the
foregoing limit, except to the extent any such claim or recovery is based
upon the Selling Stockholders (i) Breach of a representation and warranty
made in Section 5.1(a), or (ii) fraud, bad faith or willful misconduct in
connection with this Agreement.
(e) The obligations set forth in this Section 14 shall be
unconditional and absolute. In the event of a conflict between the provisions of
this Section 14 and any other provisions of this Agreement, the provisions of
Section 14 shall control. The Selling Stockholders shall not have any
indemnification obligations under this Section 14 for Losses until such time
as total Losses for which Buyer is otherwise entitled to indemnification
hereunder equal $50,000 in the aggregate, whereafter the Selling Stockholders
shall be liable for all such Losses in excess thereof, subject to the
limitations set forth in Section 14(d) hereof. Buyer shall not have any
indemnification obligations under this Section 14 for Losses until such time
as total Losses for which the Selling Stockholders are otherwise entitled to
indemnification hereunder equal $50,000 in the aggregate, whereafter Buyer
shall be liable for all such Losses in excess thereof.
(f) The indemnification obligations set forth in this Section
14 shall survive any assignment or other transfer by Buyer or any of the Selling
Stockholders and, except as otherwise set forth in Section 14(a) or (b) hereof,
shall remain in full force and effect regardless of whether Losses are incurred
before or after the Time of Possession.
(g) The amount of any Loss subject to indemnification
hereunder shall be calculated net of any insurance proceeds received or
receivable by Buyer or Company on account of such loss. Buyer and the Company
shall seek full recovery under any insurance policies covering any Loss to the
same extent as they would if such Loss were not subject to indemnification
hereunder; provided, that such Loss is covered by an insurance carrier that is
not an insurance carrier of Buyer. The recipient of an indemnification payment
hereunder shall refund to the Selling Stockholders the amount of any Tax Benefit
directly attributable to such payment within fifteen (15) days of the receipt or
realization of such Tax Benefit. "Tax Benefit" shall mean the present value of
any refund of Taxes paid or reduction in the amount of Tax which otherwise would
have been paid currently using the actual average tax rate for the then
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current tax year applicable to the recipient of such payment. In the case of
a reduction in the amount of Tax which otherwise would have been paid, the
Tax Benefit for purposes of this section shall be deemed to be realized on
the date the recipient of such payment files its tax return for the applicable
taxable year, including valid and proper extensions of such filing date.
(h) All indemnification payments made hereunder shall be
treated by all parties as an adjustment to the Purchase Price for tax reporting
purposes, subject to current and future applicable Tax laws.
15. TAX MATTERS.
(a) The Selling Stockholders shall be responsible for paying
all income Tax Liabilities of the Company in respect of the Company or arising
from operations of the Company prior to and including the Closing Date. The
Selling Stockholders shall be responsible for paying all other outstanding Tax
Liabilities of the Company as of the Closing Date to the extent any of such Tax
Liabilities are not (i) adequately accrued on the Financial Statements of the
Company as of March 31, 1999 and (ii) with respect to later periods prior to
Closing Date, accrued on the Financial Statements of the Company in a manner
consistent with GAAP and prior practice of the Company, and disclosed to Buyer
four (4) days prior to the Closing Date.
(b) After the Closing Date, the Company, Buyer and the Selling
Stockholders shall make available to the others, as reasonably requested, all
information, records or documents relating to Tax Liabilities or potential Tax
Liabilities of the Company for all periods prior to or including the Closing
Date and shall preserve all such information, records and documents until the
expiration of any applicable statute of limitations or extensions thereof.
Notwithstanding any other provisions hereof, each party shall bear its own
expenses in complying with the foregoing provisions.
(c) (i) The Selling Stockholders shall estimate, in good faith
and based on the most recently available financial information, the amount
necessary to satisfy the Tax Liabilities of the Company that are owed or will be
owing to any Taxing authority for any taxable periods of the Company ending on
or before the Closing Date that are allocated to the Selling Stockholders
pursuant to Section 15(a) hereof (the "Unpaid Taxes"), excluding Tax Liabilities
that are included in the calculation of the adjustment described in Section 3.2
hereof (the amount so allocated to the Selling Stockholder defined as the
"Estimated Tax Amount"). Buyer shall be notified of the Estimated Tax Amount on
the Closing Date.
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(ii) The Escrow Agent shall pay the Company an amount
equal to the Estimated Tax Amount out of the Payment Fund (as defined in the
Escrow Agreement) as set forth in Schedule B to the Escrow Agreement.
(iii) If the Estimated Tax Amount actually paid by
the Selling Stockholder is insufficient to satisfy all of the Company's Tax
Liabilities for the Unpaid Taxes, the amount necessary to so satisfy such Tax
Liabilities shall be paid by the Selling Stockholders to Buyer pursuant to
Section 14(a)(ii), (iii) and (iv) hereof. If the amount necessary to satisfy
all of the Company's Tax Liabilities for the Unpaid Taxes as adjusted pursuant
to Section 15(c)(i) is less than the Estimated Tax Amount actually paid by the
Selling Stockholder, the Company shall pay the Selling Stockholders such excess
upon the filing, including extensions, of the last of the returns for such Tax
periods. The Company shall promptly notify the Selling Stockholders of such
filing.
(iv) The Company shall bear the cost and shall
control the preparation and filing of all Tax Returns due on or after the
Closing Date, with reasonable rights of review granted to the Selling
Stockholders, subject to the cooperation provisions of Section 15(b) hereof.
16. ENVIRONMENTAL MATTERS.
The Company and the Selling Stockholders shall provide full
access to the Real Property, the Leased Real Property and the equipment and
operations located thereon (the "Properties"), and shall provide the reasonable
cooperation of the Company's personnel in connection with the performance of an
environmental review of the Properties (the "Environmental Review"). Buyer
shall, at Buyer's sole cost, expense and option, retain an environmental
engineering consultant (the "Environmental Consultant") to perform the
Environmental Review. The Environmental Review, if performed at Buyer's option,
shall include, but not be limited to, (i) a review of relevant environmental
agency files, correspondence between environmental agencies and the Company,
as the case may be, in connection with the Properties, environmental permits
and notifications, previous environmental audits and inspection reports
concerning the Properties, and (ii) a physical inspection of the Properties.
The Environmental Review may also include sampling of soil, surface or ground
water and concrete or wall material at the Properties and integrity tests on
each underground storage tank system (including lines, pumps, valves and
other equipment), if deemed necessary or appropriate by Buyer, in
consultation with the Environmental Consultant. On or before ten days prior
to the Closing Date, the Environmental Consultant shall deliver to the
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Selling Stockholders and Buyer a report setting forth any environmental
conditions discovered during the Environmental Review.
17. EXPENSES. The Selling Stockholders shall bear their expenses
incurred in connection with this Agreement and the Related Agreements and the
transactions contemplated hereby and thereby. The Selling Stockholders agree to
pay all stamps and/or transfer taxes that become due and payable as a result of
the transactions contemplated by this Agreement.
18. ANNOUNCEMENTS. No announcements of the transactions contemplated
hereby shall be made to the general public by any of the parties hereto or their
respective officers, directors, employees, advisors, agents or representatives.
Buyer and the Company will cooperate with each other as to the timing and
content of any announcement of the transactions contemplated hereby to any
employees, customers or suppliers of the Company.
19. FURTHER ACTIONS AND ASSURANCES. Buyer, the Selling Stockholders and
the Company will execute and deliver any and all documents, and will cause any
and all other action to be taken, either before or after Closing, which may be
necessary or proper to effect or evidence the provisions of this Agreement and
the transactions contemplated hereby.
20. COUNTERPARTS. This Agreement may be executed in several
counterparts each of which is an original and all of which taken together shall
constitute a single instrument.
21. CONTENTS OF AGREEMENT; PARTIES IN INTEREST, ETC. This Agreement
sets forth the entire understanding of the parties. Any previous agreements or
understandings between the parties regarding the subject matter hereof,
including, without limitation, the letter of intent dated as of March 18, 1999
and the Confidentiality Agreement dated as of April 8, 1999 and any amendments
thereto, are merged into and superseded by this Agreement. All representations,
warranties, covenants, terms, conditions, obligations and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and permitted assigns of the Selling Stockholders,
the Company and Buyer. Neither this Agreement nor any rights, interests, or
obligations hereunder may be assigned by any party without the prior written
consent of all other parties hereto.
22. NEW YORK LAW TO GOVERN; VENUE. THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES AGREE TO SUBMIT TO THE
PERSONAL AND EXCLUSIVE
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<PAGE>
JURISDICTION OF THE STATE AND FEDERAL COURTS SERVING DENVER, COLORADO WITH
RESPECT TO THE ENFORCEMENT OR INTERPRETATION OF THIS AGREEMENT OR THE
PARTIES' OBLIGATIONS HEREUNDER. EACH PARTY HERETO IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY ACTION OR PROCEEDING BY THE MAILING OF
COPIES OF SUCH PROCESS BY REGISTERED OR CERTIFIED MAIL TO SUCH PARTY AT THE
ADDRESS SPECIFIED IN SECTION 25 HEREOF. NOTHING IN THIS SECTION SHALL AFFECT
THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW. 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.
23. SECTION HEADINGS AND GENDER. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof. The use of the masculine pronoun
herein when referring to any party has been for convenience only and shall be
deemed to refer to the particular party intended regardless of the actual gender
of such party.
24. SCHEDULES AND EXHIBITS. All Schedules and Exhibits referred to in
this Agreement are intended to be and are hereby specifically made a part of
this Agreement.
25. NOTICES. All notices, requests and other communications which are
required or permitted hereunder shall be sufficient if given in writing and
delivered personally or by registered or certified mail, postage prepaid, or by
facsimile transmission (with a copy simultaneously sent by registered or
certified mail, postage prepaid), as follows (or to such other address as shall
be set forth in a notice given in the same manner):
If to Buyer to: Atrium Companies, Inc.
1341 W. Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Facsimile: (214) 630-5058
Attn: Jeff L. Hull
and
Atrium Companies, Inc.
c/o Ardshiel, Inc.
-46-
<PAGE>
230 Park Avenue - Suite 2527
New York, New York 10169
Facsimile: (212) 972-1809
Attn: Daniel T. Morley
James G. Turner
Copies to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Facsimile: (212) 319-4090
Attn: Joel M. Simon, Esq.
Marie Censoplano, Esq.
If to the Selling Stockholders:
Donald Sloane
5380 E. Sanford Circle
Englewood, Colorado 80110
David Hilliard
17555 E. Prentice Circle
Aurora, Colorado 80015-2460
Copies to: Minor & Brown PC
650 South Cherry Street, Suite 1100
Denver, Colorado 80246-1813
Facsimile: (303) 320-6330
Attn: Laura Breaker
If to the Company:
Champagne Industries, Inc.
12775 E. 38th Avenue
Denver, Colorado 80239
Facsimile: (303) 375-1212
Attn: Donald Sloane
Copies to: Minor & Brown PC
650 South Cherry Street, Suite 1100
Denver, Colorado 80246-1813
Facsimile: (303) 320-6330
Attn: Laura Breaker
26. CONFIDENTIAL INFORMATION. Notwithstanding any termination of this
Agreement, all information disclosed by one party ("Discloser") to the other
party ("Recipient") or learned
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<PAGE>
by the Recipient from the Discloser will be considered "Confidential
Information" of the Discloser. Notwithstanding the foregoing, Confidential
Information shall not include information that (i) is now or subsequently
becomes generally known or available to the public through no breach on the
part of Recipient, (ii) Recipient can demonstrate was in its possession prior
to disclosure to Recipient by Discloser, (iii) is independently developed by
Recipient without the use of any Confidential Information, (iv) Recipient
obtains from a third party who has the right to transfer or disclose it, or
(v) is required to be disclosed by any judicial or governmental request,
requirement or order. Except to the extent contemplated under Section 18
hereof, the existence of this Agreement and its contents shall be considered
"Confidential Information," but disclosure may be made on a need to know
basis to the officers, directors, advisors, agents, and representatives of
the parties in connection with facilitating the consummation of the
Contemplated Transactions, including any financing thereof. Subsequent to the
Closing, the parties may disclose the existence of this Agreement and its
contents for any legitimate business purpose. For a period of three years
from the date of this Agreement, Recipient, its corporate affiliates and
representatives, will hold all Confidential Information of Discloser in
confidence; provided that nothing shall prohibit the Company from disclosing
any information about itself or its business subsequent to the Closing or the
termination of this Agreement, regardless of the source of such information.
27. CONSTRUCTION AND INTERPRETATION. This Agreement has been negotiated
by the undersigned and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement, or any
provision of this Agreement, against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
28. ANTI-TRUST MATTERS. Buyer, the Company and the Selling Stockholders
will cause to be filed, and will cooperate with each other in connection with,
all filings required to be made by the parties under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), or any successor law,
regulations and rules promulgated pursuant to the HSR Act or any successor law,
and shall observe the applicable waiting period (including any extensions
thereof by reason of a request for additional information). Buyer, the Company
and the Selling Stockholders will coordinate all filings made pursuant to the
HSR Act so as to present the filings to the Federal Trade Commission and the
Department of Justice at the time selected by the mutual agreement of the
Selling Stockholders and Buyer and to avoid substantial errors or inconsistences
between the two in the description of the transaction. Buyer shall pay all fees
payable
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<PAGE>
to the Federal Trade Commission in connection with the filings required to be
made pursuant to the HSR Act.
29. ASSIGNMENT OF CERTAIN RIGHTS. The Selling Stockholders hereby
transfer, convey and assign to Buyer and the Company all of their rights to
receive any endorsements necessary in order for the Selling Stockholders to
become bona fide purchasers with respect to Company Stock purchased by the
Selling Stockholders prior to the date of this Agreement, which rights shall be
specifically enforceable by Buyer and/or the Company.
30. MODIFICATION AND WAIVER. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof, and this Agreement may be modified or amended at any time
by Buyer, the Company and the Selling Stockholders in writing signed by all of
the parties. No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by all of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof nor shall such waiver constitute a
continuing waiver.
31. INVALID PROVISIONS. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
32. THIRD PARTY BENEFICIARIES. Except as otherwise expressly set forth
herein, no individual or entity shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
33. KNOWLEDGE. All references to the "best knowledge of the Company and
the Selling Stockholders" shall refer to the actual knowledge after due inquiry.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
ATRIUM COMPANIES, INC.
By: /s/ JEFF L. HULL
-----------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
CHAMPAGNE INDUSTRIES, INC.
By: /s/ DONALD SLOANE
-----------------------------
Name: Donald Sloane
Title: President
DONALD SLOANE /s/ DONALD SLOANE
-----------------------------
DAVID HILLIARD /s/ DAVID HILLIARD
-----------------------------
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Definitions.............................................................................1
2. Purchase and Sale of Company Stock......................................................6
3. Closing.................................................................................6
3.1 Delivery of Company Stock......................................................7
3.2 Adjustments to the Purchase Price..............................................7
4. Payments to be Made.....................................................................8
5. Representations and Warranties of the Selling Stockholders..............................8
5.1 Stock Ownership and Other Matters..............................................8
5.2 Transactions With Affiliates...................................................9
6. Representations and Warranties of the Company and the Selling Stockholders.............10
6.1 Organization, Standing, Qualification and Capitalization......................10
6.2 Subsidiaries of the Company...................................................11
6.3 Financial Statements..........................................................11
6.4 Properties and Permits........................................................12
6.5 Taxes.........................................................................12
6.6 Litigation and Labor Matters..................................................14
6.7 Insurance.....................................................................14
6.8 Intellectual Property Rights..................................................15
6.9 Contracts and Commitments.....................................................16
6.10 Absence of Undisclosed Liabilities............................................17
6.11 Absence of Default............................................................17
6.12 Existing Condition............................................................17
6.13 Validity of Contemplated Transactions.........................................18
6.14 Restrictions..................................................................18
6.15 Employee Benefits.............................................................18
6.16 Personal Property.............................................................21
6.17 Bank Accounts and Directors and Officers......................................21
6.18 Compliance with Laws and Instruments..........................................21
6.19 Authorizations................................................................21
6.20 Environmental Compliance......................................................22
6.21 Non-Competition Agreements....................................................23
6.22 Change of Control Provisions..................................................23
6.23 Dividends and Distributions...................................................24
6.24 Disclosure....................................................................24
6.25 Year 2000.....................................................................24
6.26 Relationship with General Electric Company....................................24
7. Representations and Warranties of Buyer................................................24
7.1 Organization, Good Standing and Authority.....................................24
7.2 Validity of Contemplated Transactions.........................................25
7.3. Authorizations................................................................25
7.4 Investment Representations....................................................25
7.5 Litigation....................................................................25
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<PAGE>
8. Conduct of Business Pending Closing....................................................25
8.1 Business in the Ordinary Course...............................................25
8.2 Accounting and Credit Changes.................................................26
8.3 Capitalization, Options, Dividends and Payments...............................26
8.4 Encumbrance of Assets.........................................................26
8.5 Real Property Acquisitions, Dispositions and Leases...........................26
8.6 Litigation During Interim Period..............................................26
8.7 Access........................................................................26
8.8 Good Will.....................................................................26
8.9 Loans.........................................................................26
8.10 Employee Matters..............................................................27
8.11 Preservation of Business and Assets...........................................27
8.12 Affiliate Transactions........................................................27
9. Conditions Precedent to Buyer's Obligations............................................27
9.1 Representations and Warranties................................................27
9.2 Compliance with Agreements....................................................27
9.3 Opinion of Counsel............................................................27
9.4 Material Damage...............................................................27
9.5 Approval of Counsel...........................................................28
9.6 Resignations..................................................................28
9.7 Certificates..................................................................28
9.8 Earn-Out Agreement............................................................28
9.9 Satisfaction of Obligations and Release of Encumbrances.......................28
9.10 Litigation....................................................................28
9.11 Material Adverse Change.......................................................28
9.12 Accrued Compensation..........................................................28
9.13 Leases........................................................................29
9.14 Employment Agreements.........................................................29
9.15 Due Diligence.................................................................29
9.16 Escrow Agreement..............................................................29
9.17 Rights of First Refusal.......................................................29
9.18 Notifications and Third Party Consents........................................29
9.19 Fees and Expenses.............................................................29
9.20 Hart-Scott-Rodino Act Filings.................................................29
9.21 FIRPTA Certificate............................................................30
9.22 Net Working Capital...........................................................30
10. Conditions Precedent to the Selling Stockholders' Obligations..........................30
10.1 Representations and Warranties................................................30
10.2 Compliance with Agreement.....................................................30
10.3 Opinion of Counsel............................................................30
10.4 Hart-Scott-Rodino Act Filings.................................................30
10.5 Earn-Out Agreement............................................................30
10.6 Employment Agreements.........................................................30
10.7 Third Party Consents..........................................................30
11. Broker and Finder Fees.................................................................31
12. Survival of Representations and Warranties.............................................31
13. Termination............................................................................31
13.1 Termination Events............................................................31
13.2 Effect of Termination.........................................................32
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<PAGE>
14. Indemnification........................................................................32
15. Tax Matters............................................................................36
16. Environmental Matters..................................................................37
17. Expenses...............................................................................37
18. Announcements..........................................................................37
19. Further Actions and Assurances.........................................................37
20. Counterparts...........................................................................37
21. Contents of Agreement; Parties In Interest, Etc........................................38
22. New York Law to Govern; Venue..........................................................38
23. Section Headings and Gender............................................................38
24. Schedules and Exhibits.................................................................38
25. Notices................................................................................38
26. Confidential Information...............................................................40
27. Construction and Interpretation........................................................40
28. Anti-Trust Matters.....................................................................40
29. Assignment of Certain Rights...........................................................41
30. Modification and Waiver................................................................41
31. Invalid Provisions.....................................................................41
32. Third Party Beneficiaries..............................................................41
33. Knowledge..............................................................................41
</TABLE>
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<PAGE>
LIST OF SCHEDULES
Schedule 5.1 - Stock Ownership and Other Matters
Schedule 5.2 - Transactions With Affiliates
Schedule 6.1 - Qualification
Schedule 6.2 - Subsidiaries of the Company
Schedule 6.3 - Financial Statements
Schedule 6.4 - Properties and Permits
Schedule 6.5 - Taxes
Schedule 6.6 - Litigation
Schedule 6.7 - Insurance
Schedule 6.8 - Intellectual Property Rights
Schedule 6.9 - Contracts and Commitments
Schedule 6.10 - Absence of Undisclosed Liabilities
Schedule 6.12 - Existing Condition
Schedule 6.13 - Validity of Contemplated Transactions
Schedule 6.15 - Employee Benefits
Schedule 6.16 - Personal Property
Schedule 6.17 - Bank Accounts and Directors and Officers
Schedule 6.20 - Environmental Compliance
Schedule 7.2 - Validity of Contemplated Transactions
Schedule 9.9 - Excluded Indebtedness
LIST OF EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Earn-Out Agreement
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<PAGE>
Exhibit 2.6
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
among
HEAT, INC.,
its SHAREHOLDERS and OPTIONHOLDERS,
H.I.G. VINYL, INC., a Cayman Island corporation,
H.I.G. INVESTMENT FUND, L.P., a Cayman Island limited partnership,
H.I.G. CAPITAL MANAGEMENT, INC., a Delaware corporation
and
ATRIUM COMPANIES, INC.
April 20, 1999
- --------------------------------------------------------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made as of
April 20, 1999, among Heat, Inc., a Delaware corporation (the "COMPANY"), the
Persons listed on the attached SHAREHOLDERS SCHEDULE (the "SHAREHOLDERS"), the
Persons listed on the attached OPTIONHOLDERS SCHEDULE (the "OPTIONHOLDERS"),
H.I.G. Vinyl, Inc., a Cayman Island corporation ("H.I.G. CAYMAN"), H.I.G.
Investment Fund, L.P., a Cayman Island limited partnership ("H.I.G. FUND"),
H.I.G. Capital Management, Inc., a Delaware corporation ("H.I.G. MANAGEMENT"),
and Atrium Companies, Inc., a Delaware corporation (the "BUYER"). Capitalized
terms used and not otherwise defined herein have the meanings set forth in
Article XII below.
WHEREAS, the total authorized capital stock of the Company
consists of 5,000,000 shares of Class A Common Stock, par value $.01 per share
(the "CLASS A STOCK"), of which 1,312,500 shares are issued and outstanding and
1,000,000 shares of Class B Common Stock, par value $.01 per share (the "CLASS B
STOCK" and, together with the Class A Stock, the "SHARES"), of which no shares
are issued and outstanding.
WHEREAS, options to acquire 108,805 shares of Class A Stock and
warrants to purchase 98,790 shares of Class B Stock (collectively, the
"OPTIONS") are issued and outstanding.
WHEREAS, the Shareholders own all of the issued and outstanding
Shares in the individual amounts set forth on the attached SHAREHOLDERS
SCHEDULE. The Optionholders own all of the issued and outstanding Options in the
individual amounts set forth on the attached OPTIONHOLDERS SCHEDULE.
WHEREAS, as of the Closing Date, 1,312,500 Shares and Options to
acquire 108,805 shares of Class A Common Stock and 98,790 shares of Class B
Stock will be issued and outstanding.
WHEREAS, the total authorized capital stock of H.I.G. Vinyl, Inc.
("VINYL"), a Delaware corporation and a Shareholder, consists of 1,000 shares of
common stock, par value $.01 per share, of which 1,000 shares are issued and
outstanding (the "VINYL SHARES").
WHEREAS, H.I.G. Cayman owns all of the Vinyl Shares.
WHEREAS, as of the Closing Date, H.I.G. Cayman will own all of the
issued and outstanding capital stock of Vinyl.
<PAGE>
WHEREAS, subject to the terms and conditions set forth herein, the
parties hereto desire to consummate the transactions as described below in
Section 1.03 with respect to the outstanding Shares and the transactions as
described below in Section 1.04 with respect to the outstanding Options.
NOW, THEREFORE, in consideration of the mutual promises,
agreements and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending legally to be bound, agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES AND OPTIONS
1.01 AGGREGATE EQUITY PRICE. The aggregate consideration to be
delivered by Buyer (the "AGGREGATE EQUITY PRICE") shall be an amount equal to
(a) $85,000,000 PLUS (b) the aggregate amount of cash and cash equivalents held
by the Company as of the Closing Date (the "CLOSING CASH") MINUS (c) the
outstanding amount of the Indebtedness as of the Closing to be paid by Buyer
pursuant to Section 1.07(b)(v) (the "CLOSING DEBT") MINUS (d) the Escrow Amount
MINUS (e) $32,500, which represents the cash amount of the Special Bonus Awards
granted pursuant to the letters dated February 12, 1999 to Thomas Warren,
Michael Lane and Gerald Fiano (collectively, the "Bonuses") MINUS (f) the
outstanding amount of capitalized lease obligations as of the Closing Date (the
"CAPITALIZED LEASE OBLIGATIONS") MINUS (g) any outstanding amounts owed in
connection with any agreements with Computer Associates International, Inc., to
the extent such obligations are not paid in full, as of the Closing Date (the
"OUTSTANDING COMPUTER ASSOCIATES DEBT"). The Aggregate Equity Price shall be
adjusted as set forth in Section 1.06.
1.02 DEPOSIT. Contemporaneous with the execution of this
Agreement, Buyer shall deposit for the benefit of the Shareholders (other than
Vinyl), the Optionholders and H.I.G. Cayman, $2,500,000 (the "DEPOSIT") into
escrow pursuant to the terms of the Escrow Agreement. Subject to the terms and
conditions of this Agreement, the Deposit will, at Closing, be paid by the
Company to the Shareholders (other than Vinyl), the Optionholders and H.I.G.
Cayman and credited to the Aggregate Equity Price.
1.03 SHARE TRANSACTIONS.
(a) The purchase price for each of the outstanding Shares to be
3
<PAGE>
acquired from the Shareholders (other than Vinyl) shall be an amount, in
cash, equal to the quotient of (i) the Aggregate Equity Price PLUS the
aggregate exercise price for the Options, DIVIDED by (ii) the number of
Shares outstanding as of the Closing on a fully-diluted basis (the "PER SHARE
PURCHASE PRICE"). The purchase price for all of the outstanding Vinyl Shares
shall be an amount in cash equal to the Per Share Purchase Price multiplied
by the aggregate number of Shares held by Vinyl.
(b) On the basis of the representations, warranties, covenants and
agreements and subject to the satisfaction or waiver of the terms and conditions
set forth herein, each of the Shareholders (other than Vinyl) and H.I.G. Cayman
agrees to and will consummate, at the Closing, the following transactions: (i)
each Shareholder (other than Vinyl) shall sell, assign, transfer and convey to
Buyer, and Buyer shall purchase and acquire from each Shareholder (other than
Vinyl), all of the Shares held by such Shareholder set forth opposite such
Shareholder's name on the attached SHAREHOLDERS SCHEDULE against payment at the
Closing of the Closing Per Share Purchase Price (as defined in Section 1.06(a)
below) for each Share and (ii) H.I.G. Cayman shall sell, assign, transfer and
convey to Buyer, and Buyer shall purchase and acquire from H.I.G. Cayman, all of
the Vinyl Shares held by H.I.G. Cayman against payment at the Closing of an
amount equal to the Closing Per Share Purchase Price multiplied by the aggregate
number of Shares held by Vinyl, it being understood that Buyer's payment
obligations are as set forth in Sections 1.02, 1.05, 1.06 and 1.07(b)(i) and
(ii).
1.04 OPTION TRANSACTIONS.
(a) The purchase price for each of the issued and outstanding
Options from the Optionholders shall be an amount, in cash, equal to the Per
Share Purchase Price MINUS the exercise price for such Option (the "PER OPTION
PURCHASE PRICE").
(b) On the basis of the representations, warranties, covenants and
agreements and subject to satisfaction or waiver of the terms and conditions set
forth herein, each of the Optionholders agrees to and will consummate, at the
Closing, the following transactions (the "OPTION PURCHASE TRANSACTIONS"): each
Optionholder shall sell, assign, transfer and convey to Buyer, and Buyer shall
purchase and acquire from each Optionholder, all of the Options held by each
Optionholder set forth opposite such Optionholder's name on the attached
OPTIONHOLDERS SCHEDULE against payment at the Closing of the Closing Per Option
Purchase Price (as defined in Section 1.06(a) below) for each Option, it being
understood that Buyer's payment obligations are as set forth in Sections 1.02,
1.05, 1.06 and 1.07(b)(i) and (ii).
1.05 ESCROW. On the Closing Date, Buyer shall deposit, for the
benefit
4
<PAGE>
of the Shareholders (other than Vinyl), the Optionholders and H.I.G. Cayman,
$5,000,000 (the "ESCROW AMOUNT") in an escrow account established pursuant to
the terms and conditions of an escrow agreement (the "ESCROW AGREEMENT"), by and
among the Escrow Agent, Buyer and the Shareholder Representative (on behalf of
the Shareholders (other than Vinyl), the Optionholders and H.I.G. Cayman), which
will be substantially in the form of EXHIBIT A attached hereto, as modified
before execution thereof in accordance with the reasonable requests of the
Escrow Agent.
1.06 AGGREGATE EQUITY PRICE ADJUSTMENT.
(a) At least three days prior to the Closing Date, the Shareholder
Representative (on behalf of the Shareholders, the Optionholders and H.I.G.
Cayman) shall deliver to Buyer an estimated pro forma balance sheet of the
Company as of the close of business on the Closing Date based on the Company's
books and records and other information then available (the "ESTIMATED BALANCE
SHEET") setting forth its good faith calculation of its estimate of the Net
Working Capital as of the Closing Date (the "ESTIMATED NET WORKING CAPITAL"). If
the Estimated Net Working Capital is less than $5,175,000 (the "WORKING CAPITAL
TARGET"), then the Aggregate Equity Price to be paid at Closing shall be reduced
by the amount of such deficiency. If the Estimated Net Working Capital is
greater than the Working Capital Target, then the Aggregate Equity Price shall
be increased by the amount of such difference. The Per Share Purchase Price and
Per Option Purchase Price determined using the estimated Aggregate Equity Price
determined pursuant to this Section 1.06(a) shall be defined herein respectively
as the "CLOSING PER SHARE PURCHASE PRICE" and the "CLOSING PER SHARE OPTION
PURCHASE PRICE."
(b) As promptly as possible, but in any event within sixty (60)
days after the Closing Date, Buyer will deliver to the Shareholder
Representative (on behalf of the Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman) its calculation of the Net Working Capital as
of the Closing Date (the "CLOSING NET WORKING CAPITAL STATEMENT"). If the
Shareholder Representative has any objections to the Closing Net Working Capital
Statement, the Shareholder Representative shall deliver to Buyer a statement
setting forth its objections thereto (an "OBJECTIONS STATEMENT") within thirty
(30) days of the Shareholder Representative's receipt of the Closing Net Working
Capital Statement. If an Objections Statement is not delivered to Buyer within
such thirty (30) days, the Closing Net Working Capital Statement shall be final,
binding and non-appealable by the parties hereto. If the Shareholder
Representative delivers an Objections Statement within such thirty (30) days,
the Shareholder Representative and Buyer shall negotiate in good faith to
resolve any such objections, but if they do not reach a final resolution within
thirty (30) days after the delivery of the Objections Statement, the Shareholder
Representative and Buyer shall submit such dispute to KPMG LLP (the "INDEPENDENT
AUDITOR"). The Shareholder Representative and Buyer shall use their
5
<PAGE>
commercially reasonable efforts to cause the Independent Auditor to resolve all
disagreements as soon as practicable, but in any event within fifteen (15) days
after the submission of the dispute to the Independent Auditor. The resolution
of the dispute by the Independent Auditor shall be final, binding and
non-appealable on the parties hereto. The costs and expenses of the Independent
Auditor shall be paid equally by Buyer, on the one hand, and the Shareholders
(other than Vinyl), the Optionholders and H.I.G. Cayman, on the other hand.
(c) (i) If the Net Working Capital as of the Closing Date as
finally determined pursuant to clause (b) above is greater than the Estimated
Net Working Capital, Buyer shall pay to the Shareholder Representative (on
behalf of the Shareholders (other than Vinyl), the Optionholders and H.I.G.
Cayman) the difference between the Net Working Capital as of the Closing Date as
finally determined pursuant to clause (b) above and the Estimated Net Working
Capital by wire transfer of immediately available funds to an account designated
by the Shareholder Representative to Buyer.
(ii) If the Net Working Capital as of the Closing Date as finally
determined pursuant to clause (b) above is less than the Estimated Net Working
Capital, the Shareholder Representative (on behalf of the Shareholders (other
than Vinyl), the Optionholders and H.I.G. Cayman) shall pay to Buyer the
difference between the Net Working Capital as of the Closing Date as finally
determined pursuant to clause (b) above and the Estimated Net Working Capital by
directing the Escrow Agent under the Escrow Agreement to promptly pay to Buyer
such difference from the account established pursuant to the terms of the Escrow
Agreement. The Shareholders (other than Vinyl), the Optionholders and H.I.G.
Cayman shall be required to deposit into such account an amount equal to such
difference within thirty (30) days of such payment to Buyer.
(d) The Closing Cash will be determined based upon bank
verification of cash and cash equivalent balances as of the Closing and the
Closing Debt will be determined based upon payoff letters from the respective
creditor. The Capitalized Lease Obligations will be determined based upon
letters from the lessors. If the parties determine during the determination of
the Closing Net Working Capital Statement that either the Closing Cash, the
Closing Debt or the Capitalized Lease Obligations used to determine the Closing
Per Share Purchase Price and the Closing Per Option Purchase Price was
incorrect, the Per Share Purchase Price and Per Option Purchase Price will be
adjusted accordingly.
1.07 THE CLOSING.
(a) The closing of the transactions contemplated by this Agreement
(the "CLOSING") shall take place at the offices of Paul, Hastings, Janofsky &
Walker LLP located at 399 Park Avenue, New York, New York at 10:00 a.m. on May
14, 1999, or if
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any of the conditions to the Closing set forth in Article II below have not been
satisfied or waived by the party entitled to the benefit thereof, then on or
prior to the second business day following satisfaction or waiver of all of the
closing conditions set forth in Article II hereof (other than those to be
satisfied at the Closing) or on such other date as is mutually agreed upon by
Buyer and the Shareholder Representative (on behalf of the Shareholders, the
Optionholders and H.I.G. Cayman). The date and time of the Closing are herein
referred to as the "CLOSING DATE."
(b) In reliance on the representations, warranties and covenants
contained herein and subject to the terms and conditions set forth in this
Agreement, the parties hereto shall consummate the following transactions (the
"CLOSING TRANSACTIONS") on the Closing Date:
(i) Buyer shall deliver to the Shareholder Representative (on
behalf of the Shareholders (other than Vinyl), the Optionholders and
H.I.G. Cayman) the estimated Aggregate Equity Price determined pursuant
to Section 1.06(a), MINUS the Deposit and the Deposit Interest, in cash
by wire transfer of immediately available funds to the account
designated by the Shareholder Representative to Buyer prior to the
Closing;
(ii) In order to secure the Shareholders' (other than Vinyl's),
the Optionholders' and H.I.G. Cayman's obligations to indemnify Buyer
pursuant to Article IX, Buyer shall deposit the Escrow Amount in the
escrow account which will be subject to the terms and conditions of the
Escrow Agreement;
(iii) the Shareholder Representative (on behalf of the
Shareholders (other than Vinyl) and H.I.G. Cayman) shall deliver to
Buyer, free and clear of all claims, pledges, security interests,
liens, charges and all other encumbrances of any kind, stock
certificates representing the Shares and the Vinyl Shares duly endorsed
for transfer or accompanied by duly executed stock powers;
(iv) the Shareholder Representative (on behalf of the
Optionholders) shall deliver to Buyer satisfactory evidence of the
valid transfer of the Options to the Buyer, free and clear of all
claims, pledges, security interests, liens, charges and all other
encumbrances of any kind;
(v) Buyer shall repay, or cause to be repaid, on behalf of the
Company and its Subsidiaries, all amounts necessary to discharge fully
all indebtedness for borrowed money of the Company and its
Subsidiaries, including, without limitation, the then outstanding bank
debt, real estate debt, contracts for deed, notes payable to
stockholders, mortgages, deferred financing arrangements, deferred
license fees, deferred purchase obligations, earn-out payments and all
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prepayment penalties, accrued interest and other obligations related
thereto (but excluding the Capitalized Lease Obligations and excluding
the Outstanding Computer Associates Debt, to the extent such
obligations are not paid in full by the Company, as of the Closing
Date) listed on the attached INDEBTEDNESS SCHEDULE (collectively, the
"INDEBTEDNESS"), by wire transfer of immediately available funds as
directed by the holders of the Indebtedness at or prior to the Closing,
and the Shareholder Representative (on behalf of the Shareholders, the
Optionholders and H.I.G. Cayman) shall deliver to Buyer all appropriate
payoff letters and shall make arrangements reasonably satisfactory to
Buyer for such holders of the Indebtedness to deliver lien releases and
canceled notes at the Closing; and
(vi) Buyer, the Company, Vinyl and the Shareholder Representative
(on behalf of the Shareholders (other than Vinyl), the Optionholders
and H.I.G. Cayman) shall make such other deliveries and take all
further actions on or after the Closing Date as may be necessary and
appropriate to effect the transactions contemplated by this Agreement
and as are required by and in accordance with Article II hereof.
(c) Subject to the terms and conditions herein, if the
Shareholders (other than Vinyl) or the Optionholders shall fail or refuse to
deliver at least ninety-nine percent (99%) of the outstanding capital stock of
the Company on a fully diluted basis, or if H.I.G. Cayman shall fail or refuse
to deliver any of the Vinyl Shares as provided in this Section 1.07, or if any
of the Shareholders, the Optionholders or H.I.G. Cayman shall fail or refuse to
consummate the transactions described in this Agreement prior to the Closing
Date, such failure or refusal shall not relieve the Shareholders, the
Optionholders or H.I.G. Cayman of any obligations under this Agreement, and
Buyer at its option and without prejudice to its rights against any such
defaulting Shareholder, Optionholder or H.I.G. Cayman, may either (a) acquire
the remaining Shares, Vinyl Shares and/or Options which it is entitled to
acquire hereunder after reducing the Aggregate Equity Price accordingly, or (b)
terminate this Agreement in accordance with the provisions of Article VIII.
ARTICLE II
CONDITIONS TO CLOSING
2.01 CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions as of or prior to the Closing Date:
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(a) Buyer shall have obtained the debt financing described in the
Highly Confident letter addressed to Buyer, dated February 26, 1999, and
attached hereto as EXHIBIT B (the "Financing Letter");
(b) The representations and warranties of the Company, the
Shareholders, the Optionholders and H.I.G. Cayman set forth in this Agreement or
in any Exhibit or Schedule hereto, if specifically qualified by materiality,
shall be true and correct in all respects, and if not so qualified, shall be
true and correct in all material respects at and as of the Closing Date as
though then made and as though the Closing Date was substituted for the date of
this Agreement throughout such representations and warranties;
(c) The Company, the Shareholders, the Optionholders and H.I.G.
Cayman shall have performed or complied with in all material respects all of the
covenants, conditions and agreements required to be performed or complied with
by them under this Agreement at or prior to the Closing;
(d) All of the consents from and notices to third parties which
are set forth on the attached SELLER CONSENTS SCHEDULE, shall have been obtained
in writings executed by such third parties in form and substance reasonably
satisfactory to Buyer;
(e) The applicable waiting periods (including any extension
thereof by reason of a request for additional information), if any, under the
HSR Act shall have expired or been terminated, and all of the governmental
filings, consents, authorizations, approvals and waivers which are set forth on
the attached SELLER CONSENTS SCHEDULE, shall have been made and obtained and
shall be in full force and effect;
(f) No action or proceeding before any court or government body
shall be pending or, to the best knowledge of the Company, threatened with a
reasonable likelihood of success, as determined by Buyer in its reasonable
discretion, on the Closing Date wherein an unfavorable judgment, decree or order
would restrain, prohibit or prevent the performance of this Agreement or the
consummation of any of the transactions contemplated by this Agreement, declare
unlawful the transactions contemplated by this Agreement or cause such
transactions to be rescinded;
(g) The Shareholder Representative shall have executed and
delivered the Escrow Agreement on behalf of the Shareholders (other than Vinyl),
the Optionholders and H.I.G. Cayman;
(h) From December 31, 1998, there shall not have occurred or
became known any material adverse change, or any condition or event (including
any change in
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law) that could reasonably be expected to result in a material adverse change,
in the business, property, assets, liabilities (contingent or otherwise),
operations or condition (financial or otherwise) of Vinyl or the Company and its
Subsidiaries, as the case may be;
(i) Vinyl, the Company and the Shareholder Representative (on
behalf of the Shareholders, the Optionholders and H.I.G. Cayman) shall have
delivered to Buyer each of the following:
(A) a certificate of each of Vinyl, the Company and the
Shareholder Representative in the form set forth in EXHIBIT C attached
hereto, dated the Closing Date, stating that the preconditions
specified in subsections (b) through (h) hereof, inclusive, have been
satisfied;
(B) copies of the third party and governmental consents
required by subsections (d) and (e) above;
(C) all minute books, stock books, ledgers and registers,
corporate seals and other corporate records relating to the
organization, ownership and maintenance of Vinyl, the Company and the
Subsidiaries;
(D) a certificate of the Secretary of each of Vinyl, the
Company and H.I.G. Cayman relating to the incumbency and corporate
proceedings in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
by this Agreement, and the absence of changes in Vinyl's, the Company's
and its Subsidiaries', and H.I.G. Cayman's Certificate of Incorporation
and By-laws, together with copies of the resolutions duly adopted by
Vinyl's, the Company's and H.I.G. Cayman's board of directors and
shareholders authorizing the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by
this Agreement;
(E) resignations effective as of the Closing Date from such
officers and directors of Vinyl, the Company or the Subsidiaries as
Buyer shall have requested in writing not less than ten (10) days prior
to the Closing Date in form and substance satisfactory to Buyer;
(F) (i) a copy of the Certificate of Incorporation and all
amendments thereto, of each of Vinyl, the Company and the Subsidiaries,
certified by the Secretary of State of the state of its incorporation,
as of a date not more than thirty (30) days prior to the Closing Date,
(ii) copies, certified by the Secretary of each of Vinyl, the Company
and the Subsidiaries, as of the Closing Date, of the Bylaws of Vinyl,
the Company and the Subsidiaries, (iii) Certificates
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of Good Standing from the Secretary of the state of its incorporation
as of a date not more than ten (10) days prior to the Closing Date,
accompanied by bring-down certificates dated as of the Closing Date,
evidencing Vinyl's, the Company's and the Subsidiaries' good standing
in such jurisdiction, and (iv) Certificates of Good Standing from the
Secretary of State of each state wherein Vinyl, the Company and the
Subsidiaries are duly qualified, as of a date not more than ten (10)
days prior to the Closing Date, accompanied by bring-down certificates
dated as of the Closing Date, evidencing Vinyl's, the Company's and the
Subsidiaries' good standing therein;
(G) an opinion from Kirkland & Ellis, legal counsel for Vinyl
and the Company, and an opinion from Maples and Calder, legal counsel
for H.I.G. Cayman, addressed to Buyer, dated the Closing Date, and in
the form of EXHIBIT D attached hereto;
(H) evidence that the release of all claims, pledges, security
interests, liens, charges and all other encumbrances of any kind on the
assets of Vinyl, the Company and the Subsidiaries will occur
immediately upon repayment of the Indebtedness set forth on the
attached INDEBTEDNESS SCHEDULE and all appropriate payoff letters
setting forth amounts to be paid to discharge fully the outstanding
balance of the Indebtedness set forth on the attached INDEBTEDNESS
SCHEDULE;
(I) evidence reasonably satisfactory to Buyer of (i) the
elimination of any rights of first refusal to purchase the Company's
capital stock from the Shareholders and the Optionholders, or Vinyl's
capital stock from H.I.G. Cayman, and (ii) the termination of any
shareholders agreements, stock purchase agreements, option agreements,
warrant agreements, registration rights agreements, voting agreements
or any other agreements relating to the capital stock of Vinyl or the
Company, and any amendments thereto, to which Vinyl, the Company, any
Shareholder, any Optionholder and/or H.I.G. Cayman are a party,
including, without limitation, those agreements set forth on the
attached TERMINATING AGREEMENTS SCHEDULE;
(J) a duly and properly executed certificate from each
Shareholder, each Optionholder and H.I.G. Cayman in the forms attached
as Exhibit E hereto establishing an exemption from withholding under
Treasury Regulation ss. 1.1445-2 on the basis of the transferor not
being a foreign person or the Shares or the Options not constituting a
U.S. real property interest;
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(K) all other instruments which are necessary or desirable to
effect the transactions contemplated by this Agreement; and
(L) upon the request of Buyer, estoppel certificates with
respect to the Leased Real Property set forth on the SELLER CONSENTS
SCHEDULE in form and substance reasonably satisfactory to Buyer.
(j) The Closing Transactions set forth in Section 1.07(b) shall
have been completed;
(k) Buyer shall have obtained Form ALTA-B owner's policies of
title insurance issued to the Company and its Subsidiaries directly, or by
endorsement, effective on the date of the Closing, in respect of any real
property, whether owned or leased, acceptable to Buyer in its reasonable
discretion; provided that Buyer shall pay the premiums and costs relating
thereto; and
(l) Thermal's gross profit percentage for the four months ended
April 30, 1999, as determined in accordance with Thermal's past practice and as
determined from the financial statements to be delivered to Buyer pursuant to
the last sentence of Section 6.09, shall not be less than 37.5%; provided that
the condition set forth in this Section 2.01(1) shall not be a condition to
Buyer's obligation to consummate the transactions contemplated by this Agreement
in the event that Buyer receives the financial statements required to be
delivered pursuant to the last sentence of Section 6.09 and does not terminate
this Agreement pursuant to Section 8.01(c)(ii) on or prior to the third business
day following the delivery to Buyer of such financial statements.
2.02 CONDITIONS TO THE SHAREHOLDERS', THE OPTIONHOLDERS' AND
H.I.G. CAYMAN'S OBLIGATIONS. The obligations of the Shareholders, the
Optionholders and H.I.G. Cayman to consummate the transactions contemplated by
this Agreement are subject to the satisfaction of the following conditions as of
or prior to the Closing Date:
(a) The representations and warranties of Buyer set forth in this
Agreement, if specifically qualified by materiality, shall be true and correct
in all respects, and if not so qualified, shall be true and correct in all
material respects at and as of the Closing as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties;
(b) Buyer shall have performed or complied with in all material
respects all the covenants, conditions and agreements required to be performed
or complied with by it under this Agreement at or prior to the Closing;
(c) All of the consents from third parties which are set forth on
the
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attached BUYER CONSENTS SCHEDULE shall have been obtained in writings executed
by such third parties;
(d) The applicable waiting periods (including any extension
thereof by reason of a request for additional information), if any, under the
HSR Act shall have expired or been terminated, and all governmental filings,
consents, authorizations, approvals and waivers which items are set forth on the
attached BUYER CONSENTS SCHEDULE, shall have been made and obtained and shall be
in full force and effect;
(e) No action or proceeding before any court or government body
shall be pending or, to the best knowledge of Buyer, threatened with a
reasonable likelihood of success, as determined by the Shareholder
Representative in its reasonable discretion, on the Closing Date wherein an
unfavorable judgment, decree or order would prevent the performance of this
Agreement or the consummation of any of the transactions contemplated hereby,
declare unlawful the transactions contemplated by this Agreement or cause such
transactions to be rescinded;
(f) Buyer shall have executed and delivered the Escrow Agreement;
(g) Buyer shall have delivered to the Shareholder Representative
(on behalf of the Shareholders, the Optionholders and H.I.G. Cayman) certified
copies of the resolutions duly adopted by Buyer's board of directors authorizing
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated by this Agreement;
(h) Buyer shall have delivered to the Shareholder Representative
(on behalf of the Shareholders, the Optionholders and H.I.G. Cayman) a
certificate in the form set forth as EXHIBIT F attached hereto, dated the
Closing Date, stating that the preconditions specified in subsections (a)
through (f) hereof, inclusive, have been satisfied; and
(i) The Closing Transactions set forth in Section 1.07(b) shall
have been completed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH
SHAREHOLDER, EACH OPTIONHOLDER AND H.I.G. CAYMAN
Each Shareholder and each Optionholder, with respect to Sections
3.01, 3.02, 3.03 and 3.06 (on a several, and not joint and several basis,
subject to Section
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9.02(d)), and H.I.G. Cayman, with respect to Sections 3.04, 3.05, 3.06, 3.07 and
3.08, represents and warrants to Buyer as follows:
3.01 AUTHORITY. Such Shareholder, such Optionholder or H.I.G.
Cayman, as the case may be, has all requisite power and authority and full legal
capacity to execute and deliver this Agreement and to consummate and perform his
or its obligations hereunder.
3.02 EXECUTION AND DELIVERY; VALID AND BINDING AGREEMENT; OTHER
MATTERS. This Agreement has been duly executed and delivered by such
Shareholder, such Optionholder or H.I.G. Cayman, as the case may be, and
constitutes the legal, valid and binding obligation of such Shareholder, such
Optionholder or H.I.G. Cayman, as the case may be, enforceable in accordance
with its terms. No permit, authorization, consent or approval of, or filing with
or notification to, any governmental, regulatory or administrative body or any
other third party is required in connection with the execution and delivery of
this Agreement by such Shareholder, such Optionholder or H.I.G. Cayman.
3.03 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. Such Shareholder
or such Optionholder, as the case may be, is the lawful record owner of the
number of Shares or the Options, as applicable, set forth opposite his or its
name on the attached SHAREHOLDERS SCHEDULE or OPTIONHOLDERS SCHEDULE, as the
case may be, free and clear of all claims, pledges, security interests, liens,
charges, encumbrances, options, proxies, voting trusts or agreements and other
restrictions and limitations of any kind, and such Shareholder or such
Optionholder, as the case may be, has full legal power and all authorization
required by law to transfer and deliver the Shares or the Options, as
applicable, set forth on the attached SHAREHOLDERS SCHEDULE or the OPTIONHOLDERS
SCHEDULE, as the case may be, owned by such Person in accordance with this
Agreement. On the Closing Date, such Shareholder will be the lawful record owner
of the number of Shares set forth opposite such Person's name on the attached
SHAREHOLDERS SCHEDULE and such Shareholder (other than Vinyl) shall validly
convey and transfer to Buyer good title to such Shares, and such Optionholder
will be the lawful record owner of the Options set forth opposite such Person's
name on the attached OPTIONHOLDERS SCHEDULE and shall validly convey and
transfer to Buyer such Options, in either case free and clear of all claims,
pledges, security interests, liens, charges, encumbrances, options, proxies,
voting trusts or agreements and other restrictions and limitations of any kind,
other than applicable federal and state securities law restrictions. Such
Shareholder or such Optionholder, as the case may be, does not and, on the
Closing Date, will not, own any capital stock or any options to acquire capital
stock of the Company except as set forth on the attached SHAREHOLDERS SCHEDULE
or OPTIONHOLDERS SCHEDULE. Except as set forth on the attached CAPITAL STOCK
SCHEDULE, such Shareholder and such Optionholder, as the case may be, is not,
and on the Closing Date, will not be, a party to or bound by any contract
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which grants to any Person an option or right of first refusal or other right of
any character to acquire at any time, or upon the happening of any stated
events, shares of capital stock or other securities of the Company whether or
not presently issued and outstanding. Such Shareholder and such Optionholder is
not a "foreign person" within the meaning of Section 1445(f)(3) of the Code and
Treasury Regulation Section 1.445-2(b)(2)(i). There is no pending action or
proceeding that has been commenced against such Shareholder or such Optionholder
that may have the effect of preventing, delaying or making illegal the Closing
Transactions and, to the best knowledge of such Shareholder and such
Optionholder, no such action or proceeding has been threatened. Except as set
forth on the attached GOVERNMENTAL CONSENTS SCHEDULE and THIRD-PARTY CONSENTS
SCHEDULE hereto, neither the execution and delivery of this Agreement or any
related agreements by such Shareholder or such Optionholder nor the consummation
by such Shareholder or such Optionholder of the transactions provided for herein
or therein will conflict with, violate, or result in a breach of, default under
or the creation of any claims, pledges, security interests, liens, charges,
encumbrances, options, proxies, voting trusts or agreements and other
restrictions and limitations of any kind pursuant to any agreement to which such
Shareholder or such Optionholder, as the case may be, is a party or by which he
or it is bound or any law, order, judgment or decree or any provision of the
Certificate of Incorporation or By-Laws of the Company, or any contract to which
the Company, or such Shareholder or such Optionholder, as the case may be, is a
party.
3.04 OWNERSHIP OF VINYL SHARES. H.I.G. Cayman is the lawful record
owner of the Vinyl Shares, free and clear of all claims, pledges, security
interests, liens, charges, encumbrances, options, proxies, voting trusts or
agreements and other restrictions and limitations of any kind, and H.I.G. Cayman
has full legal power and all authorization required by law to transfer and
deliver the Vinyl Shares in accordance with this Agreement. On the Closing Date,
H.I.G. Cayman will be the lawful record owner of the Vinyl Shares and shall
validly convey and transfer to Buyer good title to the Vinyl Shares, free and
clear of all claims, pledges, security interests, liens, charges, encumbrances,
options, proxies, voting trusts or agreements and other restrictions and
limitations of any kind, other than applicable federal and state securities law
restrictions. There is no pending action or proceeding that has been commenced
against H.I.G. Cayman that may have the effect of preventing, delaying or making
illegal the Closing Transactions and, to the best knowledge of H.I.G. Cayman, no
such action or proceeding has been threatened. Except as set forth on the
attached GOVERNMENTAL CONSENTS SCHEDULE and THIRD-PARTY CONSENTS SCHEDULE,
neither the execution and delivery of this Agreement or any related agreements
by H.I.G. Cayman nor the consummation by H.I.G. Cayman of the transactions
provided for herein or therein will conflict with, violate, or result in a
breach of, default under or the creation of any claims, pledges, security
interests, liens, charges, encumbrances, options, proxies, voting trusts or
agreements and other restrictions and limitations of any kind pursuant to, any
agreement to which Vinyl
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or H.I.G. Cayman is a party or by which they are bound or any law, order,
judgment or decree or any provision of the Certificate of Incorporation or
By-Laws of Vinyl or H.I.G. Cayman, or any contract to which Vinyl or H.I.G.
Cayman is a party.
3.05 CAPITALIZATION OF VINYL. The Vinyl Shares represent one
hundred percent (100%) of the issued and outstanding capital stock of Vinyl.
Neither H.I.G. Cayman nor Vinyl is, or on the Closing Date will be, a party to
or bound by any contract which grants to any Person an option or right of first
refusal or other right of any character to acquire at any time, or upon the
happening of any stated events, shares of capital stock or other securities of
Vinyl whether or not presently issued and outstanding.
3.06 BROKERAGE. Except for the fees and expenses of Bowles
Hollowell Conner & Co., which shall be paid directly by the Shareholders, the
Optionholders and H.I.G. Cayman, there are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of any Shareholder, any Optionholder or H.I.G. Cayman.
3.07 VINYL. H.I.G. Cayman hereby represents and warrants to Buyer
that (i) Vinyl is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to enter into this Agreement and perform its obligations hereunder;
(ii) the execution, delivery and performance of this Agreement by Vinyl and the
consummation of the transactions contemplated by this Agreement have been duly
and validly authorized by all requisite corporate action, and no other corporate
proceedings on its part are necessary to authorize the execution, delivery or
performance of this Agreement; (iii) Vinyl is not subject to or obligated under
its Certificate of Incorporation, its By-laws, any applicable law, or rule or
regulation of any governmental authority, or any material agreement or
instrument, or any license, franchise or permit, or subject to any order, writ,
injunction or decree, which would be breached or violated in any material
respect by Vinyl's execution, delivery or performance of this Agreement; (iv)
its sole asset is and ever was the Shares set forth opposite its name on the
attached SHAREHOLDERS SCHEDULE; (v) since its formation, the only activities
Vinyl has conducted are to hold the Shares and to enter into this Agreement and
the transactions contemplated by this Agreement; and (vi) Vinyl has no, and has
never had, any obligations or liabilities, whether arising in contract, tort or
otherwise, of any type or nature, whether choate, inchoate, accrued, contingent
or fixed.
3.08 H.I.G. CAYMAN. H.I.G. Cayman hereby represents and warrants
as to itself to Buyer that (i) it is a corporation duly organized, validly
existing and in good standing under the laws of the Cayman Islands, with full
corporate power and authority to enter into this Agreement and perform its
obligations hereunder; (ii) the execution, delivery and performance of this
Agreement by H.I.G. Cayman and the consummation of
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the transactions contemplated by this Agreement have been duly and validly
authorized by all requisite corporate action, and no other corporate proceedings
on its part are necessary to authorize the execution, delivery or performance of
this Agreement; (iii) it is not subject to or obligated under its Certificate of
Incorporation, its By-laws, any applicable law, or rule or regulation of any
governmental authority, or any material agreement or instrument, or any license,
franchise or permit, or subject to any order, writ, injunction or decree, which
would be breached or violated in any material respect by H.I.G. Cayman's
execution, delivery or performance of this Agreement; (iv) its sole asset is and
ever was the Vinyl Shares; and (v) since its formation, the only activities
H.I.G. Cayman has conducted are to hold the Vinyl Shares and to enter into this
Agreement and the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
4.01 ORGANIZATION, STANDING AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and the Company has all requisite corporate power and
authority and all authorizations, licenses and permits necessary to own, lease
and operate its properties and assets and to carry on its businesses as now
conducted, except where the failure to hold such authorizations, licenses and
permits would not have, individually or in the aggregate, a material adverse
effect upon the business, properties, assets, liabilities, financial condition
or operating results of the Company and its Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT"). The Company is duly qualified to do business as a
foreign corporation and is in good standing in every jurisdiction in which its
ownership of property or the conduct of business as now conducted requires it to
qualify, except where the failure to be so qualified would not have a Material
Adverse Effect, as set forth on the attached ORGANIZATION SCHEDULE.
4.02 SUBSIDIARIES. Except as set forth on the attached
SUBSIDIARY SCHEDULE, neither the Company nor any of its Subsidiaries owns, or
holds the right to acquire, any stock, partnership interest, joint venture
interest or other equity ownership interest in any other Person. Except as
set forth on the attached SUBSIDIARY SCHEDULE, each of the Subsidiaries
identified on the SUBSIDIARY SCHEDULE is validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority and all authorizations, licenses and
permits necessary to own, lease and operate its properties and assets and to
carry on its businesses as now conducted and is duly qualified to do business
as a foreign corporation and is in good
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standing in every jurisdiction in which its ownership of property or the
conduct of businesses as now conducted requires it to qualify, except in each
such case where the failure to hold such authorizations, licenses and permits
or to be so qualified would not have a Material Adverse Effect, as set forth
on the attached ORGANIZATION SCHEDULE. For purposes of this Agreement, the
term "SUBSIDIARY" shall mean each business entity in which the Company or one
of the Company's Subsidiaries has a 50% or greater equity interest.
4.03 AUTHORIZATION; NO BREACH; VALID AND BINDING AGREEMENT. Except
as set forth on the attached AUTHORIZATION SCHEDULE, the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action and no other corporate proceedings are necessary to
authorize the execution, delivery or performance of this Agreement. Except as
set forth on the attached AUTHORIZATION SCHEDULE, the execution, delivery and
performance of this Agreement by the Company, the Shareholders and the
Optionholders do not conflict with, violate or result in any material breach of,
constitute a material default under, result in a material violation of, result
in the creation of any material lien, security interest, charge or encumbrance
upon any material assets of the Company or any of its Subsidiaries, or require
any material authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body, or employee representative or
union or labor organization, or accelerate or otherwise alter the rights of any
other party, under the provisions of the Company's or any of its Subsidiary's
Certificate of Incorporation or By-laws or any material indenture, mortgage,
lease, loan agreement, collective bargaining agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is bound, or any law,
statute, rule or regulation or order, judgment or decree to which the Company or
any of its Subsidiaries is subject. None of the foregoing items shall be deemed
to be "material" unless the failure to meet the requirements thereof would,
individually or in the aggregate, have a Material Adverse Effect. This Agreement
has been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
4.04 CAPITAL STOCK. (a) The authorized number of shares of capital
stock of the Company consists of 5,000,000 shares of Class A Stock and 1,000,000
shares of Class B Stock. As of the date hereof, 1,312,500 shares of Class A
Stock are issued and outstanding and are owned of record by the Shareholders in
the amounts as set forth on the attached SHAREHOLDERS SCHEDULE and no shares of
Class B Stock are issued and outstanding. As of the date hereof, Options to
acquire 108,805 shares of Class A Stock and 98,790 shares of Class B Stock are
issued and outstanding and are owned of record by the Optionholders in the
amounts as set forth on the attached OPTIONHOLDERS SCHEDULE. As of the Closing
Date, 1,312,500 shares of Class A Stock and Options to acquire
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108,805 shares of Class A Stock and 98,790 shares of Class B Stock will be
issued and outstanding and no shares of Class A Stock and no shares of Class B
Stock will be issued but not outstanding. All of the outstanding shares of
capital stock of the Company have been duly authorized and are validly issued,
fully paid and non-assessable. None of such shares was issued in violation of
any preemptive or preferential right. As of the Closing Date, all of such shares
will be duly authorized and validly issued, fully paid and non-assessable and
will not have been issued in violation of any preemptive or preferential right.
Except as set forth on the attached CAPITAL STOCK SCHEDULE, the Company does not
have any other capital stock, equity securities or securities containing any
equity features authorized, issued or outstanding, and there are no outstanding
conversion or exchange rights, agreements, subscriptions, options, warrants or
other rights or arrangements existing or outstanding which provide for the sale
or issuance of any of the foregoing by the Company. Except as set forth on the
attached CAPITAL STOCK SCHEDULE, there are no rights, subscriptions, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire any shares of capital stock or other equity securities of the
Company of any kind. Except as set forth on the attached CAPITAL STOCK SCHEDULE,
there are no agreements or other obligations (contingent or otherwise) which
require the Company to repurchase or otherwise acquire any shares of the
Company's capital stock or other equity securities. Except as set forth on the
attached CAPITAL STOCK SCHEDULE, the Company is not and, on the Closing Date,
will not be, nor does the Company nor any Shareholder or Optionholder have any
knowledge that any holder of capital stock or holder of any right to acquire
capital stock of the Company is a party to or bound by any contract which grants
to any Person an option or right of first refusal or other right of any
character to acquire at any time, or upon the happening of any stated events,
shares of capital stock or other securities of the Company whether or not
presently issued or outstanding.
(b) One hundred percent (100%) of the common stock of each of the
Subsidiaries is owned, beneficially and of record, by the Company, free and
clear of all claims, pledges, security interests, liens, charges, encumbrances,
options, proxies, voting trusts or agreements, and other restrictions and
limitations of any kind other than those set forth on the attached SUBSIDIARY
SCHEDULE. Such common stock constitutes all of the issued and outstanding
capital stock of the Subsidiaries. All of the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and are validly
issued, fully paid and non-assessable. None of the Subsidiaries have any other
capital stock, equity securities or securities containing any equity features
authorized, issued or outstanding, and there are no outstanding conversion or
exchange rights, agreements, subscriptions, options, warrants or other rights or
arrangements existing or outstanding which provide for the sale or issuance of
any of the foregoing by any Subsidiary. There are no rights, subscriptions,
warrants, options, conversion rights or agreements of any kind outstanding to
purchase or otherwise acquire any shares of capital stock or other equity
securities of any kind of any Subsidiary. There are no agreements or other
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obligations (contingent or otherwise) which require any Subsidiary to repurchase
or otherwise acquire any shares of its capital stock or other equity securities.
Each of the Subsidiaries is not, and at the Closing will not be, a party to or
bound by any Contract which grants to any Person an option or right of first
refusal or other right of any character to acquire at any time, or upon the
happening of any stated events, shares of capital stock or other securities of
such Subsidiary whether or not presently issued or outstanding. As of the
Closing Date, all of the outstanding shares of capital stock in each Subsidiary
will be duly authorized and validly issued, fully paid and nonassessable and
will not have been issued in violation of any preemptive or preferential right.
4.05 FINANCIAL STATEMENTS. (a) The Company has furnished Buyer
with copies of its unaudited (i) consolidated balance sheet as of February 28,
1999, and the related consolidated statement of income and cash flows for the
two-month period then ended (such consolidated balance sheet referred to herein
as the "LATEST BALANCE SHEET") and (ii) audited consolidated balance sheets and
related consolidated statements of income and cash flows for the fiscal years
ended December 31, 1997 (from the date of inception) and December 31, 1998.
Except as set forth on the attached FINANCIAL STATEMENTS SCHEDULE, such
financial statements have been based upon the information concerning the Company
and its Subsidiaries contained in the Company's books and records, and present
fairly in all material respects the financial condition and results of
operations and cash flow of the Company and its Subsidiaries as of the times and
for the periods referred to therein in accordance with GAAP applied on a
consistent basis (subject, in the case of the unaudited financial statements, to
normal year-end audit adjustments and absence of footnote disclosures). For
purposes of this Agreement, such Company's consolidated financial statements
(the "FINANCIAL STATEMENTS") shall be deemed to include any notes and schedules
thereto which are included as part of the attached FINANCIAL STATEMENTS
SCHEDULE.
(b) The inventory of the Company consists of raw materials and
supplies, manufactured and purchased parts, work in process, and finished goods,
all of which is merchantable by the Company and fit for the purpose for which it
was procured or manufactured, subject only to the reserve for inventory
writedown set forth on the Latest Balance Sheet, as adjusted for the passage of
time through the Closing, in accordance with GAAP applied on a consistent basis
with that of the preceding fiscal year.
(c) All accounts receivable of the Company are reflected properly
on its books and records, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the Latest Balance Sheet, as adjusted for operations and
transactions through the Closing, in accordance with
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GAAP applied on a consistent basis with that of the preceding fiscal year.
4.06 ABSENCE OF CERTAIN DEVELOPMENTS. Since December 31, 1998,
there has not been any material adverse change in the business, properties,
assets, liabilities, employee representation, financial condition or results of
operations of the Company or any of its Subsidiaries. Except as set forth on the
attached DEVELOPMENTS SCHEDULE and except as expressly contemplated by this
Agreement, since December 31, 1998, neither the Company nor any Subsidiary has:
(a) borrowed any amount or incurred or become subject to any
liabilities in excess of $100,000, except liabilities incurred in the ordinary
course of business, liabilities under contracts entered into in the ordinary
course of business and borrowings from banks (or similar financial institutions)
necessary to meet ordinary course working capital requirements;
(b) mortgaged, pledged or subjected to any material lien, charge
or other encumbrance, any portion of its assets, except Permitted Liens;
(c) sold, assigned or transferred any portion of its tangible
assets, except in the ordinary course of business;
(d) sold, assigned or transferred any patents, certificates of
plant variety protection, trademarks, trade names, copyrights, trade secrets or
other intangible assets, except in the ordinary course of business;
(e) suffered any damages or losses, whether covered by insurance
or not, having a Material Adverse Effect or waived any rights of material value;
(f) issued, sold or transferred any of its capital stock or other
equity securities, securities convertible into its capital stock or other equity
securities or warrants, options or other rights to acquire its capital stock or
other equity securities, or any bonds or debt securities;
(g) made any unfunded or committed to make any unfunded capital
expenditures in excess of $375,000 in the first quarter of 1999, $375,000 in the
second quarter of 1999, $375,000 in the third quarter of 1999 and $375,000 in
the fourth quarter of 1999, without the prior consent of Buyer;
(h) entered into any other material transaction, except in the
ordinary course of business;
(i) made any declaration, setting aside or payment of any
dividend, or
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any distribution in respect of capital stock of the Company or any of its
Subsidiaries, or any redemption, purchase or other acquisition of any capital
stock of the Company or its Subsidiaries;
(j) made any increase in the compensation payable or to become
payable by the Company and its Subsidiaries to any of its respective officers,
directors, employees or agents, other than in the ordinary course of business;
(k) made any change in the terms of any bonus, insurance, pension
or other benefit plan for or with any of the Company's or its Subsidiaries'
officers, directors or employees which increases amounts paid, payable or to
become payable thereunder, other than in the ordinary course of business;
(l) entered into any employment or collective bargaining agreement
with any individual, representative, labor organization and/or union;
(m) received any written complaints or concerns which relate to
the Company's or any of its Subsidiaries' labor relations;
(n) entered into any transaction with any Affiliate;
(o) made any change in its accounting procedures and practices; or
(p) made any unreasonable changes from its past practice with
respect to its credit criteria or failed to make any appropriate changes to its
allowance for doubtful accounts in the event its credit criteria was reasonably
changed.
4.07 TITLE TO PROPERTIES.
(a) The attached PERSONAL PROPERTY SCHEDULE contains a correct and
complete list as of the date set forth therein of each item of tangible personal
property owned or used by each of the Company and its Subsidiaries, other than
inventory, office furniture and supplies and miscellaneous items of personal
property with an individual book value of less than $10,000. The Company and its
Subsidiaries own good and marketable title to all of the personal property and
assets shown on the Latest Balance Sheet, free and clear of all liens, security
interests and other encumbrances, except for Permitted Liens.
(b) The real property owned by the Company (the "OWNED REAL
PROPERTY") and the real property demised by the leases, subleases, licenses and
other
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instruments (the "LEASED REAL PROPERTY" described on the attached REAL PROPERTY
SCHEDULE constitutes all of the real property owned or leased by the Company and
its Subsidiaries. The Company and its Subsidiaries are the sole and exclusive
owners of, and have good and marketable title to the Owned Real Property, free
and clear of any mortgages, security interests, liens, options, beneficial or
possessory rights of third parties or other encumbrances, except for Permitted
Liens or as set forth on the attached REAL PROPERTY SCHEDULE. The Leased Real
Property leases, subleases, licenses and other instruments are valid,
subsisting, in full force and effect and binding upon the parties thereto, and
the Company or a Subsidiary holds a valid and existing leasehold interest under
each of the leases, subleases, licenses and other agreements, except where the
failure to have such leases, subleases, licenses and other instruments valid,
subsisting, in full force and effect and binding, or to hold such a valid and
existing leasehold interest would not, individually or in the aggregate, have a
Material Adverse Effect. The Company has delivered to Buyer true, complete and
accurate copies of each of the leases, subleases, licenses and other
instruments, including, without limitation, surveys, title insurance policies
and title insurance reports and commitments described on the attached REAL
PROPERTY SCHEDULE, and none of the leases, subleases, licenses and other
instruments have been modified in any material respect, except to the extent
that such modifications are disclosed by the copies delivered to Buyer. Neither
the Company nor any Subsidiary is, and as of the Closing Date will be, in
default except as set forth on the attached REAL PROPERTY SCHEDULE under any of
such leases, subleases, licenses and other instruments nor, to the best
knowledge of the Company, is any other party in default thereunder, and no facts
or circumstances have occurred which, with the giving of notice or the passage
of time or both, would constitute a default under any such leases, subleases,
licenses or other instruments. To the knowledge of the Company, title to the
Owned Real Property is insurable at standard premiums by reputable title
insurance companies licensed in the state where such Owned Real Property is
located. The title and interest of the Company and its Subsidiaries in the Owned
Real Property and the Leased Real Property is sufficient to enable the Company
and its Subsidiaries to carry on their respective businesses as presently
conducted. All plants, facilities, structures and equipment owned or used by the
Company and its Subsidiaries in its operation of their businesses are suitable
for the purposes used, are adequate and sufficient for all current operations of
such businesses and are, subject to ordinary wear and tear, in good operating
condition and repair. The attached REAL PROPERTY SCHEDULE identifies each lease,
sublease, license or any other instrument under which the Company and its
Subsidiaries claims or holds such leasehold or other interest or right to the
use thereof and with respect to the leases, subleases, licenses and other
instruments on the attached REAL PROPERTY SCHEDULE, identifying which of those
leases, subleases, licenses or other instruments, if any, require that a consent
be obtained (from any lessors, guarantors or any other third parties) before the
transactions contemplated by this Agreement may be consummated and identifying
in each instance the party which is required to grant consent thereto, the
location of the
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premises and the amount of the monthly rent. All of the facilities set forth on
the attached REAL PROPERTY SCHEDULE had, and have, all permits or other
authorizations required for their construction and operation, and are equipped
in conformity with all laws and governmental regulations and authorizations
applicable to the Company and its Subsidiaries and to their businesses, except
where the failure to have such permits or other authorizations or to be so
equipped in conformity with all laws and governmental regulations and
authorizations would not, individually or in the aggregate, have a Material
Adverse Effect. All such permits are validly issued, in good standing and in
full force and effect, and will continue with the Company or such Subsidiary as
part of the transactions contemplated by this Agreement with no further
authorization or consent, except where the failure of such permits to be validly
issued, in good standing and in full force and effect, or to continue with no
further authorization or consent would not, individually or in the aggregate,
have a Material Adverse Effect.
4.08 TAX MATTERS. (a)(i) The Company and its Subsidiaries have
timely filed all federal, foreign, state, county and local income, excise,
property and other Tax Returns which are required to be filed by or with respect
to them; (ii) all Taxes that are or were due (whether or not shown or required
to be shown as owing by the Company and its Subsidiaries on any Tax Return) have
been fully paid or, to the extent properly accruable as of the date thereof,
properly and adequately accrued on the Latest Balance Sheet; (iii) all such Tax
Returns were prepared in accordance with all applicable laws and are true,
correct and complete in all material respects; (iv) the provision for Taxes owed
or to be owed by the Company and any Subsidiary on the Latest Balance Sheet
without regard to deferred Tax assets and liabilities is sufficient for all
properly accruable and unpaid Taxes as of the date thereof; (v) all material
Taxes which the Company or any Subsidiary is obligated to withhold from amounts
owing to any employee, creditor or third party have been withheld and fully
paid; (vi) there are no open, pending or, to the best knowledge of the Company,
threatened tax-related proceedings, audits, examinations, investigations,
assessments, asserted deficiencies, requests for information, suits, actions or
claims for additional Taxes with respect to the Company or any Subsidiary; (vii)
there are no unresolved assertions of deficiencies or other liabilities for
Taxes (including any reports, statements, summaries and other communications or
assertions or claims of deficiencies) with respect to the Company or any
Subsidiary; (viii) there are no waivers or extensions of any applicable statute
of limitations for the assessment and collection of Taxes for which the Company
or any Subsidiary may be liable that are in effect and no requests for such
waivers are pending; (ix) neither the Company nor any Subsidiary is (A) a party
to any Federal or material non-Federal Tax ruling, request for ruling or closing
agreement (within the meaning of Section 7121 of the Internal Revenue Code of
1986, as amended (the "CODE")) with any Taxing authority or (B) required to make
any adjustments pursuant to Section 481(a) of the Code; (x) no adjustments
pursuant to Section 481(a) of the Code have been proposed by the Internal
Revenue Service (the "IRS") or requested by the Company or any Subsidiary; and
(xi)
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neither the Company nor any Subsidiary is a party to any Tax sharing or
allocation agreement other than an agreement to which only the Company and any
Subsidiary is a party, nor are they potentially required to indemnify any person
with respect to Taxes.
(b) The attached TAXES SCHEDULE lists all states, territories and
jurisdictions (whether foreign or domestic) in which the Company and its
Subsidiaries file Tax Returns. (i) No claim or inquiry in writing addressed to
the Company or any Subsidiary has been made by any Taxing authority in a
jurisdiction where the Company or any Subsidiary does not file Tax Returns that
the Company or any of its Subsidiaries is subject to Tax in such jurisdiction;
(ii) there are no liens for Taxes upon the assets of the Company and any
Subsidiary, except for liens for current taxes not yet due and payable or for
liens being contested in good faith by appropriate proceedings and for which
adequate reserves have been taken; (iii) for each taxable period beginning on or
after June 1, 1992, the Company and its Subsidiaries (A) have not been members
of an "affiliated group" within the meaning of Section 1504(a)(1) of the Code,
either together or separately, other than the affiliated group of which the
Company is the common parent, nor (B) have they joined or been required to join
in filing any consolidated, combined, unitary or Federal, state or local Tax
filings other than filings including the Company and its Subsidiaries; and (iv)
no Tax Return of the Company or any Subsidiary for a taxable period since and
including 1992 has been examined or audited by the IRS or any state, local,
foreign or other taxing authority.
(c) With respect to the employees, including former employees, of
the Company and any Subsidiaries, the Company and such Subsidiaries have
complied with all applicable laws relating to the withholding of Taxes and have
timely collected or withheld and paid over (and up to but not including the
Closing Date, will have timely collected or withheld and paid over) to the
proper governmental authorities all amounts required to be so collected or
withheld and paid over for all periods up to (but not including) the Closing
Date under all applicable laws.
(d) Neither the Company nor any Subsidiary is a party to any
arrangement that is treated as a partnership for tax purposes.
(e) Since 1992, neither the Company nor any Subsidiary has
disposed of any property in a material transaction being accounted for under the
installment method pursuant to Section 453 or 453A of the Code. Neither the
Company nor any of its Subsidiaries has any deferred income reportable for a
period ending 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.
(f) No power of attorney has been granted by the Company or any
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Subsidiary with respect to any matter relating to Taxes of the Company or any
Subsidiary which power of attorney is currently in force. Any such power of
attorney with respect to periods beginning on or after the Closing Date will be
revoked prior to the Closing.
(g) All Tax Returns that are filed or given after the date hereof
and before and including the Closing Date by the Company or any Subsidiary shall
be prepared, and all elections with respect to such Tax Returns shall be made,
to the extent permitted by law, in a manner consistent with prior practices of
the Company and its Subsidiaries.
(h) The Company and its Subsidiaries do not have pending any tax
certiorari proceeding or other proceeding seeking a material reduction in
assessment, abatement, credit or other adjustment to real property, ad valorem
taxes or assessments with respect to the Owned Real Property or the Leased Real
Property.
(i) No amount or other entitlement that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any person could give rise to,
nor would the consummation of the transactions contemplated hereby obligate the
Company or any Subsidiary or Buyer to make, the payment of any amount that would
not be fully deductible by the Company or any Subsidiary by reason of Section
280G of the Code.
(j) From the date hereof through the Closing Date, the Company
shall not, and shall not permit any of its Subsidiaries to (i) change any
practice with respect to Taxes or (ii) make, change or revoke any Tax election.
(k) The Shares and the Options do not constitute a United States
real property interest (as defined in Section 897 of the Code).
(l) All Tax Returns of the Company or any Subsidiary that have
been made available to Buyer are complete, true and accurate copies of the filed
Tax Returns of the Company or the Subsidiary. All material filed Tax Returns of
the Company and all of its Subsidiaries for the years 1997 and later have been
made available to Buyer.
4.09 CONTRACTS AND COMMITMENTS.
(a) Except as set forth on the attached CONTRACTS SCHEDULE,
neither the Company nor any Subsidiary is party to any: (i) collective
bargaining agreement or contract with any labor union; (ii) bonus, pension,
profit sharing, retirement or other form of deferred compensation plan, other
than as described in Section 4.13 or on the attached EMPLOYEE BENEFITS SCHEDULE;
(iii) stock purchase, stock option or similar plan; (iv)
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contract for the employment or any contract relating to wages, hours or other
conditions of employment of any officer, individual employee or other person on
a full-time, part-time or consulting basis; (v) agreement or indenture relating
to the borrowing of money or a line of credit or to mortgaging, pledging or
otherwise placing a lien on any material portion of the Company's or any
Subsidiary's assets; (vi) guaranty of any obligation for borrowed money or other
material guaranty; (vii) lease or agreement under which it is a lessee or lessor
of, or holds or operates, or permits any third party to hold or operate, any
personal or real property for which the annual rental exceeds $50,000; (viii)
license or other contract with respect to Intellectual Property, including,
without limitation, the Intellectual Property rights and franchise agreements to
which the Company or any of its Subsidiaries is a party; (ix) contracts not
entered into in the ordinary course of business that involve expenditures or
receipts in excess of $50,000 to which the Company or any Subsidiary is a party;
(x) contracts for capital expenditures in excess of $50,000 to which the Company
or any of its Subsidiaries is a party; (xi) contracts relating to the
acquisition by the Company or any Subsidiary of the capital stock of any other
Person or granting the Company or any Subsidiary an option to purchase any
asset, tangible or intangible, or real or personal property of any other Person;
(xii) representative or sales agency contracts or commitments to which the
Company or any of its Subsidiaries is a party; (xiii) contract or group of
related contracts with the same party for the purchase by the Company or any of
its Subsidiaries of products or services under which the undelivered balance of
such products and services has a selling price in excess of $50,000; (xiv)
contract or group of related contracts with the same party for the sale by the
Company or any of its Subsidiaries of products or services under which the
undelivered balance of such products or services has a sales price in excess of
$50,000; (xv) contract or agreement with any Affiliate; (xvi) contracts
restricting a Person from competing with the Company or any of its Subsidiaries;
(xvii) contracts which prohibit or restrict in any manner the Company or any
Subsidiary from freely engaging in any line of business anywhere in the world;
or (xviii) other material contracts.
(b) Buyer either has been supplied with, or has been given access
to, a true and correct copy of all written contracts which are referred to on
the attached CONTRACTS SCHEDULE, together with all amendments, waivers or other
changes thereto.
(c) All contracts listed on the attached CONTRACTS SCHEDULE are in
full force and effect and constitute legal, valid and binding obligations of the
Company and/or its Subsidiaries, except where the failure of such contracts to
be in full force and effect and to constitute legal, valid and binding
obligations would not, individually or in the aggregate, have a Material Adverse
Effect. Neither the Company nor any Subsidiary nor, to the Company's knowledge,
any other party, is in default under any contract listed on the attached
CONTRACTS SCHEDULE, except where such default would not have a Material Adverse
Effect, and no event has occurred which, but for the passage of time or the
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giving of notice, would constitute such a default.
4.10 INTELLECTUAL PROPERTY. A true, complete and accurate list and
description of all of the patents, certificates of plant variety protection,
registered trademarks, registered service marks, registered copyrights, Internet
domain names, material unregistered trademarks, service marks, trade names,
corporate names, and applications for any of the foregoing, owned by, or
licensed to or from, the Company or its Subsidiaries, or in or to which the
Company or its Subsidiaries are claiming or have rights (collectively, the
"INTELLECTUAL PROPERTY") are set forth on the attached INTELLECTUAL PROPERTY
SCHEDULE. Except as set forth on the attached INTELLECTUAL PROPERTY SCHEDULE:
(i) each of the Company and its Subsidiaries, as the case may be, owns and
possesses exclusively all right, title and interest in and to, or, if it does
not own it, possesses the valid and enforceable right to use, free and clear of
all claims, charges, security interests, liens or other encumbrances, except
Permitted Liens, all of its intellectual property, including, without
limitation, the Intellectual Property; (ii) neither the Company nor any of its
Subsidiaries has infringed or is currently infringing on the intellectual
property, including, without limitation, patents, trademarks, service marks,
trade names, copyrights, trade secrets or other proprietary rights, of any other
Person, and neither the Company nor any of its Subsidiaries has received any
written notice alleging such infringement; (iii) the Company and its
Subsidiaries have taken all reasonable security measures to protect the secrecy,
confidentiality and value of all of their trade secrets; (iv) no other patent,
trademark, service mark, trade name, copyright or other intellectual property
right, or license under any thereof, is necessary to permit the businesses of
the Company and its Subsidiaries to be conducted as now conducted or as
heretofore or proposed to be conducted; (v) to the knowledge of the Company, no
Person has infringed or violated, or is currently infringing or violating, any
of the Company's or the Subsidiaries' intellectual property, including, without
limitation, the Intellectual Property; (vi) other than licenses set forth on the
INTELLECTUAL PROPERTY SCHEDULE, neither the Company nor its Subsidiaries are
obligated or under any liability whatsoever, under any contract, agreement,
arrangement or understanding (whether written or oral), to make any payments in
the aggregate in excess of $10,000 by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright or other intellectual property, with respect to the use of
any intellectual property, including, without limitation, the Intellectual
Property, in connection with the ownership of their respective assets, the
conduct of their respective businesses or otherwise; and (vii) all of the
applications listed on the attached INTELLECTUAL PROPERTY SCHEDULE have been
filed and, to the best of the Company's knowledge, have not been abandoned, and
all of the patents and registrations listed on the attached INTELLECTUAL
PROPERTY SCHEDULE have not expired or lapsed and, to the best of the Company's
knowledge, have not been cancelled or abandoned.
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4.11 LITIGATION AND LABOR MATTERS. (a) Except as set forth on the
attached LITIGATION SCHEDULE, there are no actions, suits or proceedings pending
or, to the best knowledge of the Company, threatened against the Company or any
Subsidiary, or any of their respective properties or business, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, and neither the Company nor any Subsidiary is subject to any
outstanding judgment, order or decree of any court or governmental body.
(b) Neither the Company nor any Subsidiary has committed any
unfair labor practice under applicable Federal or state law, nor has the Company
or any Subsidiary received any notice of or claim that they have committed any
unfair labor practice under applicable Federal or state law. There are no
collective bargaining agreements to which the Company or any of its Subsidiaries
are bound. No collective bargaining unit has filed a petition for representation
of any of the employees of the Company or any Subsidiary and, to the knowledge
of the Company, no union organizing activity is occurring with respect to any of
the employees of the Company or any Subsidiary.
4.12 GOVERNMENTAL CONSENTS, ETC. Except for the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR ACT"), and except as set forth on the attached GOVERNMENTAL CONSENTS
SCHEDULE, the Company, the Shareholders and the Optionholders are not required
to submit any notice, report or other filing with any governmental authority and
no permit, consent, approval or authorization of, or declaration to or filing
with, any governmental, regulatory or administrative authority or Person is
required in connection with any of the execution, delivery or performance of
this Agreement by the Company, the Shareholders and the Optionholders, or the
consummation by the Company, the Shareholders and the Optionholders of the
transactions contemplated by this Agreement.
4.13 EMPLOYEES.
(a) Except as listed on the attached EMPLOYEE BENEFITS SCHEDULE,
with respect to employees of the Company or any of its Subsidiaries, neither the
Company nor any Subsidiary maintains or is obligated to contribute to (i) any
"employee pension benefit plans" (the "PENSION PLANS"), as such term is defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974
("ERISA"), and (ii) any "employee welfare benefit plans" (the "WELFARE PLANS"),
as such term is defined in Section 3(1) of ERISA. The Pension Plans, the
non-ERISA covered plans, and the Welfare Plans are
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collectively referred to as the "Plans." Except as set forth on the attached
EMPLOYEE BENEFITS SCHEDULE, each of the Pension Plans on the attached EMPLOYEE
BENEFITS SCHEDULE which the Company and its Subsidiaries maintain or are
obligated to contribute to that are intended to be "qualified plans" has
received a favorable determination letter from the IRS that such Plan is a
"qualified plan" under Section 401(a) of the Code, the related trusts are exempt
from tax under Section 501(a) of the Code, and the Company is not aware of any
facts or circumstances that would jeopardize the qualification of such Pension
Plans. The Plans comply in form and in operation in all material respects with
the requirements of the Code and ERISA and any other applicable laws. The
attached EMPLOYEE BENEFITS SCHEDULE contains a list of each bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance or
termination pay, profit-sharing plan, program, agreement or arrangement, and
each other employee benefit plan, program, agreement or arrangement (other than
arrangements involving the payment of wages), sponsored, maintained or
contributed to or required to be contributed to by the Company or any of its
Subsidiaries for the benefit of any current or former employee, director or
independent contractor of the Company or any Subsidiary. Other than the Company
and its Subsidiaries, there is no trade or business, whether or not
incorporated, that together with the Company would be deemed a "single employer"
within the meaning of Section 414(b), (c), or (m) of the Code. Except as set
forth on the attached EMPLOYEE BENEFITS SCHEDULE, neither the Company nor any
Subsidiary has any formal plan or commitment to create any additional Plan or
modify or change any existing Plan that would result in a significant increase
in the cost of such Plan to the Company or any Subsidiary. Neither the Company
nor any other trade or business that, together with the Company, would be deemed
a single employer within the meaning of Section 414(b), (c) or (m) of the Code
sponsors, contributes to, or is obligated to contribute to (or has sponsored,
contributed to, or been obligated to contribute to) any plan subject to Section
302 of ERISA, Section 412 of the Code, or Title IV of ERISA, or any plan that is
a "multiemployer pension plan" as defined in Section 3(37) of ERISA. Except for
any Pension Plan, none of the benefits under any of the Plans is funded through
a trust.
(b) With respect to the Plans (other than any multiemployer
Pension Plans), (i) all required contributions have been made or properly
accrued, (ii) there are no actions, suits or claims pending or, to the knowledge
of the Company, threatened, other than routine claims for benefits, and (iii)
there have been no "prohibited transactions"(as that term is defined in Section
406 of ERISA or Section 4975 of the Code).
(c) With respect to each Plan, the Company has furnished or made
available to Buyer true and complete copies of (i) the most recent determination
letter received from the IRS regarding the Plans; (ii) the latest Forms 5500 and
the latest
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financial statements for the Plans; (iii) a copy of each Plan (including all
amendments thereto); (iv) a copy of the most recent Summary Plan Description,
together with each Summary of Material Modifications, required under ERISA with
respect to such Plan or as otherwise provided to Plan participants or
beneficiaries, and all material employee communications relating to each Plan;
(v) if the Plan is funded through a trust or any third party funding vehicle,
such as an insurance contract, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements thereof;
(vi) all contracts relating to the Plans with respect to which the Company or
any Subsidiary may have any liability, including, without limitation, insurance
contracts, investment management agreements, subscription and participation
agreements and record keeping agreements; and (vil) a copy of all material
documents and correspondence relating to the Plans received from or provided to
the Department of Labor ("DOL") and the IRS during the past year.
(d) Neither the Company, its Subsidiaries nor, to the knowledge of
the Company, any of their respective directors, officers, employees or any other
"fiduciary," as such term is defined in Section 3 of ERISA, has committed any
breach of fiduciary responsibility imposed by ERISA or any other applicable law
with respect to the Plans which would subject Buyer, its subsidiaries or any of
their respective directors, officers or employees to any material liability
under ERISA or any applicable law.
(e) Neither the Company nor its Subsidiaries has incurred any
liability for any tax or civil penalty imposed by Section 4975 of the Code or
Section 502 of ERISA.
(f) Except as described on the attached EMPLOYEE BENEFITS
SCHEDULE, no employee of the Company or any Subsidiary will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of any
benefits under any Plan as a result of the transactions contemplated by this
Agreement.
(g) The Company and each Subsidiary has properly classified
individuals providing services to the Company or any Subsidiary as employees or
non-employees, except to the extent that a misclassification would not have a
Material Adverse Effect.
(h) No Plan provides benefits, including, without limitation,
death or medical benefits (whether or not insured), with respect to current or
former employees upon retirement or other termination of service (other than (i)
coverage mandated by applicable law, (ii) death benefits or retirement benefits
under a Pension Plan, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or any Subsidiary, or (iv) benefits the
full cost of which is borne by the current or former
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employee (or his beneficiary)). The list of Plans on the attached EMPLOYEE
BENEFITS SCHEDULE discloses whether each Plan that is a Welfare Plan is insured.
No Plan is subject to laws of a country or jurisdiction other than the United
States.
(i) All contributions or payments required to be made under the
terms of the Plans on or before Closing, or attributable to any period prior to
Closing, have been made or accrued for in the Financial Statements.
4.14 INSURANCE. The attached INSURANCE SCHEDULE lists each
material insurance policy, including, without limitation, fire, liability,
environmental, workers' compensation, health, director and officer liability and
other forms of insurance maintained by the Company and its Subsidiaries. All of
such insurance policies are valid and in full force and effect, and neither the
Company nor any Subsidiary is in material default with respect to its
obligations under any of such insurance policies and all premiums with respect
to such insurance policies are currently paid. At no time was there a period in
which the Company and its Subsidiaries lacked such insurance coverage. Each of
the Company and its Subsidiaries shall continue to carry all such policies or
similar policies during the pendency of this Agreement, and all outstanding
claims under such policies are described in the attached INSURANCE SCHEDULE.
There is no recorded liability for retrospective insurance premium adjustments
for any period prior to the date hereof. The attached INSURANCE SCHEDULE sets
forth a complete and accurate list of the following:
(a) all comprehensive general liability and other policies of
insurance under which each of the Company and its Subsidiaries is or has been
insured at any time since July 1, 1997;
(b) all property and casualty policies of insurance under which
each of the Company and its Subsidiaries is presently insured;
(c) all obligations of each of the Company and its Subsidiaries to
provide insurance coverage to third parties (for example under leases or other
contracts) that will survive after the Closing; and
(d) the expiration date of each insurance policy under which each
of the Company and its Subsidiaries is currently insured.
4.15 COMPLIANCE WITH LAWS. The Company and each Subsidiary is in
compliance with all applicable laws and regulations of foreign, federal, state
and local governments and all agencies thereof, except where the failure to
comply would not have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received any notice of any violation or delinquency with respect
to any applicable law or regulation of
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any foreign, federal, state, or local government or agency thereof, except where
such notice would not, individually or in the aggregate, have a Material Adverse
Effect. Notwithstanding anything in this Section 4.15 to the contrary,
compliance with Environmental Laws is covered by Section 4.16. All approvals,
authorizations, consents, licenses, permits or orders with respect to the
business, operations and properties of each of the Company and its Subsidiaries
have been obtained and are in full force and effect as of the date hereof,
except where the failure to obtain such approvals, authorizations, consents,
licenses, permits or orders or of such approvals, authorizations, consents,
licenses, permits or orders to be in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect. Neither the
ownership or use of the Company's or any Subsidiary's properties, nor the
conduct of their respective businesses, conflicts with the rights of any other
Person or violates, or with or without the giving of notice or the passage of
time, or both, will violate, conflict with or result in a breach, default, right
to accelerate or loss of rights under, or result in the creation of any
mortgages, liens, security interests or other encumbrance pursuant to, any term
or provision of the Certificate of Incorporation or ByLaws of the Company or any
Subsidiary, lease, permit, license, consent, approval, insurance policy or any
order, judgment, award or decree to which the Company or its Subsidiaries is a
party or by which the Company or its Subsidiaries, their respective businesses
or their respective properties and assets may be bound or affected, except where
such violation, conflict, breach, default, right to accelerate, loss of rights
or creation of a mortgage, lien, security interest or other encumbrance would
not, individually or in the aggregate, have a Material Adverse Effect.
4.16 ENVIRONMENTAL COMPLIANCE AND CONDITIONS. Except as set forth
on the attached ENVIRONMENTAL COMPLIANCE SCHEDULE or as is not likely to give
rise to a Material Adverse Effect:
(a) The Company and each of its Subsidiaries is not, and has not
been, in violation of nor has it received any notice of any violation with
respect to, any applicable Environmental Laws. The Company and each of its
Subsidiaries has obtained all permits, licenses or other authorizations required
under applicable Environmental Laws, and all such permits, licenses or other
authorizations are valid and in good standing.
(b) There is no Environmental Claim pending or, to the best
knowledge of the Company, threatened against the Company or any of its
Subsidiaries or relating to the business, the assets, the Owned Real Properties
or the Leased Real Properties of the Company and its Subsidiaries.
(c) There are no past or present actions, activities,
circumstances,
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conditions, events or incidents, including, without limitation, the Release,
transportation, treatment, storage, recycling or reclamation of any Hazardous
Material, at any location (including, without limitation, any former or
discontinued facilities or operations), that could reasonably be expected to
form the basis of any colorable Environmental Claim against the Company or any
Subsidiary.
(d) The Company has not, and no other Person has, caused a Release
of any Hazardous Material at, on, under, from or otherwise affecting the soil,
surface water or groundwater at any Owned Real Property or Leased Real Property
so as to give rise to any remedial or corrective obligation arising under
Environmental Laws.
(e) There are no underground or above ground storage tanks located
at any Owned Real Property or Leased Real Property, and the Company has not
installed, owned or operated any underground or above ground storage tanks. To
the best knowledge of the Company, the Company and each Subsidiary has provided
Buyer a copy of all material reports, closure reports, closure letters,
correspondence or other material documents in its possession related to the
removal of any tanks from any Owned Real Property or Leased Real Property.
(f) The Company and each Subsidiary has provided Buyer with copies
of all reports, assessments, audits, evaluations, or sampling results relating
to compliance with or violation or suspected violation by the Company or any
Subsidiary of Environmental Laws, or to liabilities of the Company or any
Subsidiary arising from the handling, storage, transportation or Release of any
Hazardous Material prepared by, for, or at the request of the Company or any
Subsidiary (i) since June 1, 1997 or (ii) to the best of the Company's
knowledge, prior to June 1, 1997, and in its possession.
(g) This Section 4.16 constitutes the sole and exclusive
representations and warranties of the Company or any Subsidiary with respect to
environmental matters.
4.17 AFFILIATED TRANSACTIONS. Except as set forth on the attached
AFFILIATED TRANSACTIONS SCHEDULE, no officer, director, Shareholder or Affiliate
of the Company or, to the best knowledge of the Company, no individual in such
officer's, director's, shareholder's or Affiliate's immediate family is a party
to any agreement, contract, commitment or transaction with the Company or its
Subsidiaries or has any interest in any property used by the Company or its
Subsidiaries. Except as set forth on the attached AFFILIATED TRANSACTIONS
SCHEDULE, to the Company's knowledge, no employee of the Company or any
individual in such employee's immediate family is a party to any material
agreement, contract, commitment or transaction with the Company or its
Subsidiaries or has any material interest in any material property used by the
Company or its Subsidiaries.
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4.18 BROKERAGE. Except for the fees and expenses of Bowles
Hollowell Conner & Co. (which shall be paid by the Shareholders, the
Optionholders and H.I.G. Cayman), there are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company.
4.19 BANK ACCOUNTS. The attached BANK ACCOUNTS SCHEDULE lists the
name and location of all of the bank accounts, safe deposit boxes, custody
agreements and lock boxes used by the Company and its Subsidiaries (and the
names of the Persons authorized to draw thereon or to withdraw therefrom).
Neither the Company nor any Subsidiary has granted a power of attorney to any
person or entity which has not been terminated.
4.20 UNDISCLOSED LIABILITIES. The Company and its Subsidiaries do
not have any obligations or liabilities, whether accrued, absolute, contingent
or otherwise, including, without limitation, any obligation or liability with
respect to any Taxes due or to become due arising out of transactions entered
into at or prior to the Closing, or any action or inaction at or prior to the
Closing, or any state of facts existing at or prior to the Closing which would
be required by GAAP to be set forth on the Company's balance sheet other than:
(i) liabilities set forth on the Latest Balance Sheet, (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet
consistently with past business practice in the ordinary course of business, and
(iii) other liabilities and obligations expressly disclosed on the attached
LIABILITIES SCHEDULE.
4.21 CHANGE OF CONTROL PROVISIONS. Except as set forth on the
attached AUTHORIZATION SCHEDULE, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will require the Company or any of the Subsidiaries to make any
payment to any Person.
4.22 DISCLOSURE. The Company has made available for inspection by
Buyer and its representatives complete and correct copies of the corporate
minute books of the Company and its Subsidiaries. Such minute books contain the
minutes of all meetings of stockholders, the board of directors and any
committees thereof of the Company and its Subsidiaries that have been held prior
to the date hereof and all written consents to action executed in lieu thereof.
4.23 YEAR 2000. The Company and its Subsidiaries have formulated a
plan in order to address the ability of their 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.
The Company and its Subsidiaries are not aware of any facts or circumstances
which are specific to the Company or its
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Subsidiaries that would indicate that if the scheduled replacements, updates or
upgrades are made in accordance with such plans, the information systems
material to the operations of the Company and its Subsidiaries will be unable to
accurately process Year 2000 Data as of and after December 31, 1999, but the
Company is aware of general publications which indicate that any plans to
conform systems to adequately process Year 2000 Data may not work.
4.24 CUSTOMERS. The Company and its Subsidiaries maintain and have
good relationships with the top three (3) customers of Best Built, Inc. and
neither the Company nor any of its Subsidiaries has received written notice of a
material deterioration of any such relationships. Neither the Company nor any of
its Subsidiaries has received written notice that it is in breach of any
representation, warranty, covenant, obligation or other provision of any
outstanding agreement with any such customer.
4.25 RELATIONSHIP WITH GENERAL ELECTRIC COMPANY. Neither the
Company, nor any Shareholder or Optionholder holding at least five percent (5%)
of the equity of the Company has 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,
such Shareholders or such Optionholders to be a Subsidiary of General Electric
Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company, the Shareholders,
the Optionholders and H.I.G. Cayman that:
5.01 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to enter into this Agreement
and perform its obligations hereunder.
5.02 AUTHORIZATION; VALID AND BINDING AGREEMENT. The execution,
delivery and performance of this Agreement by Buyer and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery or performance of this Agreement.
This Agreement constitutes a valid and binding obligation of Buyer, enforceable
in accordance with its terms.
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5.03 NO BREACH. Except as set forth on the attached BUYER CONSENTS
SCHEDULE, Buyer is not subject to or obligated under its Certificate of
Incorporation, its Bylaws, any applicable law, or rule or regulation of any
governmental authority, or any material agreement or instrument, or any license,
franchise or permit, or subject to any order, writ, injunction or decree, which
would be breached or violated in any material respect by Buyer's execution,
delivery or performance of this Agreement.
5.04 GOVERNMENTAL CONSENTS, ETC. Except for the applicable
requirements of the HSR Act, Buyer is not required to submit any notice, report
or other filing with any governmental authority in connection with any of the
execution, delivery or performance of this Agreement by Buyer, or the
consummation by Buyer, of the transactions contemplated by this Agreement.
Except as set forth on the attached BUYER CONSENTS SCHEDULE, no consent,
approval or authorization of any governmental or regulatory authority or any
other party or Person is required to be obtained by Buyer in connection with its
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
5.05 LITIGATION. There are no actions, suits or proceedings
pending or, to Buyer's knowledge, threatened against Buyer, at law or in equity,
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
would adversely affect Buyer's performance under this Agreement or the
consummation of the transactions contemplated by this Agreement.
5.06 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.
5.07 INVESTMENT REPRESENTATION. Buyer is purchasing the Shares and
the Vinyl Shares for its own account for investment purposes and not with a view
to or for sale in connection with any public distribution of such securities,
except in compliance with applicable federal or state securities laws.
5.08 FINANCING. To the extent Buyer has obtained the debt
financing described in the Financing Letter, Buyer has, and shall have at the
Closing, sufficient cash and available credit facilities (and has provided
evidence thereof satisfactory to the Shareholder Representative), to pay the
full consideration payable to the Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman hereunder, to make all other necessary payments
by it in connection with the purchase of the Shares, the Vinyl Shares and the
Options and to pay all of its related fees and expenses.
ARTICLE VI
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COVENANTS OF THE COMPANY,
THE SHAREHOLDERS, THE OPTIONHOLDERS AND H.I.G. CAYMAN
6.01 CONDUCT OF THE BUSINESS. The Company, Vinyl and H.I.G. Cayman
covenant and agree with respect to Vinyl and the Company and its Subsidiaries,
pending the Closing and except as otherwise approved in writing by the Buyer,
that, from the date hereof until the Closing Date:
(a) Each of the Company and its Subsidiaries shall carry on its
business according to its ordinary and usual course of business and
substantially in the same manner as heretofore conducted, and to maintain its
records and books of account in a manner consistent with prior periods; PROVIDED
that, the foregoing notwithstanding, the Company may use all available cash to
repay any Indebtedness prior to the Closing. The Company and its Subsidiaries
shall refrain from making unfunded or committing to make unfunded capital
expenditures in excess of $375,000 in the first quarter of 1999, $375,000 in the
second quarter of 1999, $375,000 in the third quarter of 1999 and $375,000 in
the fourth quarter of 1999. The Company and its Subsidiaries shall make the
capital expenditures in accordance with the 1999 annual budget that was
presented in the Company's Confidential Information Memorandum, dated November
1998. The Company and its Subsidiaries shall refrain from entering into any
transactions involving the disposal of any properties or assets (other than
inventory in the ordinary course), with a value of more than $25,000,
individually, or $75,000, in the aggregate.
(b) Except as otherwise provided for by this Agreement or
consented to in writing by Buyer, neither Vinyl nor the Company shall, and the
Company shall not permit any Subsidiary to, (i) issue, sell or deliver any
shares of its or any Subsidiary's capital stock or other securities, or issue or
sell any securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe for, any shares of its or any Subsidiary's
capital stock or other securities; (ii) effect any recapitalization,
reclassification, stock dividend, stock split or like change in its or any
Subsidiary's capitalization; (iii) amend its or any Subsidiary's Certificate of
Incorporation (or other charter documents) or By-laws; or (iv) make any
redemption or purchase of any shares of its or any Subsidiary's capital stock or
declare, pay, set aside or make, or cause any Subsidiary to declare, pay, set
aside or make, any dividends or distribution or payment in respect of its or any
Subsidiary's capital stock or other securities.
(c) Neither the Company nor any Subsidiary shall make any change
in its accounting procedures or any unreasonable changes from its past practice
with respect to its credit criteria from those in existence at December 31,
1998, except as required due to changes
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in GAAP. The Company shall promptly notify Buyer of any such changes required
due to changes in GAAP. The Company and its Subsidiaries shall make any
appropriate changes to their respective allowances for doubtful accounts in the
event its credit criteria is reasonably changed.
(d) No claims, pledges, security interests, liens, charges or any
other encumbrance on any of the properties or assets of the Company or its
Subsidiaries shall be made other than in the ordinary course of business
consistent with past practice.
(e) Each of the Company and its Subsidiaries shall refrain from
acquiring or agreeing to acquire, or disposing or agreeing to dispose of, real
estate, from entering into, or agreeing to enter into, leases of real estate or
equipment, and from creating any modification, amendment or termination of the
leases for the Leased Real Properties.
(f) Vinyl and the Company shall promptly advise Buyer in writing
of the commencement or threat against Vinyl or the Company or its Subsidiaries
of (i) any written claim, litigation or proceeding when the amount claimed is,
in any individual claim, litigation or proceeding, in excess of $20,000 or, in
the aggregate, $75,000 and (ii) any Tax audit.
(g) The Company shall use its reasonable best efforts to preserve
its, and to preserve its Subsidiaries' business, organization, intellectual
property and relationships with their respective vendors, customers and
suppliers and others having business relations with it.
(h) Neither the Company nor any Subsidiary shall (a) make any
loans or advances to, or assume, guarantee or otherwise become liable for any
indebtedness or other obligations of any stockholder, director, officer,
employee or agent of the Company or its Subsidiaries, except that the Company
shall be permitted to make loans and advance expenses to employees in an amount
less than $2,500 per employee and, in the aggregate, less than $50,000; or (b)
incur any indebtedness other than in the ordinary course of business consistent
with past practice.
(i) Neither the Company nor any Subsidiary shall make, amend or
enter into any employment contract or arrangement, adopt any new Plan or amend
any existing Plan (except as required by applicable law) or materially increase
salaries or other compensation.
(j) Neither the Company nor any Subsidiary shall enter into any
transaction with any Affiliate, except the transactions that are set forth on
the attached AFFILIATED TRANSACTIONS SCHEDULE.
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(k) Vinyl shall not acquire or hold any other asset other than the
Shares set forth opposite its name on the attached SHAREHOLDERS SCHEDULE, nor
shall it conduct any activities other than the holding of such Shares and the
entering into of this Agreement and the transactions contemplated by this
Agreement, nor shall it incur any obligations or liabilities, whether arising in
contract, tort or otherwise, of any type or nature, whether choate, inchoate,
accrued contingent or fixed.
6.02 ACCESS TO BOOKS AND RECORDS. From the date hereof until the
Closing Date, Vinyl and the Company shall provide Buyer and its authorized
representatives ("BUYER'S REPRESENTATIVES") with full access at all reasonable
times, and upon reasonable advance notice, to the offices, properties,
personnel, books and records, and evidence of title to any real property, of
Vinyl and the Company and its Subsidiaries in order for Buyer to have the
opportunity to make such investigation as it shall reasonably desire to make of
the affairs of Vinyl and the Company and its Subsidiaries, provided that such
access does not unreasonably interfere with the normal operations of Vinyl or
the Company or the Subsidiaries. The Company, the Shareholders, the
Optionholders and H.I.G. Cayman will, upon request, furnish Buyer with any
information reasonably required with respect to Vinyl's and the Company's and
its Subsidiaries' respective properties, assets and businesses and will provide
Buyer with copies of any contract, document or instrument listed on any Schedule
hereto. Buyer acknowledges that it remains bound by the Confidentiality
Agreement, dated November 23, 1998, with the Company (the "CONFIDENTIALITY
AGREEMENT"); provided, however, that upon the consummation of the transactions
contemplated hereby, the Confidentiality Agreement shall terminate.
6.03 REGULATORY FILINGS. The Company shall make or cause to be
made all filings, which filing fees shall be paid by Buyer, and submissions
under the HSR Act and any other material laws or regulations applicable to Vinyl
and the Company and its Subsidiaries for the consummation of the transactions
contemplated by this Agreement. The initial filing under the HSR Act shall be
made by the Company within five (5) business days of the signing of this
Agreement and the Company shall make an early termination request at such time.
Vinyl and the Company shall coordinate and cooperate with Buyer in exchanging
such information and assistance as Buyer may reasonably request in connection
with all of the foregoing.
6.04 CONDITIONS. The Company, the Shareholders, the Optionholders
and H.I.G. Cayman shall use reasonable best efforts to cause the conditions set
forth in Section 2.01 to be satisfied and to consummate the transactions
contemplated by this Agreement; provided that neither the Company, any
Subsidiary, any Shareholder, any Optionholder nor H.I.G. Cayman shall be
required to expend any funds to obtain any third-party or governmental consents
required under Section 2.01(d) or (e).
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6.05 EXCLUSIVE DEALING. During the period from the date of this
Agreement through the Closing or the earlier termination of this Agreement
pursuant to Section 8.01, each Shareholder, each Optionholder and H.I.G. Cayman
shall not take, or permit any other Person on its behalf to take, and neither
Vinyl nor the Company shall take, any action to solicit, encourage, initiate or
engage in discussions or negotiations with, or provide any information to, any
Person (other than Buyer and its representatives) concerning any purchase, sale,
liquidation, recapitalization, restructuring, merger or other disposition of
Vinyl or the Company or any of its Subsidiaries, or of any securities of Vinyl,
the Company or any Subsidiary, including, without limitation, the Shares, the
Vinyl Shares, and the Options, or all or any substantial portion of the assets
of Vinyl or the Company or any of its Subsidiaries or similar transaction
involving Vinyl or the Company. If Vinyl, the Company, any of the Shareholders,
any of the Optionholders or H.I.G. Cayman, or any of their respective
representatives, receives any offers or receives any communications from any new
or existing offerees, it or they will (a) remain silent or advise the offeror
that neither Vinyl, the Company, the Shareholders, the Optionholders nor H.I.G.
Cayman are in a position to negotiate or accept any offers at that time, and (b)
notify Buyer of any such communication.
6.06 NOTIFICATION. From the date hereof until the Closing Date,
the Company, the Shareholders, the Optionholders and H.I.G. Cayman shall
promptly disclose to Buyer in writing any material variances from the
representations and warranties contained in this Agreement, including the
Schedules hereto, or any other material development concerning Vinyl or the
Company or any of its Subsidiaries. The Shareholders, the Optionholders and
H.I.G. Cayman shall promptly inform Buyer in writing if they obtain knowledge
that the representations and warranties of the Company, the Shareholders, the
Optionholders or H.I.G. Cayman in this Agreement, including the Schedules
hereto, are not true and correct in all respects or if there are any material
errors in, or omissions therefrom, or that there are material developments
concerning Vinyl or the Company or any of its Subsidiaries. No disclosure or
notice given pursuant to this Section 6.06 shall affect Buyer's right to
terminate this Agreement pursuant to Article VIII. To the extent necessary, and
only due to events (other than the discovery of an error) occurring after the
date hereof, such disclosures shall amend and supplement the appropriate
Schedules attached hereto in the form of "UPDATED SCHEDULES" delivered to Buyer,
except for purposes of Section 2.01(b) hereof.
6.07 CONSENTS. Vinyl and the Company shall use their reasonable
best efforts to obtain any third-party consents, authorizations, approvals and
waivers which are necessary to permit the consummation of the transactions
contemplated by this Agreement and the operation of the businesses of Vinyl and
the Company and its Subsidiaries that are not set forth on the attached
THIRD-PARTY CONSENTS SCHEDULE.
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6.08 BROKERAGE. The Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman shall severally, and not jointly (subject to
Section 9.02(d)), indemnify and hold Buyer harmless against any and all claims,
losses, liabilities or expenses which may be asserted against them as a result
of their dealings, arrangements or agreements with Bowles Hollowell Conner & Co.
6.09 INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after
the end of each calendar month until the Closing, the Company shall deliver to
Buyer copies of unaudited consolidated balance sheets of the Company and its
Subsidiaries as of the end of each month subsequent to the date hereof and prior
to the Closing Date and the related statements of income and cash flows for each
month then ended, which will present fairly in all material respects the
financial condition and results of operations and cash flow of the Company and
its Subsidiaries. For the purposes of this Agreement, the term "FINANCIAL
STATEMENTS" shall be deemed to include any such balance sheets and statements
delivered by the Company pursuant to this Section 6.09. Thermal shall deliver to
Buyer, on or prior to May 15, 1999, copies of Thermal's consolidated statement
of income for the four-month period ended April 30, 1999, which will present
fairly in all material respects the results of operations of Thermal prepared in
accordance with GAAP consistent with past practice.
6.10 INTELLECTUAL PROPERTY MATTERS. Within twenty (20) days after
the execution of this Agreement, the Company shall file or cause to be filed
with the PTO all documentation necessary to completely and validly correct the
PTO records to reflect that (i) with respect to trademarks, the grant from Heat
Acquisition II, Inc. to Nationscredit Commercial Corporation (which was recorded
with the PTO) is a grant of a security interest and not "an assignment of part
of assignor interest," (ii) the applicant, Thermal, in Serial No. 75/328,843
("DECK-IN-A-DAY"), Serial No. 75/328,371 ("SNAP-TRACK") and all other
applications previously filed or to be filed prior to the Closing Date by
Thermal, is a Delaware corporation and not a Pennsylvania corporation, and (iii)
with respect to patents, the merger that was recorded with the PTO was of
Thermal with and into Heat Acquisition II, Inc. and not Heat Acquisitino II,
Inc.
6.11 NO TRANSFERS. The Shareholders, the Optionholders and H.I.G.
Cayman shall not sell or transfer any of their respective Shares, Vinyl Shares
or Options.
ARTICLE VII
COVENANTS OF BUYER
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7.01 ACCESS TO BOOKS AND RECORDS. From and after the Closing,
Buyer shall, and shall cause Vinyl and the Company to, provide the Shareholder
Representative (on behalf of the Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman), and its agents with reasonable access (for the
purpose of examining and copying), during normal business hours, and upon
reasonable advance notice, to the books and records of Vinyl and the Company and
its Subsidiaries with respect to periods prior to the Closing Date in connection
with any matter relating to Taxes, governmental inquiries or litigation, whether
or not relating to or arising out of this Agreement or the transactions
contemplated by this Agreement, provided that such access does not unreasonably
interfere with the normal operations of Buyer, Vinyl, the Company or its
Subsidiaries. Unless otherwise consented to in writing by the Shareholder
Representative, neither Vinyl nor the Company shall, for a period of five (5)
years following the Closing Date, destroy, alter or otherwise dispose of any of
the books and records of Vinyl or the Company for the period prior to the
Closing Date without first offering to surrender to the Shareholder
Representative such books and records or any portion thereof which Buyer, Vinyl
or the Company may intend to destroy, alter or dispose of.
7.02 NOTIFICATION. Prior to the Closing, upon discovery, Buyer
shall promptly inform the Company and the Shareholder Representative (on behalf
of the Shareholders, the Optionholders and H.I.G. Cayman) in writing of any
material variances from Buyer's representations and warranties contained in
Article V.
7.03 DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION. For a
period of five (5) years after the Closing, Buyer shall not, and shall not
permit the Company or any of its Subsidiaries to, amend, repeal or modify any
provision in the Company's or any of its Subsidiaries' Certificate of
Incorporation or By-laws relating to the exculpation or indemnification of any
officers and directors (unless required by law), it being the intent of the
parties that the officers and directors of the Company and its Subsidiaries who
existed as officers and directors of the Company or its Subsidiaries prior to
the Closing shall continue to be entitled to such exculpation and
indemnification to the full extent as they receive under those documents prior
to the Closing.
7.04 REGULATORY FILINGS. Buyer shall make or cause to be made all
filings and submissions under the HSR Act and any other laws or regulations
applicable to Buyer as may be required of Buyer for the consummation of the
transactions contemplated by this Agreement. The initial filing under the HSR
Act shall be made by Buyer within five (5) business days of the signing of this
Agreement and Buyer shall make an early termination request at such time. Buyer
shall coordinate and cooperate with Vinyl and the Company in exchanging such
information and assistance as Vinyl and the Company may reasonably request in
connection with all of the foregoing.
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7.05 CONDITIONS. Buyer shall use reasonable efforts to cause the
conditions set forth in Section 2.02 to be satisfied and to consummate the
transactions contemplated by this Agreement; provided that Buyer shall not be
required to expend any funds to obtain any third-party or governmental consents
required under Section 2.02(c) and Section 2.02(d).
7.06 CONTACT WITH CUSTOMERS AND SUPPLIERS. Prior to the Closing,
Buyer and Buyer's Representatives shall contact and communicate with the
employees (subject to Section 6.02 of this Agreement), customers and suppliers
of the Company and its Subsidiaries in connection with the transactions
contemplated by this Agreement only with the prior written consent of the
Company or the Shareholder Representative (on behalf of the Shareholders and the
Optionholders). Notwithstanding the foregoing, Buyer and Buyer's Representatives
may contact and communicate with David Rascoe, Gary Petitclerc and Evan Kaffenes
without prior written consent of the Company or the Shareholder Representative.
7.07 BONUSES. After the one (1) year anniversary of the Closing
Date, to the extent that the actual aggregate cash amount of the Bonuses awarded
is less than $32,500, Buyer shall refund the difference to the Shareholder
Representative (on behalf of the Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman).
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual written consent of Buyer, and the Shareholder
Representative (on behalf of the Shareholders, the Optionholders and H.I.G.
Cayman);
(b) by Buyer, if Merrill Lynch, Pierce, Fenner & Smith
Incorporated refuses or is not able to provide or arrange for financing to Buyer
or any of its affiliates based on any of the circumstances described in clause
(ii) of the fifth paragraph (the "MARKET DISRUPTION CONDITION") of the Financing
Letter;
(c) by Buyer, if (i) the condition set forth in Section 2.01(h) is
not satisfied, or (ii) the condition set forth in Section 2.01(1) is not
satisfied; provided that, in the case of this clause (ii) only, Buyer exercises
its rights under this clause (ii) on or prior
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to the third business day following the delivery to Buyer of the financial
statements required to be delivered pursuant to the last sentence of Section
6.09;
(d) by Buyer, if (i) the Shareholders and the Optionholders fail
to deliver at least ninety-nine percent (99%) of the capital stock of the
Company on a fully diluted basis, or (ii) H.I.G. Cayman fails to deliver one
hundred percent (100%) of the Vinyl Shares;
(e) by Buyer, if there has been a material violation or breach by
the Company, the Shareholders, the Optionholders or H.I.G. Cayman of any
covenant, representation or warranty contained in this Agreement and such
violation or breach has not been waived by Buyer or, in the case of a covenant
breach, cured by the Company, the Shareholders, the Optionholders or H.I.G.
Cayman within ten (10) days after written notice thereof from Buyer.
(f) by the Shareholder Representative (on behalf of the
Shareholders, the Optionholders and H.I.G. Cayman), if there has been a material
violation or breach by Buyer of any covenant, representation or warranty
contained in this Agreement and such violation or breach has not been waived by
the Shareholder Representative or, with respect to a covenant breach, cured by
Buyer within ten (10) days after written notice thereof by the Shareholder
Representative (provided that the failure by Buyer to comply with Section
1.07(b)(i) shall not be subject to cure hereunder unless otherwise agreed to in
writing by the Shareholder Representative); or
(g) by either Buyer or the Shareholder Representative (on behalf
of the Shareholders, the Optionholders and H.I.G. Cayman) if the transactions
contemplated by this Agreement have not been consummated (other than through the
failure of any party seeking to terminate this Agreement to comply in all
material respects with its obligations under this Agreement) by June 15, 1999
(the "TRANSACTION DEADLINE DATE"), or such later date as the parties may agree
in writing; provided that neither Buyer nor the Shareholder Representative shall
be entitled to terminate this Agreement pursuant to this Section 8.01(g) if such
Person's (or the Company's, any Shareholder's, any Optionholder's or H.I.G.
Cayman's, in the case of the Shareholder Representative) knowing or willful
breach of this Agreement has prevented the consummation of the transactions
contemplated by this Agreement; provided further that Buyer shall for any reason
or no reason, and without the consent of any other party, be entitled to extend
the Transaction Deadline Date to June 30, 1999 by providing written notice to
the Shareholder Representative to that effect, whereupon the Transaction
Deadline Date shall automatically be so extended.
8.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Buyer or the Shareholder Representative (on behalf of the
Shareholders, the Optionholders and H.I.G. Cayman) as provided above, the
provisions of
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this Agreement shall immediately become void and of no further force and effect
(other than this Section 8.02 and Article XIII hereof which shall survive the
termination of this Agreement); provided, however, that the following shall
apply:
(a) If this Agreement is terminated because (i) Buyer terminates
this Agreement pursuant to Section 8.01(b), Section 8.01(c)(i), Section
8.01(c)(ii), Section 8.01(d) or Section 8.01(e), or (ii) the Shareholder
Representative terminates this Agreement or otherwise declines to close the
transactions contemplated by this Agreement when, in the case of this clause
(ii), all conditions set forth in Section 2.02 within Buyer's control shall have
been satisfied on or prior to the last date under this Agreement when such
conditions could have been satisfied, Buyer shall, in any such case, be entitled
to a refund of the Deposit along with the Deposit Interest, without prejudice to
the right of Buyer to pursue any equitable remedy.
(b) If this Agreement is terminated because (i) the Shareholder
Representative terminates this Agreement pursuant to Section 8.01(f) or Section
8.01(g) (other than when Section 8.02(a)(ii) applies) hereof, or (ii) Buyer
terminates this Agreement pursuant to Section 8.01(g) or otherwise declines to
close the transactions contemplated by this Agreement when, all the conditions
set forth in Sections 2.01 (b) through (g), (i) and (k), shall have been
satisfied on or prior to the last date under this Agreement when such conditions
could have been satisfied, the Shareholders, the Optionholders and H.I.G. Cayman
shall, in any such case, be entitled to retain the Deposit as their sole and
exclusive remedy under this Agreement or applicable law.
(c) In the event of termination of this Agreement due to (i) the
failure to obtain any necessary HSR approvals, or (ii) an action or proceeding
before a court or governmental body wherein an unfavorable judgment, decree or
order seeks to restrain, prohibit or prevent the performance of this Agreement
or the consummation of any of the transactions contemplated by this Agreement,
to declare unlawful the transactions contemplated by this Agreement, or to cause
such transactions to be rescinded, Buyer shall, in any such case, be entitled to
a full refund of the Deposit along with the Deposit Interest.
(d) In the event Buyer terminates this Agreement pursuant to
Section 8.01(d) or Section 8.01(e), Buyer shall also be entitled to receive from
the Company, the Shareholders, the Optionholders and H.I.G. Cayman an amount
equal to all reasonable out-of-pocket fees and expenses (including reasonable
fees and expenses of counsel) incurred by Buyer and its affiliates in connection
with this Agreement or the transactions contemplated hereby after the date
hereof.
(e) If Buyer has extended the Transaction Deadline Date to June
30,
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1999, then Buyer shall only be entitled to a refund of the Deposit along with
the Deposit Interest, if Buyer terminates this Agreement pursuant to Section
8.01(d) or Section 8.01(e).
ARTICLE IX
INDEMNIFICATION
9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in this Agreement shall survive the Closing as
follows:
(a) the representations and warranties set forth in Sections 3.03,
3.04, 3.05, 3.07, 4.04(b) and 4.08 will survive for the applicable statute of
limitations; and
(b) all other representations and warranties in this Agreement and
in any certificates shall terminate on May 15, 2000.
No claim for indemnification hereunder for breach of any such
representations or warranties may be made after the expiration of the survival
period applicable to such claims; provided that any representation or warranty
in respect of which indemnity may be sought under Section 9.02 and the indemnity
with respect thereto, shall survive the time at which it would otherwise
terminate pursuant to this Section 9.01 if notice of the inaccuracy or breach,
or potential inaccuracy or breach thereof giving rise to such right or potential
right of indemnity shall have been given to the Person against whom such
indemnity may be sought prior to such time.
9.02 INDEMNIFICATION.
(a) Each Shareholder (other than Vinyl), each Optionholder and
H.I.G. Cayman, severally and not jointly (subject to the provisions of Section
9.02(d)), shall indemnify and hold harmless Buyer and its officers, directors,
employees, stockholders, agents, representatives, successors and permitted
assigns (collectively, the "BUYER INDEMNIFIED PARTIES"), from and against any
claims, damages, losses, liabilities, Taxes, regulatory actions, injuries to
Persons, property or natural resources, fines, penalties, costs and expenses
(including, without limitation, settlement costs, any reasonable legal,
accounting or other expenses incurred in connection with investigating or
defending any actions or threatened actions and court costs) ("BUYER LOSSES")
sustained or required to be paid by reason of, arising out of or caused by (i)
any misrepresentation or breach of any representation or warranty made by the
Company, such Shareholder, such Optionholder or H.I.G. Cayman in this Agreement,
(ii) any breach of or failure to perform any
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covenant, agreement or obligation of the Company, such Shareholder, such
Optionholder or H.I.G. Cayman contained in this Agreement, (iii) any fees or
expenses of the Shareholders, the Optionholders or H.I.G. Cayman relating to
this Agreement and the transactions contemplated by this Agreement regardless of
when accrued or incurred and any fees or expenses of the Company or any of its
Subsidiaries relating to this Agreement and the transactions contemplated by
this Agreement accrued or incurred in connection with Closing, (iv) Taxes
reflected on any Post-Closing Return attributable to periods ending on or before
the Closing Date, not otherwise accounted for in the calculation of the tax
benefit amount as provided for in Section 11.03(c), (v) the Company's or any
Subsidiary's failure to timely file any Form 5500 for any Plan for any plan
year, (vi) the litigation matter of GENEVA NATIONAL CONDOMINIUM MASTER
ASSOCIATION V. THERMAL INDUSTRIES, INC., ET AL., Case No. 96-CV-81, Circuit
Court, Walworth County, Elkhorn, Wisconsin, in the event that Thermal, Geneva
National Condominium Master Association and General Accident Insurance Company
do not execute and deliver the Settlement Agreement (the "Settlement Agreement")
in substantially the form of EXHIBIT G hereto in settlement of such litigation,
but only, in the case of this clause (vi), to the extent the Buyer Losses under
this clause (vi) exceed the amount of the liability attributable to Thermal that
would have otherwise existed under the Settlement Agreement, and then only with
respect to the amount of such excess, and (vii) the litigation matter of ROBERT
PERAZA AND CAROLINE S. MAZZONE V. DURA-PLEX, INC., JAMES MERCANDANTE, THERMAL
INDUSTRIES, INC., ET. AL., Docket No. OCN-L-892-99, Superior Court of New
Jersey, Ocean County, New Jersey, to the extent such Buyer Losses exceed
$25,000. Notwithstanding the foregoing, the Shareholders (other than Vinyl) the
Optionholders and H.I.G. Cayman shall not have an obligation to indemnify buyer
for a Buyer Loss arising in connection with Section 9.02(a)(iii) or the
Company's breach of the representations and warranties set forth in Section 4.05
to the extent Buyer has been compensated for such Buyer Loss pursuant to Section
1.06. In the event that any funds are paid out of the Escrow Fund to a Buyer
Indemnified Party in connection with a breach by any Shareholder (other than
Vinyl), any Optionholder or H.I.G. Cayman, such breaching party shall be
required to contribute to each other Shareholder (other than Vinyl),
Optionholder and H.I.G. Cayman an amount equal to each such party's pro rata
portion of the amount paid out of the Escrow Fund with respect to such breach.
(b) Buyer shall indemnify and hold harmless each Shareholder
(other than Vinyl), each Optionholder and H.I.G. Cayman from and against any
claims, damages, losses, liabilities, Taxes, regulatory actions, injuries to
Persons, property or natural resources, fines, penalties, costs and expenses
(including, without limitation, settlement costs, any reasonable legal,
accounting or other expenses incurred in connection with investigating or
defending any actions or threatened actions and court costs) ("SELLER LOSSES"
and, together with Buyer Losses, "LOSSES") sustained or required to be paid by
reason of, arising out of or caused by (i) any misrepresentation or breach of
any representation or warranty made by Buyer in this Agreement, and (ii) any
breach of
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any covenant, agreement or obligation of Buyer contained in this Agreement.
(c) (i) In the event that any indemnified party is made a
defendant in or party to any claim, action, suit or proceeding, judicial or
administrative, instituted by any third-party for Losses, or otherwise receives
any demand from any third party for Losses (any such third party claim, action,
suit or proceeding being referred to as a "CLAIM"), the indemnified party
(referred to as the "INDEMNITEE") shall give the indemnifying party (referred to
as the "INDEMNITOR") prompt notice thereof. The failure to give such notice
shall not affect whether an Indemnitor is liable for reimbursement unless such
failure has resulted in the loss of substantive rights with respect to the
Indemnitor's ability to defend such Claim, and then only to the extent of such
loss. The Indemnitor shall be entitled to contest and defend such Claim;
provided that the Indemnitor diligently contests and defends such Claim. Notice
of the intention so to contest and defend shall be given by the Indemnitor to
the Indemnitee within twenty (20) business days after receipt of the
Indemnitee's notice of such Claim (but, in all events, at least five (5)
business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
employed by the Indemnitor. The Indemnitee shall be entitled at any time, at its
own cost and expense (which expense shall not constitute a Loss unless the
Indemnitee reasonably determines that the Indemnitor is not adequately
representing or, because of a conflict of interest determined to exist by
Kirkland & Ellis in its sole discretion, may not adequately represent, the
interests of any Indemnitee and only to the extent that such expenses are
reasonable), to participate in such contest and defense and to be represented by
attorneys of its or their own choosing. If the Indemnitee elects to participate
in such defense, the Indemnitee will cooperate with the Indemnitor in the
conduct of such defense. Neither the notifying party nor the Indemnitor may
concede, settle or compromise any Claim without the consent of the other party,
which consent will not be unreasonably withheld. Notwithstanding the foregoing,
if the Indemnitor fails to acknowledge in writing its obligation to provide
indemnification in respect of such Claim, then the Indemnitee alone shall be
entitled to contest, defend and settle such Claim in the first instance (in
which case, expenses incurred in connection therewith shall constitute a Loss)
and, only if the Indemnitee chooses not to contest, defend or settle such Claim,
the Indemnitor shall then have the right to contest and defend (but not settle)
such Claim.
(ii) In the event any Indemnitee should have a claim against
any Indemnitor that does not involve a Claim, the Indemnitee shall deliver a
notice of such claim with reasonable promptness to the Indemnitor. The failure
to give such notice shall not affect whether an Indemnitor is liable for
reimbursement unless such failure has resulted in the loss of substantive rights
with respect to the Indemnitor's ability to defend such Claim, and then only to
the extent of such loss. If the Indemnitor notifies the
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Indemnitee that it does not dispute the claim described in such notice or fails
to notify the Indemnitee within fifteen (15) days after delivery of such notice
by the Indemnitee whether the Indemnitor disputes the claim described in such
notice, and such failure to notify materially prejudices any defense or claim of
the Indemnitee, the Loss in the amount specified in the Indemnitee's notice will
be conclusively deemed a liability of the Indemnitor and the Indemnitor shall
pay the amount of such Loss to the Indemnitee on demand.
(iii) After the Closing, the rights set forth in this Section
9.02 shall be the indemnified parties' sole and exclusive remedies against the
other for misrepresentations or breaches of covenants contained in this
Agreement. Without limitation, Buyer specifically waives any and all claims
against Vinyl and the Company, including rights of contribution under CERCLA or
analogous state law. Notwithstanding the foregoing, nothing herein shall prevent
any of the indemnified parties from bringing an action based upon allegations of
fraud, bad faith or willful misconduct in connection with this Agreement. In the
event action is brought in accordance with the preceding sentence of this clause
(iii), the prevailing party's attorneys' fees and costs shall be paid by the
nonprevailing party.
(d) In connection with any indemnification claim by Buyer under
this Agreement, Buyer (except as set forth in the next sentence) may only seek
recovery for Buyer Losses out of the funds held in the Escrow Fund (as defined
in the Escrow Agreement) pursuant to the Escrow Agreement and is entitled to
seek such recovery regardless of whether such Losses are attributable to the
actions or breaches of the Company, any particular Shareholder, any particular
Optionholder or H.I.G. Cayman. Buyer shall not be entitled to pursue any
indemnification claim or recovery against the Company, any Shareholder, any
Optionholder or H.I.G. Cayman beyond the foregoing limit, except to the extent
any such claim or recovery is based upon the Company's, such Shareholder's, such
Optionholder's or H.I.G. Cayman's (i) breach of a representation or warranty
made in Section 3.03, 3.04, 3.05, 3.07 or 4.04(b), or (ii) fraud, bad faith or
willful misconduct in connection with this Agreement. No Shareholder,
Optionholder or H.I.G. Cayman may claim or assert that any portion of the Escrow
Fund is not available to pay for Buyer Losses by virtue of the indemnification
provisions, covenants, or representations and warranties under this Agreement
being several and not joint, rather than being joint and several. By executing
this Agreement, each such Person waives any such right. Notwithstanding the
foregoing, Buyer may seek recovery for Buyer Losses beyond the funds held in the
Escrow Fund from H.I.G. Fund and/or H.I.G. Management for any such Buyer Losses
attributable to H.I.G. Cayman's (a) breach of a representation or warranty made
in Section 3.04 or Section 3.05, or (b) fraud, bad faith or willful misconduct
in connection with this Agreement.
(e) The amount of any Loss subject to indemnification under this
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Section 9.02 shall be calculated net of (i) the effects of a reduction for any
Tax Benefit inuring to the Indemnitee on account of such Loss and an increase
for any Tax Detriment suffered by the Indemnitee on account of the receipt of
any indemnification payments and (ii) any insurance proceeds received by the
Indemnitee on account of such Loss. If the Indemnitee receives a Tax Benefit
with respect to a Loss after an indemnification payment is made to it, the
Indemnitee shall promptly pay to the Person or Persons that made such
indemnification payment the amount of such Tax Benefit at such time or times as
and to the extent that such Tax Benefit is realized by the Indemnitee. For
purposes hereof, "TAX BENEFIT" shall mean any refund of Taxes paid or reduction
in the amount of Taxes which otherwise would have been paid, in each case
computed at the actual marginal tax rates applicable to the recipient of such
benefit, and "TAX DETRIMENT" shall mean any increase in the amount of Taxes
which would otherwise have been paid or any reduction in a Tax Benefit. The
Indemnitee shall seek full recovery under all insurance policies covering any
Loss to the same extent as they would if such Loss were not subject to
indemnification hereunder. In the event that an insurance or other recovery is
made by any Indemnitee with respect to any Loss for which any such Person has
been indemnified hereunder, then a refund equal to the aggregate amount of the
recovery shall be made promptly to the Person or Persons that provided such
indemnity payments to such Indemnitee.
(f) The obligations set forth in this Section 9.02 shall be
unconditional and absolute. In the event of a conflict between the provisions of
this Section 9.02 and any other provisions of this Agreement, the provisions of
Section 9.02 shall control. The Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman shall not have any indemnification obligations
under this Section 9.02 for Losses until such time as total Losses for which
Buyer is otherwise entitled to indemnification hereunder equal $687,500 in the
aggregate (the "DEDUCTIBLE"), whereafter the Shareholders (other than Vinyl),
the Optionholders and H.I.G. Cayman shall be liable for all such Losses in
excess thereof, provided, that the Shareholders' (other than Vinyl's), the
Optionholders' and H.I.G. Cayman's aggregate liability to Buyer hereunder shall
in no event exceed $5,000,000 (the "CAP"). Notwithstanding the foregoing, (i)
any indemnification obligations of the Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman to Buyer arising in connection with Section
9.02(d)(i) and Section 9.02(d)(ii) hereof shall not be subject to the
Deductible, the Cap or the De Minimis Losses limitations, (ii) any
indemnification obligations of the Shareholders (other than Vinyl), the
Optionholders and H.I.G. Cayman to Buyer arising under Section 9.02(a)(iii),
Section 9.02(a)(v) or Section 9.02(a)(vii) shall, in any case, not be subject to
the Deductible or the De Minimis Losses limitations, (iii) any indemnification
obligations of the Shareholders (other than Vinyl), the Optionholders and H.I.G.
Cayman to Buyer arising in connection with any breach by the Shareholders, the
Optionholders or H.I.G. Cayman of any covenant to Buyer set forth
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in Section 11.03(c) shall not be subject to the Deductible or the De Minimis
Losses limitations and (iv) any indemnification obligations of the Shareholders
(other than Vinyl), the Optionholders and H.I.G. Cayman to Buyer arising in
connection with any breach by the Company of the representation set forth in
Section 4.26 shall not be subject to the Deductible or the De Minimis Losses
limitations.
(g) Notwithstanding Section 9.02(f), excluding the last sentence
of Section 9.02(f), the Shareholders (other than Vinyl), the Optionholders and
H.I.G. Cayman shall not have any indemnification obligations under this Section
9.02 for any Losses with respect to any single claim or series of related claims
if the aggregate amount of such Losses with respect to such claim or series of
related claims does not exceed $25,000 ("DE MINIMIS LOSSES").
(h) For purposes of determining (i) whether an Indemnitor shall be
required to indemnify an Indemnitee under this Article IX, (ii) the aggregate
amount of Losses suffered by an Indemnitee, (iii) the Deductible or (iv) the
aggregate amount of De Minimis Losses suffered by an Indemnitee, 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, without
limitation, Material Adverse Effect.
(i) The indemnification obligations of an Indemnitor set forth in
this Section 9.02 shall survive any permitted assignment or other transfer by
such Indemnitor.
ARTICLE X
SHAREHOLDER REPRESENTATIVE
10.01 DESIGNATION. H.I.G. Cayman (the "SHAREHOLDER
REPRESENTATIVE") is hereby designated by each of the Shareholders, each of the
Optionholders and H.I.G. Cayman (in its capacity as the owner of the Vinyl
Shares) to serve as the representative of the Shareholders, the Optionholders
and H.I.G. Cayman with respect to the matters expressly set forth in this
Agreement to be performed by the Shareholder Representative.
10.02 AUTHORITY. Each of the Shareholders, the Optionholders, and
H.I.G. Cayman, by the execution of this Agreement, hereby irrevocably appoints
the Shareholder Representative as the true and lawful agent, proxy and
attorney-in-fact to act
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on behalf of such Shareholders, such Optionholders and H.I.G. Cayman, in any
manner deemed appropriate by the Shareholder Representative, in its sole
discretion, for all purposes of this Agreement, including the full power and
authority on such Shareholder's, such Optionholder's and H.I.G. Cayman's behalf
(i) to take any action or execute any instrument deemed necessary or appropriate
to consummate the transactions contemplated by this Agreement; (ii) to pay such
Shareholder's, such Optionholder's and H.I.G. Cayman's expenses incurred in
connection with the negotiation and performance of this Agreement (whether
incurred on or after the date hereof); (iii) to disburse any funds received
hereunder to each such Shareholder, such Optionholder or H.I.G. Cayman;
provided, that Shareholder Representative shall be entitled to hold back $1
million of such proceeds for the payment of expenses incurred in connection with
the transactions contemplated hereby; provided further that the Shareholder
Representative shall disperse all such funds, except for such holdback, within
72 hours of the Shareholder Representative's receipt of such funds from time to
time; (iv) to execute and deliver any certificates representing the Shares or
the Vinyl Shares, or the cancellation of the Options, and execution of such
further instruments of assignment as Buyer shall reasonably request; (v) to
execute and deliver on behalf of such Shareholder, such Optionholder and H.I.G.
Cayman any amendment or waiver hereto subject to Section 13.10; (vi) to take all
other actions to be taken by or on behalf of such Shareholder, such Optionholder
or H.I.G. Cayman in connection herewith; and (vii) to do each and every act and
exercise any and all rights which each such Shareholder, such Optionholder or
H.I.G. Cayman collectively are permitted or required to do or exercise under
this Agreement; provided that the Shareholder Representative will update each of
the Shareholders, the Optionholders and H.I.G. Cayman from time to time. Each of
the Shareholders, the Optionholders and H.I.G. Cayman agrees that such agency
and proxy are coupled with an interest, are therefore irrevocable without the
consent of the Shareholder Representative and shall survive the death,
incapacity, bankruptcy, dissolution or liquidation of any Shareholder, any
Optionholder or H.I.G. Cayman. Any demands, notices or other communications
directed to the Shareholders, the Optionholders and H.I.G. Cayman hereunder
shall be deemed effective if given to the Shareholder Representative. As between
Buyer, on the one hand, and the Shareholders, the Optionholders and H.I.G.
Cayman, on the other hand, payment of funds by Buyer to the Shareholder
Representative in its capacity as such shall, for all purposes hereunder, be
deemed payment of such funds to the Shareholders, the Optionholders and H.I.G.
Cayman. Buyer shall be entitled to rely on all actions of the Shareholder
Representative as if such actions were taken by the Shareholders, the
Optionholders or H.I.G. Cayman. Upon the dissolution or resignation of the
Shareholder Representative, a successor shall be appointed by the remaining
Shareholders, Optionholders and H.I.G. Cayman within the thirty (30) day period
immediately following the date of such dissolution or resignation, and such
successor shall either be a Shareholder or an Optionholder or any other Person
reasonably acceptable to Buyer who shall agree in writing to accept such
appointment in accordance with the terms hereof. The resignation of any
Shareholder
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Representative shall not be effective until a successor Shareholder
Representative has been appointed and has accepted such appointment in
accordance with the provisions of this Article X. The selection of a successor
Shareholder Representative appointed in any manner permitted in this Section
10.02 shall be final and binding upon all of the Shareholders, the Optionholders
and H.I.G. Cayman and written notice of such selection and appointment shall be
provided to Buyer promptly.
10.03 EXCULPATION. Neither the Shareholder Representative nor any
agent employed by it shall incur any liability to any Shareholder, any
Optionholder or H.I.G. Cayman by virtue of the failure or refusal of the
Shareholder Representative for any reason to consummate the transactions
contemplated by this Agreement or relating to the performance of its other
duties hereunder, except for actions or omissions constituting fraud, gross
negligence or bad faith.
ARTICLE XI
ADDITIONAL COVENANTS AND AGREEMENTS
11.01 DISCLOSURE GENERALLY. If and to the extent any information
required to be furnished in any Schedule is contained in this Agreement or in
any other Schedule (or Updated Schedule) attached hereto, such information shall
be deemed to be included in all Schedules (or, except for purposes of Section
2.01(b), Updated Schedules) in which the information is required to be included,
but only to the extent a reasonable person would be on notice from the face of
the disclosure that such disclosure was applicable to such other Schedule (or
Updated Schedule). The inclusion of any information in any Schedule (or Updated
Schedule) attached hereto shall not be deemed to be an admission or
acknowledgment by the Company, the Shareholders, the Optionholders or H.I.G.
Cayman, in and of itself, that such information is material to or outside the
ordinary course of the business of Vinyl or the Company.
11.02 ACKNOWLEDGMENT BY BUYER. Buyer acknowledges that it has
conducted to its satisfaction an independent investigation and verification of
the financial condition, results of operations, assets, liabilities, properties
and projected operations of the Company and, before making its determination to
proceed with the transactions contemplated by this Agreement, Buyer shall be
satisfied with the results of such independent investigation and verification as
well as the representations and warranties of the Company, the Shareholders, the
Optionholders, and H.I.G. Cayman set forth in this Agreement and any other
agreements or certificates executed in connection herewith, including the
Schedules (and Updated Schedules) attached hereto. SUCH REPRESENTATIONS AND
WARRANTIES BY THE COMPANY, THE SHAREHOLDERS, THE OPTIONHOLDERS AND H.I.G. CAYMAN
CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND
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WARRANTIES OF THE COMPANY, THE SHAREHOLDERS, THE OPTIONHOLDERS AND H.I.G. CAYMAN
TO BUYER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND
BUYER UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND
WARRANTIES OF ANY KIND OR NATURE EXPRESSED OR IMPLIED (INCLUDING, BUT NOT
LIMITED TO, ANY RELATING TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION,
RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OF THE COMPANY) ARE SPECIFICALLY
DISCLAIMED BY THE COMPANY, THE SHAREHOLDERS, THE OPTIONHOLDERS AND H.I.G.
CAYMAN.
11.03 TAX MATTERS.
(a) RESPONSIBILITY FOR FILING TAX RETURNS AND PRE-CLOSING TAXES.
Buyer shall, at its cost, prepare or cause to be prepared and file or cause to
be filed all Tax Returns for Vinyl and the Company for all periods ending prior
to or including the Closing Date which are due after the Closing Date, but which
specifically does not include the Tax Returns for the 1998 taxable year (the
"1998 TAX RETURNS"), which 1998 Tax Returns are to be filed by the Company in
proper form, and all Taxes shown to be due on such 1998 Tax Returns fully paid
by the Company, prior to the Closing Date (those Tax Returns other than the 1998
Tax Returns are collectively referred to as the "POST-CLOSING RETURNS"). In the
case of the Federal and State income tax Post-Closing Returns, Buyer or the
Company shall prepare such returns of the Company in a manner suitable for
filing and shall present such draft returns to the Shareholder Representative
for purposes of any applicable rights of review hereunder no later than one
hundred eighty (180) days after the Closing Date. Upon notification from the
Shareholder Representative that the Shareholder Representative approves of the
filing of such returns (such approval not to be unreasonably withheld and any
withholding of such approval to be based on applicable law and supported by
substantial authority within the meaning of Section 6662(d) of the Code), Buyer
shall cause the Company to file such Federal and State income tax returns
promptly. At least fifteen (15) days prior to the date on which each
Post-Closing Return, other than the Federal and State income tax Post-Closing
Returns, is filed, Buyer shall submit such Post-Closing Return to the
Shareholder Representative (on behalf of the Shareholders (other than Vinyl),
the Optionholders and H.I.G. Cayman) for the Shareholder Representative's review
and approval, which approval may be withheld if the filing of such Post-Closing
Return, as prepared by Buyer, is reasonably expected by the Shareholder
Representative to improperly affect the Tax liability of any Shareholder (other
than Vinyl), any Optionholder or H.I.G. Cayman in an adverse manner.
(b) TRANSFER TAXES. Buyer will pay, and will indemnify and hold
the
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Shareholders (other than Vinyl), the Optionholders and H.I.G. Cayman harmless
against, any real property transfer or gains tax, stamp tax, stock transfer tax,
or other similar Tax imposed on the Company or one or more Shareholders (other
than Vinyl), one or more Optionholders or H.I.G. Cayman as a result of the
transactions contemplated by this Agreement (collectively, "TRANSFER TAXES"),
and any penalties or interest with respect to the Transfer Taxes. The
Shareholders (other than Vinyl), the Optionholders and H.I.G. Cayman agree to
cooperate with Buyer in the filing of any returns with respect to the Transfer
Taxes, including supplying promptly any information in the possession of the
Shareholders (other than Vinyl), the Optionholders and H.I.G. Cayman that is
reasonably necessary to complete such returns.
(c) TAX BENEFITS ASSOCIATED WITH OPTION PURCHASE TRANSACTIONS. The
parties hereto agree that in preparing the Company's Tax Returns for the taxable
year that includes or, if applicable, ends on the Closing Date, Buyer shall
cause the Company to claim allowable deductions attributable to the Option
Purchase Transactions in such Tax Returns and, upon the filing of such Tax
Returns, if such Tax Returns show a net operating loss, within the meaning of
Section 172 of the Code, such net operating loss shall be carried back to prior
taxable years to the extent permitted by applicable Tax law, and Buyer shall
cause the Company to file as soon as is practicable any claims for Tax refunds
to which the Company is entitled for taxable periods prior to the Closing Date
as a result of such deductions, and shall permit the Shareholder Representative
(on behalf of the Shareholders and the Optionholders) to review the portion of
any such Tax Return which relates to such Tax benefits prior to the filing of
such Tax Return. The approval of Tax Returns pursuant to Section 11.03(a) by the
Shareholder Representative shall, upon the actual filing of any such Tax Return,
constitute a release by the Shareholders, the Optionholders and H.I.G. Cayman of
Buyer from any liability for failure to comply with this Section 11.03(c). Buyer
shall pay over to the Shareholder Representative (on behalf of the Shareholders
and the Optionholders) the amount of any Tax benefits with respect to the
carry-back periods within thirty (30) days after receipt thereof. The parties
hereto also agree that any such refund shall be net of any reasonable increased
costs, liabilities or Taxes incurred by Buyer or the Company or any Subsidiary
with respect to or attributable to the Option Purchase Transactions, including,
but not limited to, employment Taxes attributable to the Option Purchase
Transactions. If subsequent to the Buyer's payment of any such amount, there is
a determination under applicable law to the effect that all or part of the tax
benefit giving rise to such tax benefit payment was not allowable or available
in any applicable carry-back period (a "SUBSEQUENT BENEFIT DECREASE EVENT"), the
Shareholder Representative shall repay to the Buyer within thirty (30) days any
amount that would have not been payable to the Shareholder Representative
pursuant to this Section 11.03(c) had the amount of the tax benefit been
initially determined in light of the Subsequent Benefit Decrease Event, together
with the amount of any interest and penalties payable to any Tax authority with
respect to those
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amounts and all reasonable expenses of Buyer and the Company and any of the
Subsidiaries directly attributable thereto.
11.04 FURTHER ASSURANCES. From time to time, as and when requested
by any party hereto and at such party's expense, either before or after Closing,
any other party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other party may reasonably deem
necessary or desirable to evidence and effectuate the transactions contemplated
by this Agreement.
11.05 OTHER MATTERS RELATING TO OPTIONS. Each of the Company, the
Shareholders, the Optionholders, H.I.G. Cayman and Buyer hereby acknowledge and
agree that Buyer and certain members of management of the Company and its
Subsidiaries ("MANAGEMENT") may wish to reach an agreement pursuant to which
this Agreement shall be amended to provide that all or any portion of Options
held by Management shall not be purchased and acquired by Buyer in exchange for
the Per Option Purchase Price but may be converted into the right to receive
other consideration to be agreed upon between Buyer and such members of
Management. Each of the Company, the Shareholders, the Optionholders, H.I.G.
Cayman and Buyer hereby covenant and agree that if any such amendments are
entered into, provided that such amendments meet the requirements set forth in
the proviso of Section 13.10 hereof, each of the Company, the Shareholders, the
Optionholders, H.I.G. Cayman and Buyer will not assert any claim against the
other as a result of the execution and delivery of such amendment.
ARTICLE XII
DEFINITIONS
12.01 DEFINITIONS. For purposes hereof the following terms, when
used herein with initial capital letters, shall have the respective meanings set
forth herein:
"AFFILIATE" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"DEPOSIT INTEREST" means an amount equal to the interest that is
earned on the Deposit pursuant to the terms of the Escrow Agreement.
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"ENVIRONMENTAL CLAIM" means any claim, demand, complaint, action,
suit, proceeding, investigation or notice by any Person alleging potential
liability arising out of, based on, or relating to Environmental Laws or the
presence of any Hazardous Material at any location.
"ENVIRONMENTAL LAW" means any and all federal, state and local
laws (including but not limited to common law), statutes, ordinances, judgments,
decrees, licenses, permits, rules and regulations, or other binding requirement
relating to pollution or protection of human health and the environment or
worker health and safety, including without limitation, laws (including but not
limited to common law), statutes, ordinances, judgements, decrees, licenses,
permits, rules and regulations or other binding requirements relating to
emissions, discharges, releases or threatened releases of any Hazardous
Material, or otherwise relating to the use, treatment, storage, disposal,
transport or handling of any Hazardous Material.
"ESCROW AGENT" means an Escrow Agent as defined in the Escrow
Agreement.
"GAAP" means United States generally accepted accounting
principles applied on a consistent basis.
"HAZARDOUS MATERIAL" means any material, substance or compound
regulated under Environmental Laws, whether constituting a useful product or
otherwise, including without limitation any pollutant, contaminant, waste,
hazardous waste, hazardous substance, toxic substance, hazardous material,
extremely hazardous material, asbestos, polychlorinated biphenyl, petroleum, or
any refined product, fraction, byproduct or constituent thereof.
"NET WORKING CAPITAL" means (i) the sum of all of the Company's
consolidated accounts receivable, inventories, prepaids and current portion of
notes receivable, less (b) the sum of all of the Company's consolidated accounts
payable and current accrued liabilities (excluding accrued Taxes) in respect of
all periods beginning prior to and ending prior to or on the Closing Date,
whether or not a payment with respect to such debt, obligation or liability with
respect to such period is yet due, but excluding Indebtedness, recorded in
accordance with GAAP.
"PERMITTED LIENS" shall mean (i) statutory liens for current Taxes
or other governmental charges not yet due and payable or the amount or validity
of which is being contested in good faith by appropriate proceedings by the
Company and for which appropriate reserves have been established in accordance
with GAAP; (ii) mechanics',
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carriers', workers', repairers' and similar statutory liens arising or incurred
in the ordinary course of business for amounts which are not delinquent and
which are not, individually or in the aggregate, significant; (iii) zoning,
entitlement, building and other land use regulations imposed by governmental
agencies having jurisdiction over the Owned Real Property or the Leased Real
Property which are not violated by the current use and operation of the Owned
Real Property or the Leased Real Property; and (iv) covenants, conditions,
restrictions, easements and other similar matters of record affecting title to
the Owned Real Property or the Leased Real Property which do not materially
impair the occupancy or use of the Owned Real Property or the Leased Real
Property for the purposes for which it is currently used or proposed to be used
in connection with the Company's business.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"RELEASE" means any release, threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching,
migrating or presence of any Hazardous Material in the environment.
"TAX" or "TAXES" means any federal, state, local or foreign taxes,
charges, fees, customs, duties, imposts and levies, including, but not limited
to those imposed on income, gross receipts, capital stock, inventory, franchise,
profits, withholding, social security payroll, transaction, employment, workers'
compensation, unemployment, disability, real property, ad valorem/personal
property, assets, stamp, excise, occupation, sales, use, license, transfer,
value added, alternative minimum, estimated or other tax, including any
interest, penalty or addition thereto, or additional amounts imposed by any
Taxing authority (domestic or foreign). For purposes of this Agreement, "Taxes"
also includes any obligation under any agreements or arrangements with any
Person with respect to the liability for, or sharing of, Taxes (including,
without limitation, pursuant to Treasury Regulation Section 1.1502-6 or
comparable provisions of state, local or foreign Tax law) and including without
limitation, any liability for Taxes as a transferee or successor by contract or
otherwise.
"TAX RETURNS" means any return, report, information return or
other document (including schedules or any related or supporting information)
filed or required to be filed with any governmental entity or other authority in
connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
12.02 CROSS-REFERENCE OF OTHER DEFINITIONS. Each capitalized term
listed
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below is defined in the corresponding Section of this Agreement:
<TABLE>
<CAPTION>
TERM SECTION NO.
---- -----------
<S> <C>
Agreement Preamble
Aggregate Equity Price 1.01
Bonuses 1.01
Buyer Preamble
Buyer Indemnified Parties 9.02(a)
Buyer Losses 9.02(a)
Buyer's Representatives 6.02
Cap 9.02(f)
Capitalized Lease Obligations 1.01
Claim 9.02(c)(i)
Class A Stock Preamble
Class B Stock Preamble
Code 4.08
Closing 1.07(a)
Closing Cash 1.01
Closing Date 1.07(a)
Closing Debt 1.01
Closing Per Share Option Purchase Price 1.06(a)
Closing Per Share Purchase Price 1.06(a)
Closing Transactions 1.07(b)
Closing Net Working Capital Statement 1.06(b)
Company Preamble
Confidentiality Agreement 6.02
Deductible 9.02(f)
Deposit 1.02
DOL 4.13(c)
ERISA 4.13(a)
Escrow Agreement 1.05
Escrow Amount 1.05
Estimated Balance Sheet 1.06(a)
Estimated Net Working Capital 1.06(a)
Executive Stock Agreements 13.03
Financial Statements 4.05/6.09
Financing Letter 2.01(a)
H.I.G. Cayman Preamble
H.I.G. Fund Preamble
H.I.G. Management Preamble
</TABLE>
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<TABLE>
<S> <C>
HSR Act 4.12
Indebtedness 1.07(b)(v)
Indemnitee 9.02(c)(i)
Indemnitor 9.02(c)(i)
IRS 4.08(a)
Independent Auditor 1.06(b)
Insiders 3.05
Intellectual Property 4.10
Latest Balance Sheet 4.05
Leased Real Property 4.07(b)
Losses 9.02(b)
Market Disruption Condition 8.01(b)
Material Adverse Effect 4.01
Objections Statement 1.06(b)
Option Purchase Transactions 1.04(b)
Optionholders Preamble
Options Preamble
Outstanding Computer Associates Debt 1.01
Owned Real Property 4.07(b)
Pension Plans 4.13(a)
Per Option Purchase Price 1.04(a)
Per Share Purchase Price 1.03(a)
Plans 4.13(a)
Post-Closing Returns 11.03(a)
PTO 2.01(1)
Seller Losses 9.02(b)
Settlement Agreement 9.02(a)
Shareholder Representative 10.01
Shareholders Preamble
Shares Preamble
Subsequent Benefit Decrease Event 11.03
Subsidiary 4.02
Tax Benefit 9.02(e)/11.03(c)
Tax Detriment 9.02(e)
Terminating Agreements 13.03(b)
the Company's knowledge 13.04
Thermal 2.01(1)
Transaction Deadline Date 8.01(d)
Transfer Taxes 11.03(b)
Vinyl Preamble
Vinyl Shares 1.03(a)
Welfare Plans 4.13(a)
</TABLE>
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<TABLE>
<S> <C>
Working Capital Target 1.06(a)
Year 2000 Data 4.23
</TABLE>
ARTICLE XIII
MISCELLANEOUS
13.01 PRESS RELEASES AND COMMUNICATIONS. No press release or
public announcement related to this Agreement or the transactions contemplated
herein or, prior to the Closing, any other announcement or communication to the
employees, customers or suppliers of Vinyl and the Company and its Subsidiaries
shall be issued or made without the joint approval of Buyer and the Shareholder
Representative (on behalf of the Shareholders, the Optionholders and H.I.G.
Cayman) by the parties hereto or their respective officers, directors,
employees, advisors, agents or representatives, unless required by law (based on
the advice of counsel) in which case Buyer and the Shareholder Representative
shall have the right to review such press release or announcement prior to
publication.
13.02 EXPENSES. Except as otherwise expressly provided herein,
each of Buyer on the one hand and the Shareholders, the Optionholders and H.I.G.
Cayman on the other hand shall pay all of its own expenses (including attorneys'
and accountants' fees and expenses) in connection with the negotiation of this
Agreement, the performance of their respective obligations under this Agreement
and the consummation of the transactions contemplated by this Agreement (whether
consummated or not); provided, that such expenses of the Company, the
Subsidiaries, the Shareholders and the Optionholders may be paid by the Company
so long as such payments are reflected in the Estimated Balance Sheet and the
Closing Net Working Capital Statement. For the purposes hereof, the expenses of
the Company and the Subsidiaries in connection with the negotiation of this
Agreement, the performance of any obligations under this Agreement and the
consummation of the transactions contemplated by this Agreement (whether
consummated or not) shall be deemed expenses of the Shareholders, the
Optionholders and H.I.G. Cayman.
13.03 WAIVER OF CERTAIN TRANSFER RESTRICTIONS AND TERMINATION OF
AGREEMENTS. (a) Concurrently with the Closing, the Company, the Shareholders and
the Optionholders hereby expressly waive all of their rights to purchase Shares
in connection with the transactions contemplated in this Agreement under (i) the
Stock Purchase and Option Agreements, set forth on the attached TERMINATING
AGREEMENTS SCHEDULE, (ii) the Company's By-laws and (iii) any other documents to
which they might be a party or pursuant to which they may have any such right.
Such Stock Purchase and Option Agreements shall terminate and be of no further
force and effect as of the Closing.
(b) Concurrently with the Closing, the Company, the Shareholders
and
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the Optionholders shall terminate all of the agreements (the "Terminating
Agreements") set forth on the attached TERMINATING AGREEMENTS SCHEDULE. Upon
termination, (i) such Terminating Agreements shall be of no further force and
effect, and (ii) each Shareholder and each Optionholder shall release and
discharge the Company and its stockholders, directors, officers, employees,
agents, representatives, Affiliates, successors and assigns, as the case may be,
from any and all claims arising as a result of, or in connection with, the
Terminating Agreements or the termination thereof, including any claims existing
under any Terminating Agreement prior to the date of its termination.
13.04 KNOWLEDGE DEFINED. For purposes of this Agreement, the term
"THE COMPANY'S KNOWLEDGE" as used herein shall mean the actual knowledge of
David Rascoe, Gary Petitclerc, Evan Kaffenes, Todd Rascoe, Brian Warren and
Brian Schwartz. With respect to any financial information relating to Best
Built, Inc., such term shall mean the actual knowledge of Evan Kaffenes after
due inquiry of Siri Strom, Brian Warren and Gary Petitclerc.
13.05 ASSIGNMENT OF CERTAIN RIGHTS. Each of the Shareholders
(other than Vinyl) and H.I.G. Cayman hereby transfers, conveys and assigns to
Buyer and the Company all of its rights to receive any endorsements necessary in
order for such Shareholder to become a bona fide purchaser with respect to
capital stock of Vinyl or the Company purchased by such Shareholder (other than
Vinyl) or H.I.G. Cayman prior to the date of this Agreement, which rights shall
be specifically enforceable by Buyer, Vinyl and/or the Company.
13.06 NOTICES. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when (a) personally
delivered, (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, (c)
one (1) business day after deposit with Federal Express or similar overnight
courier service or (d) five (5) days after being mailed by first class mail,
return receipt requested. Notices, demands and communications to Buyer, the
Company, the Shareholders the Optionholders and H.I.G. Cayman shall, unless
another address is specified in writing, be sent to the addresses indicated
below:
NOTICES TO BUYER:
Atrium Companies, Inc.
1341 W. Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
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Attn: Jeff L. Hull
Facsimile Number: (214) 630-5001
and
Atrium Companies, Inc.
c/o Ardshiel, Inc.
230 Park Avenue
New York, NY 10169
Attn: Daniel T. Morley
James G. Turner
Facsimile Number: (212) 972-1809
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022-4697
Attn: Joel M. Simon
Marie Censoplano
Facsimile Number: (212) 319-4090
NOTICES TO THE SHAREHOLDERS, THE OPTIONHOLDERS AND H.I.G. CAYMAN:
H.I.G. Vinyl, Inc.
c/o H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2310
Miami, Florida 33131
Attn: Anthony A. Tamer
Brian D. Schwartz
Facsimile Number: (305) 379-2013
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: James L. Learner, P.C.
E. Paul Quinn
Facsimile Number: (312) 861-2200
64
<PAGE>
David Roscoe
c/o Heat, Inc.
301 Brushton Avenue
Pittsburgh, Pennsylvania 15221
Facsimile Number: (412) 244-1891
and
Buchanon Ingersoll
One Oxford Centre
301 Grant Street
Pittsburgh, Pennsylvania 15219
Attn: Carl Cohen
Facsimile Number: (412) 562-1041
NOTICES TO THE COMPANY (PRIOR TO CLOSING):
Heat, Inc.
c/o H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2310
Miami, Florida 33131
Attn: Anthony A. Tamer
Brian D. Schwartz
Facsimile Number: (305) 379-2013
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: James L. Learner, P.C.
E. Paul Quinn
Facsimile Number: (312) 861-2200
NOTICES TO VINYL AND THE COMPANY (AFTER CLOSING):
Heat, Inc.
c/o Atrium Companies, Inc.
1341 W. Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Attn: Jeff L. Hull
Facsimile Number: (214) 630-5001
65
<PAGE>
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, NY 10022-4697
Attn: Joel M. Simon
Marie Censoplano
Facsimile Number: (212) 319-4090
13.07 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned or
delegated by either party without the prior written consent of all other
parties. Notwithstanding the foregoing, (a) Buyer may assign or delegate any or
all of its rights or obligations under this Agreement to any Affiliate of Buyer,
and (b) nothing in this Agreement shall limit Buyer's ability to make a
collateral assignment of its rights under this Agreement to any institutional
lender that provides funds to Buyer, without the consent of the Company, the
Shareholders, the Optionholders or H.I.G. Cayman; provided, however, that unless
written notice is given to the Company or to the Shareholder Representative (on
behalf of the Shareholders, the Optionholders and H.I.G. Cayman), that any such
collateral assignment has been foreclosed upon, the Company, the Shareholders,
the Optionholders and H.I.G. Cayman shall be entitled to deal exclusively with
Buyer as to any matters arising under this Agreement or the transactions
contemplated hereby. In the event of such an assignment the provisions of this
Agreement shall insure to the benefit of and be binding upon the assigns of
Buyer.
13.08 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
present or future applicable law, but if any provision of this Agreement is held
to 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 provision or the remaining provisions of this
Agreement.
13.09 NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
Person. The section headings herein have been inserted for convenience of
reference only and shall in no way modify or restrict the terms and provisions
hereof.
13.10 AMENDMENT AND WAIVER. Any provision of this Agreement or the
66
<PAGE>
Schedules or Exhibits hereto may be amended or waived only in writing signed by
Buyer, the Company and the Shareholder Representative (on behalf of the
Shareholders, the Optionholders and H.I.G. Cayman); PROVIDED, that any amendment
pursuant to which Buyer and certain members of Management agree that all or any
portion of Options held by Management shall not be purchased and acquired by
Buyer in exchange for the Per Option Purchase Price, may be entered into without
the consent of the Company, any Shareholder, any Optionholder or H.I.G. Cayman
(other than such members of Management) so long as such amendment does not
reduce the portion of the Aggregate Equity Price due to such Shareholder, such
Optionholder or H.I.G. Cayman at and after the Closing; PROVIDED FURTHER, that
if any amendment or waiver adversely affects any Shareholder or Optionholder in
any material respect that does not affect all other Shareholders or
Optionholders, such amendment or waiver shall require the consent of such
Shareholder or Optionholder. No waiver of any provision hereunder or any breach
or default thereof shall extend to or affect in any way any other provision or
prior or subsequent breach or default.
13.11 COMPLETE AGREEMENT. This Agreement and the documents
referred to herein (including the Confidentiality Agreement) contain the
complete agreement between the parties hereto and merge and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way,
including, without limitation, the Letter of Intent, dated March 1, 1999.
13.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
13.13 GOVERNING LAW. This Agreement and all matters relating to
the interpretation, construction, validity and enforcement of this Agreement
shall be governed by and construed in accordance with the domestic laws of the
State of New York without giving effect to any choice or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of laws of any jurisdiction other than the
State of New York. The parties hereto agree to submit to the personal and
exclusive jurisdiction of the state and federal courts serving Pittsburgh,
Pennsylvania with respect to the enforcement or interpretation of this Agreement
or the parties' obligations hereunder. Each party hereto irrevocably consents to
the service of any and all process in any action or proceeding by the mailing of
copies of such process by registered or certified mail to such party hereto to
serve legal process in any other manner permitted by law. 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
67
<PAGE>
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.
13.14 SCHEDULES AND EXHIBITS. All Schedules and Exhibits referred
to in this Agreement are intended to be and are hereby specifically made a part
of this Agreement.
13.15 SPECIFIC PERFORMANCE. The parties hereto recognize that in
the event the Company, the Shareholders, the Optionholders or H.I.G. Cayman
refuse to perform under the provisions of this Agreement, monetary damages will
not be adequate. Buyer shall therefore be entitled, in addition to any other
remedies which may be available, to obtain specific performance of the terms of
this Agreement. In the event of any action to enforce this Agreement
specifically, the Company, the Shareholders, the Optionholders and H.I.G. Cayman
hereby waive the defense that there is an adequate remedy at law.
* * * *
68
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
HEAT, INC. /s/
-------------------------
By
Its
H.I.G. INVESTMENT FUND, L.P., a Cayman
Island limited partnership (for purposes of
Article IX hereof)
By: H.I.G. PARTNERS, L.P., its general
partner
By: TAMINVEST CORPORATION, its /s/ ANTHONY TAMER
general partner -------------------------
By ANTHONY TAMER
Its
H.I.G. CAPITAL MANAGEMENT, INC., a /s/ ANTHONY TAMER
Delaware corporation (for purposes of -------------------------
Article IX hereof) By ANTHONY TAMER
Its
69
<PAGE>
H.I.G. VINYL, INC., a Cayman Island /s/ ANTHONY TAMER
corporation -------------------------
By ANTHONY TAMER
Its
ATRIUM COMPANIES, INC. /s/ DANIEL T. HORLEY
-------------------------
By DANIEL T. HORLEY
Its Chairman of the Boards
Directors
SHAREHOLDERS:
H.I.G. VINYL, INC., a Delaware corporation /s/
-------------------------
By
Its Chairman of the Boards
Directors
David Rascoe /s/ DAVID RASCOE
-------------------------
Todd Rascoe /s/ TODD RASCOE
-------------------------
Brian Warren /S/ BRIAN WARREN
-------------------------
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<PAGE>
OPTIONHOLDERS:
NATIONSCREDIT COMMERCIAL
CORPORATION
/s/ Elizabeth A. Burgess
-------------------------
By Elizabeth A. Burgess
Its Vice President
Emmett Barnes IV /S/ EMMETT BARNES
-------------------------
Kent W. Davis /S/ KENT W. DAVIS
-------------------------
Jay I. Deems /S/ JAY I. DEEMS
-------------------------
Evan Kaffenes /S/ EVAN KAFFENES
-------------------------
Steven L. Malis /S/ STEVEN L. MALIS
-------------------------
Duane Petitclerc /S/ DUANE PETITCLERC
-------------------------
Gary Petitclerc /S/ GARY PETITCLERC
-------------------------
Arthur J. Poland /S/ ARTHUR J. POLAND
-------------------------
David Rascoe /S/ DAVID RASCOE
-------------------------
Todd Rascoe /s/ TODD RASCOE
-------------------------
Dennis Siegel /S/ DENNIS SIEGEL
-------------------------
Siri Strom /S/ SIRI STROM
-------------------------
Brian Warren /S/ BRIAN WARREN
-------------------------
Hartmut U. Zaun /S/ HARTMUT U. ZAUN
-------------------------
71
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C> <C>
ARTICLE I PURCHASE AND SALE OF SHARES AND OPTIONS..................................................2
1.01 Aggregate Equity Price...................................................................2
1.02 Deposit..................................................................................2
1.03 Share Transactions.......................................................................2
1.04 Option Transactions......................................................................3
1.05 Escrow...................................................................................3
1.06 Aggregate Equity Price Adjustment........................................................4
1.07 The Closing..............................................................................5
ARTICLE II CONDITIONS TO CLOSING....................................................................7
2.01 Conditions to Buyer's Obligations........................................................7
2.02 Conditions to the Shareholders', the Optionholders' and H.I.G. Cayman's
Obligations.............................................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
SHAREHOLDER, EACH OPTIONHOLDER AND H.I.G. CAYMAN........................................12
3.01 Authority...............................................................................12
3.02 Execution and Delivery; Valid and Binding Agreement; Other Matters......................12
3.03 Ownership of Capital Stock of the Company...............................................12
3.04 Ownership of Vinyl Shares...............................................................13
3.05 Capitalization of Vinyl.................................................................14
3.06 Brokerage...............................................................................14
3.07 Vinyl...................................................................................14
3.08 H.I.G. Cayman...........................................................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................15
4.01 Organization, Standing and Corporate Power..............................................15
4.02 Subsidiaries............................................................................16
4.03 Authorization; No Breach; Valid and Binding Agreement...................................16
4.04 Capital Stock...........................................................................17
4.05 Financial Statements....................................................................18
4.06 Absence of Certain Developments.........................................................19
4.07 Title to Properties.....................................................................20
4.08 Tax Matters.............................................................................22
4.09 Contracts and Commitments...............................................................24
4.10 Intellectual Property...................................................................26
4.11 Litigation and Labor Matters............................................................26
4.12 Governmental Consents, etc..............................................................27
</TABLE>
72
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.13 Employees...............................................................................27
4.14 Insurance...............................................................................29
4.15 Compliance with Laws....................................................................30
4.16 Environmental Compliance and Conditions.................................................31
4.17 Affiliated Transactions.................................................................32
4.18 Brokerage...............................................................................32
4.19 Bank Accounts...........................................................................32
4.20 Undisclosed Liabilities.................................................................32
4.21 Change of Control Provisions............................................................33
4.22 Disclosure..............................................................................33
4.23 Year 2000...............................................................................33
4.24 Customers...............................................................................33
4.25 Relationship with General Electric Company..............................................33
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER.................................................34
5.01 Organization and Corporate Power........................................................34
5.02 Authorization; Valid and Binding Agreement..............................................34
5.03 No Breach...............................................................................34
5.04 Governmental Consents, etc..............................................................34
5.05 Litigation..............................................................................34
5.06 Brokerage...............................................................................35
5.07 Investment Representation...............................................................35
5.08 Financing...............................................................................35
ARTICLE VI COVENANTS OF THE COMPANY,THE SHAREHOLDERS, THE
OPTIONHOLDERS AND H.I.G. CAYMAN.........................................................35
6.01 Conduct of the Business.................................................................35
6.02 Access to Books and Records.............................................................37
6.03 Regulatory Filings......................................................................38
6.04 Conditions..............................................................................38
6.05 Exclusive Dealing.......................................................................38
6.06 Notification............................................................................38
6.07 Consents................................................................................39
6.08 Brokerage...............................................................................39
6.09 Interim Financial Statements............................................................39
6.10 Intellectual Property Matters...........................................................39
6.11 No Transfers............................................................................40
ARTICLE VII COVENANTS OF BUYER......................................................................40
7.01 Access to Books and Records.............................................................40
7.02 Notification............................................................................40
7.03 Director and Officer Liability and Indemnification......................................40
</TABLE>
73
<PAGE>
<TABLE>
<S> <C> <C> <C>
7.04 Regulatory Filings......................................................................41
7.05 Conditions..............................................................................41
7.06 Contact with Customers and Suppliers....................................................41
7.07 Bonuses.................................................................................41
ARTICLE VIII TERMINATION.............................................................................41
8.01 Termination.............................................................................41
8.02 Effect of Termination...................................................................43
ARTICLE IX INDEMNIFICATION.........................................................................44
9.01 Survival of Representations and Warranties..............................................44
9.02 Indemnification.........................................................................44
ARTICLE X SHAREHOLDER REPRESENTATIVE..............................................................49
10.01 Designation.............................................................................49
10.02 Authority...............................................................................49
10.03 Exculpation.............................................................................50
ARTICLE XI ADDITIONAL COVENANTS AND AGREEMENTS.....................................................51
11.01 Disclosure Generally....................................................................51
11.02 Acknowledgment by Buyer.................................................................51
11.03 Tax Matters.............................................................................52
11.04 Further Assurances......................................................................53
11.05 Other Matters Relating to Options.......................................................53
ARTICLE XII DEFINITIONS.............................................................................54
12.01 Definitions.............................................................................54
12.02 Cross-Reference of Other Definitions....................................................56
ARTICLE XIII MISCELLANEOUS...........................................................................58
13.01 Press Releases and Communications.......................................................58
13.02 Expenses................................................................................59
13.03 Waiver of Certain Transfer Restrictions and Termination of Agreements...................59
13.04 Knowledge Defined.......................................................................59
13.05 Assignment of Certain Rights............................................................59
13.06 Notices.................................................................................60
13.07 Assignment..............................................................................62
13.08 Severability............................................................................63
13.09 No Strict Construction..................................................................63
13.10 Amendment and Waiver....................................................................63
13.11 Complete Agreement......................................................................64
13.12 Counterparts............................................................................64
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C> <C>
13.13 Governing Law...........................................................................64
13.14 Schedules and Exhibits..................................................................64
13.15 Specific Performance....................................................................64
</TABLE>
75
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Escrow Agreement
Exhibit B Financing Letter
Exhibit C Certificates of Vinyl, the Company and the Shareholder Representative
Exhibit D Opinions of Counsel to the Company, Vinyl and H.I.G. Cayman
Exhibit E FIRPTA Certificates
Exhibit F Certificate of Buyer
Exhibit G Settlement Agreement
</TABLE>
76
<PAGE>
SCHEDULES
Affiliated Transactions
Authorization
Bank Accounts
Buyer Consents
Capital Stock
Contracts
Developments
Employee Benefits
Environmental Compliance
Financial Statements
Governmental Consents
Indebtedness
Insurance
Intellectual Property
Liabilities
Liens
Litigation
Optionholders
Organization
Personal Property
Real Property
Seller Consents Schedule
Shareholders
Subsidiary
Taxes
Terminating Agreements
Third-Party Consents
Updated
77
<PAGE>
Exhibit 2.7
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this
"Amendment") is made as of May 17, 1999, among Atrium Companies, Inc., a
Delaware corporation ("BUYER"), and David Rascoe, Todd Rascoe, Brian Warren,
Gary Petitclerc and Evan Kaffenes (collectively, the "ROLLING OPTIONHOLDERS").
RECITALS
WHEREAS, Heat, Inc. ("HEAT"), its Shareholders and Optionholders
(including the Rolling Optionholders), H.I.G. Vinyl, Inc., a Cayman Island
corporation, H.I.G. Investment Fund, L.P., a Cayman Island limited partnership,
H.I.G. Capital Management, Inc., a Delaware corporation and Buyer, have entered
into that certain Stock Purchase Agreement, dated April 20, 1999 (the "STOCK
PURCHASE AGREEMENT"), pursuant to which Buyer will acquire all of the issued and
outstanding capital stock and options of Heat and H.I.G. Vinyl, Inc., a Delaware
corporation, which includes the options (the "Heat Options") to acquire shares
of Heat's Class A Common Stock, par value $.01 per share (the "HEAT COMMON
STOCK"), held by the Rolling Optionholders.
WHEREAS, Section 11.05 and Section 13.10 of the Stock Purchase
Agreement contemplate that the Stock Purchase Agreement may be amended solely by
the parties hereto to provide that some or all of the Heat Options held by the
Rolling Optionholders may be exchanged for options (the "D&W OPTIONS") to
purchase common stock, par value $0.01 per share, of D and W Holdings, Inc., a
Delaware corporation and the ultimate parent company of Buyer ("D&W"), rather
than cash.
WHEREAS, the parties hereto have determined that it is in their
best interests to amend the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
agreements and covenants set forth herein and in the Stock Purchase Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending legally to be bound,
agree as follows:
1. DEFINED TERMS. Capitalized terms used and not defined herein
shall have the respective meanings ascribed to them in the Stock Purchase
Agreement.
<PAGE>
2. AMENDMENT AND ACKNOWLEDGMENT TO STOCK PURCHASE AGREEMENT.
(a) The first sentence of Section 1.01 of the Stock Purchase
Agreement shall be deleted in its entirety and replaced with the following:
THE AGGREGATE CONSIDERATION TO BE DELIVERED BY BUYER SHALL BE (I) AN
AMOUNT IN CASH EQUAL TO (A) THE AGGREGATE EQUITY PRICE MINUS (B) THE
AGGREGATE ROLLED AMOUNT, AND (II) SECURITIES TO BE DELIVERED TO ROLLING
OPTIONHOLDERS, REPRESENTING THE AGGREGATE ROLLED AMOUNT.
(b) Section 1.04(a) shall be deleted in its entirety and replaced
with the following:
THE PURCHASE PRICE FOR EACH OF THE ISSUED AND OUTSTANDING OPTIONS FROM
THE OPTIONHOLDERS SHALL BE AN AMOUNT, IN CASH OR, IN THE CASE OF
ROLLING OPTIONHOLDERS, SECURITIES, EQUAL TO THE PER SHARE PURCHASE
PRICE MINUS THE EXERCISE PRICE FOR SUCH OPTION (THE "PER OPTION
PURCHASE PRICE").
(c) Section 1.07(b)(i) shall be deleted in its entirety and
replaced with the following:
BUYER SHALL (A) DELIVER TO THE SHAREHOLDER REPRESENTATIVE (ON BEHALF OF
THE SHAREHOLDERS (OTHER THAN VINYL), THE OPTIONHOLDERS (OTHER THAN THE
ROLLING OPTIONHOLDERS IN RESPECT OF ANY ROLLED AMOUNTS) AND H.I.G.
CAYMAN) AN AMOUNT IN CASH EQUAL TO THE ESTIMATED AGGREGATE EQUITY PRICE
DETERMINED PURSUANT TO SECTION 1.06(A), MINUS THE DEPOSIT AND THE
DEPOSIT INTEREST, BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS TO
THE ACCOUNT DESIGNATED BY THE SHAREHOLDER REPRESENTATIVE TO BUYER PRIOR
TO THE CLOSING, AND (B) DELIVER TO THE ROLLING OPTIONHOLDERS SECURITIES
REPRESENTING THEIR RELEVANT ROLLED AMOUNTS, AS DESCRIBED IN SECTION
2(E) OF AMENDMENT NO. 1.
(d) Section 5.08 shall be deleted in its entirety and replaced
with the following:
TO THE EXTENT BUYER HAS OBTAINED THE DEBT FINANCING DESCRIBED IN THE
FINANCING LETTER, BUYER HAS, AND SHALL HAVE AT THE CLOSING, SUFFICIENT
CASH AND AVAILABLE CREDIT FACILITIES (AND HAS PROVIDED EVIDENCE THEREOF
SATISFACTORY TO THE SHAREHOLDER REPRESENTATIVE), TO PAY THE FULL
CONSIDERATION PAYABLE TO THE SHAREHOLDERS (OTHER THAN VINYL), THE
OPTIONHOLDERS AND H.I.G. CAYMAN HEREUNDER, TO MAKE ALL OTHER NECESSARY
PAYMENTS BY IT IN CONNECTION WITH THE PURCHASE OF THE SHARES, THE VINYL
SHARES AND THE OPTIONS AND TO PAY ALL OF ITS
2
<PAGE>
RELATED FEES AND EXPENSES; PROVIDED HOWEVER, THAT, IN DETERMINING SUCH
SUFFICIENCY, THE AGGREGATE ROLLED AMOUNT SHALL BE EXCLUDED FROM THE
CALCULATION OF CONSIDERATION PAYABLE, SO LONG AS SUCH AGGREGATE ROLLED
AMOUNT IS PAID FOR WITH THE ISSUANCE OF SECURITIES.
(e) Each Rolling Optionholder acknowledges and agrees that,
notwithstanding the provisions of Section 1.04 of the Stock Purchase Agreement:
(i) such Rolling Optionholder will not be eligible to
receive a portion of the Aggregate Equity Price in cash from Buyer in
the manner set forth in Section 1.04 of the Stock Purchase Agreement in
exchange for the Options set forth beside such Rolling Optionholder's
name on EXHIBIT A hereto (the "Rolled Options"); and
(ii) to the extent that such Rolling Optionholder is not
eligible to receive a portion of the Aggregate Equity Price in cash
from Buyer as contemplated by Section 1(b)(i) of this Amendment, such
Rolling Optionholder shall receive D&W Options, as set forth in, and
subject to the terms and conditions of, the D and W Holdings, Inc.
Replacement Stock Option Plan and the Replacement Stock Option
Agreement to be entered into by and between D&W and such Rolling
Optionholder.
3. DEFINITIONS. Section 12.01 of the Stock Purchase Agreement
shall be amended by inserting the following new defined terms in the appropriate
alphabetical order:
"AGGREGATE EQUITY PRICE" shall be an amount equal to (a)
$85,000,000 PLUS (b) the aggregate amount of cash and cash equivalents
held by the Company as of the Closing Date (the "CLOSING CASH") MINUS
(c) the outstanding amount of the Indebtedness as of the Closing to be
paid by Buyer pursuant to Section 1.07(b)(v) (the "CLOSING DEBT") MINUS
(d) the Escrow Amount MINUS (e) $32,500, which represents the cash
amount of the Special Bonus Awards granted pursuant to the letters
dated February 12, 1999 to Thomas Warren, Michael Lane and Gerald Fiano
(collectively, the "Bonuses") MINUS (f) the outstanding amount of
capitalized lease obligations as of the Closing Date (the "CAPITALIZED
LEASE OBLIGATIONS") MINUS (g) any outstanding amounts owed in
connection with any agreements with Computer Associates International,
Inc., to the extent such obligations are not paid in full, as of the
Closing Date (the "OUTSTANDING COMPUTER ASSOCIATES DEBT").
"AGGREGATE ROLLED AMOUNT" means the aggregate Rolled Amounts
of all Rolling Optionholders.
3
<PAGE>
"AMENDMENT NO.1" means the First Amendment to Stock Purchase
Agreement, dated as of May 17, 1999, by and among Buyer and the
individuals set forth therein.
"ROLLED AMOUNT" means, with respect to each Rolling Optionholder,
the amount equal to the product obtained when the number of shares of
Heat Class A Stock issuable upon the exercise of Rolled Options
immediately prior to the Closing Date, whether at or upon the passage
of time or the occurrence of future events, is multiplied by an amount
equal to the Per Option Purchase Price of such Rolled Option.
"ROLLING OPTIONHOLDER" has the meaning set forth in the
preamble of Amendment No. 1.
4. FURTHER ASSURANCES. From time to time, as and when requested
by any party hereto and at such party's expense, either before or after the
Closing, any other party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other party may reasonably deem
necessary or desirable to evidence and effectuate the transactions contemplated
by this Amendment.
5. AMENDMENT AND WAIVER. Any provision of this Amendment or the
Exhibits hereto may be amended or waived only in writing signed by Buyer and the
other parties hereto; provided, that if any amendment or waiver adversely
affects any party hereto in any material respect that does not affect all other
parties hereto, such amendment or waiver shall require the consent of the first
party. No waiver of any provision hereunder or any breach or default thereof
shall extend to or affect in any way any other provision or prior or subsequent
breach or default. The Stock Purchase Agreement, as amended hereby, is hereby
ratified and confirmed in all respects and shall continue in full force and
effect.
6. SEVERABILITY. Whenever possible, each provision of this
Amendment shall be interpreted in such manner as to be effective and valid under
present or future applicable law, but if any provision of this Amendment is held
to 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 provision or the remaining provisions of this
Amendment.
7. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
4
<PAGE>
8. COMPLETE AGREEMENT. This Amendment, the Stock Purchase
Agreement, and the documents referred to therein (including the Confidentiality
Agreement) contain the complete agreement between the parties hereto and merge
and supersede any prior understandings, agreements or representations by or
between the parties, written or oral, which may have related to the subject
matter hereof in any way, including, without limitation, the Letter of Intent,
dated March 1, 1999.
9. GOVERNING LAW. This Amendment and all matters relating to the
interpretation, construction, validity and enforcement of this Amendment shall
be governed by and construed in accordance with the domestic laws of the State
of New York without giving effect to any choice or conflict of law provision or
rule (whether of the State of New York or any other jurisdiction) that would
cause the application of laws of any jurisdiction other than the State of New
York. The parties hereto agree to submit to the personal and exclusive
jurisdiction of the state and federal courts serving Pittsburgh, Pennsylvania
with respect to the enforcement or interpretation of this Amendment or the
parties' obligations hereunder. Each party hereto irrevocably consents to the
service of any and all process in any action or proceeding by the mailing of
copies of such process by registered or certified mail to such party hereto to
serve legal process in any other manner permitted by law. 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.
10. ASSIGNMENT. This Amendment and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Amendment
nor any of the rights, interests or obligations hereunder may be assigned or
delegated by either party without the prior written consent of all other
parties. Notwithstanding the foregoing, (a) Buyer may assign or delegate any or
all of its rights or obligations under this Amendment to any Affiliate of Buyer,
and (b) nothing in this Agreement shall limit Buyer's ability to make a
collateral assignment of its rights under this Amendment to any institutional
lender that provides funds to Buyer, without the consent of the other parties
hereto; provided, however, that unless written notice is given to the other
parties hereto, that any such collateral assignment has been foreclosed upon,
such other parties shall be entitled to deal exclusively with Buyer as to any
matters arising under this Amendment or the transactions contemplated by this
Amendment. In the event of such an assignment, the provisions of this Amendment
shall insure to the benefit of, and be binding upon, the assigns of Buyer.
11. NO STRICT CONSTRUCTION. The language used in this Amendment
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
Person. The section headings
5
<PAGE>
herein have been inserted for convenience of reference only and shall in no way
modify or restrict the terms and provisions hereof.
12. EXHIBITS. All Exhibits referred to in this Amendment are
intended to be and are hereby specifically made a part of this Amendment.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date and year first above written.
ATRIUM COMPANIES, INC.
By: /s/ JEFF L. HULL
-----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ROLLING OPTIONHOLDERS:
/s/ DAVID RASCOE
---------------------------------------
David Rascoe
/s/ TODD RASCOE
---------------------------------------
Todd Rascoe
/s/ BRIAN WARREN
---------------------------------------
Brian Warren
/s/ GARY PETITCLERC
---------------------------------------
Gary Petitclerc
/S/ EVAN KAFFENES
---------------------------------------
Evan Kaffenes
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Rolled Replacement
Name Heat Options D&W Options
---- ------------ -----------
<S> <C> <C>
DAVID RASCOE 8,062 319,149
TODD RASCOE 4,031 159,574
BRIAN WARREN 2,567 63,830
GARY PETITCLERC 1,612 79,787
EVAN KAFFENES 4,459*/ 53,191
</TABLE>
- ----------
*/ With an exercise price of $30.00
<PAGE>
Exhibit 4.1
ATRIUM COMPANIES, INC.,
as Issuer
THE GUARANTORS named herein,
as Guarantors
and
STATE STREET BANK AND TRUST COMPANY,
as Trustee
---------------------
INDENTURE
Dated as of May 17, 1999
--------------------
$175,000,000
10 1/2% Senior Subordinated Notes due 2009, Series A
10 1/2% Senior Subordinated Notes due 2009, Series B
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
----------- -------
<S> <C>
Section 310(a)(1) 6.09
(a)(2) 6.09
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 6.08, 6.10
Section 311(a) 6.13
(b) 6.13
(c) Not Applicable
Section 312(a) 3.06, 7.01
(b) 7.02
(c) 7.02
Section 313(a) 7.03
(b) 7.03
(c) 7.03
(d) 7.03
Section 314(a) 10.10
(a)(4) 10.13
(b) Not Applicable
(c)(1) 1.04, 4.04, 12.05
(c)(2) 1.04, 4.04, 12.04
(c)(3) Not Applicable
(d) Not Applicable
(e) 1.04
Section 315(a) 6.01(a)
(b) 6.02
(c) 6.01(b)
(d) 6.01(c)
(e) 5.14
Section 316(a)(last sentence) Not Applicable
(a)(1)(A) 5.12
(a)(1)(B) 5.13
(a)(2) Not Applicable
(b) 5.08
(c) 9.07
Section 317(a)(1) 5.03
(a)(2) 5.04
(b) 10.03
Section 318(a) 1.08
</TABLE>
- -------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed a part of
the Indenture.
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
PARTIES. 1
RECITALS. 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions. 2
Section 1.02. Other Definitions. 30
Section 1.03. Rules of Construction. 30
Section 1.04. Form of Documents Delivered to Trustee. 31
Section 1.05. Acts of Holders. 32
Section 1.06. Notices, etc., to the Trustee, the Company and the Guarantors. 32
Section 1.07. Notice to Holders; Waiver. 33
Section 1.08. Conflict with Trust Indenture Act. 33
Section 1.09. Effect of Headings and Table of Contents. 34
Section 1.10. Successors and Assigns. 34
Section 1.11. Separability Clause. 34
Section 1.12. Benefits of Indenture. 34
Section 1.13. GOVERNING LAW. 34
Section 1.14. No Recourse Against Others. 34
Section 1.15. Independence of Covenants. 35
Section 1.16. Exhibits. 35
Section 1.17. Counterparts. 35
Section 1.18. Duplicate Originals. 35
ARTICLE TWO
NOTE AND GUARANTEE FORMS
Section 2.01. Form and Dating. 35
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms. 36
Section 3.02. Optional Redemption. 37
Section 3.03. Registrar and Paying Agent. 37
</TABLE>
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<TABLE>
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Section 3.04. Execution and Authentication. 37
Section 3.05. Temporary Notes. 39
Section 3.06. Transfer and Exchange. 39
Section 3.07. Mutilated, Destroyed, Lost and Stolen Notes. 40
Section 3.08. Payment of Interest; Interest Rights Preserved. 41
Section 3.09. Persons Deemed Owners. 42
Section 3.10. Cancellation. 43
Section 3.11. Legal Holidays. 43
Section 3.12. CUSIP and CINS Numbers. 44
Section 3.13. Paying Agent To Hold Money in Trust. 44
Section 3.14. [Intentionally Omitted]. 44
Section 3.15. Deposits of Monies. 44
Section 3.16. Book-Entry Provisions for Global Notes. 45
Section 3.17. Special Transfer Provisions. 46
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant Defeasance. 49
Section 4.02. Defeasance and Discharge. 49
Section 4.03. Covenant Defeasance. 50
Section 4.04. Conditions to Defeasance or Covenant Defeasance. 50
Section 4.05. Deposited Money and U.S. Government Obligations To Be Held in
Trust; Other Miscellaneous Provisions. 53
Section 4.06. Reinstatement. 53
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default. 54
Section 5.02. Acceleration of Maturity; Rescission and Annulment. 56
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee. 57
Section 5.04. Trustee May File Proofs of Claims. 57
Section 5.05. Trustee May Enforce Claims Without Possession of Notes. 58
Section 5.06. Application of Money Collected. 59
Section 5.07. Limitation on Suits. 59
Section 5.08. Unconditional Right of Holders To Receive Principal, Premium
and Interest. 60
</TABLE>
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<PAGE>
<TABLE>
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Section 5.09. Restoration of Rights and Remedies. 60
Section 5.10. Rights and Remedies Cumulative. 60
Section 5.11. Delay or Omission Not Waiver. 61
Section 5.12. Control by Majority. 61
Section 5.13. Waiver of Past Defaults. 61
Section 5.14. Undertaking for Costs. 62
Section 5.15. Waiver of Stay, Extension or Usury Laws. 62
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities. 63
Section 6.02. Notice of Defaults. 63
Section 6.03. Certain Rights of Trustee. 64
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes or
Application of Proceeds Thereof. 65
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc. 65
Section 6.06. Money Held in Trust.66
Section 6.07. Compensation and Indemnification of Trustee and Its Prior Claim. 66
Section 6.08. Conflicting Interests. 67
Section 6.09. Corporate Trustee Required; Eligibility. 67
Section 6.10. Resignation and Removal; Appointment of Successor Trustee. 67
Section 6.11. Acceptance of Appointment by Successor. 69
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or Succession
to Business. 69
Section 6.13. Preferential Collection of Claims Against Company and Guarantors. 70
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish Trustee Names and
Addresses of Holders. 70
Section 7.02. Communications of Holders. 71
Section 7.03. Reports by Trustee. 71
ARTICLE EIGHT
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms. 71
Section 8.02. Successor Substituted. 73
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers Without Consent
of Holders. 74
Section 9.02. Supplemental Indentures, Agreements and Waivers with Consent
of Holders. 75
Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers. 76
Section 9.04. Effect of Supplemental Indentures. 77
Section 9.05. Conformity with Trust Indenture Act. 77
Section 9.06. Reference in Notes to Supplemental Indentures. 77
Section 9.07. Record Date. 77
Section 9.08. Revocation and Effect of Consents. 78
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest. 78
Section 10.02. Maintenance of Office or Agency. 78
Section 10.03. Money for Note Payments To Be Held in Trust. 79
Section 10.04. Corporate Existence. 80
Section 10.05. Payment of Taxes and Other Claims. 81
Section 10.06. Maintenance of Properties. 81
Section 10.07. Insurance. 81
Section 10.08. Books and Records. 82
Section 10.09. Guarantees. 82
Section 10.10. Provision of Financial Statements. 82
Section 10.11. Change of Control. 83
Section 10.12. Limitation on Indebtedness. 85
Section 10.13. Statement by Officers as to Default. 86
Section 10.14. Limitation on Restricted Payments. 87
Section 10.15. Limitation on Transactions with Affiliates. 91
Section 10.16. Limitation on Sale of Assets. 92
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Section 10.17. Limitation on Liens. 96
Section 10.18. Limitation on Incurrence of Senior Subordinated Indebtedness. 97
Section 10.19. Limitation on Sale of Capital Stock of Restricted Subsidiaries. 97
Section 10.20. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. 97
Section 10.21. [Intentionally Omitted]. 99
Section 10.22. Limitations on Guarantees by Restricted Subsidiaries. 99
Section 10.23. Compliance Certificates and Opinions. 99
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture. 100
Section 11.02. Application of Trust Money. 101
ARTICLE TWELVE
GUARANTEE OF NOTES
Section 12.01. Unconditional Guarantee. 102
Section 12.02. Subordination of Guarantees. 103
Section 12.03. Execution and Delivery of Guarantee. 103
Section 12.04. Additional Guarantors. 104
Section 12.05. Release of a Guarantor. 104
Section 12.06. Waiver of Subrogation. 105
Section 12.07. Reliance on Judicial Order or Certificate of Liquidating Agent
Regarding Dissolution, etc. of Guarantors. 105
Section 12.08. Article Twelve Applicable to Paying Agents. 106
Section 12.09. No Suspension of Remedies. 106
Section 12.10. Limitation of Guarantor's Liability. 106
Section 12.11. Contribution from Other Guarantors. 106
Section 12.12. Obligations Reinstated. 107
Section 12.13. No Obligation To Take Action Against the Company. 107
Section 12.14. Dealing with the Company and Others. 107
ARTICLE THIRTEEN
REDEMPTIONS AND OFFERS TO PURCHASE
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Section 13.01. Notice to Trustee. 108
Section 13.02. Selection of Notes To Be Redeemed or Purchased. 109
Section 13.03. Notice of Redemption. 109
Section 13.04. Effect of Notice of Redemption. 110
Section 13.05. Deposit of Redemption Price. 110
Section 13.06. Notes Redeemed in Part. 111
Section 13.07. Optional Redemption. 111
Section 13.08. Procedures Relating to Mandatory Offers. 112
ARTICLE FOURTEEN
SUBORDINATION
Section 14.01. Agreement to Subordinate. 114
Section 14.02. Liquidation; Dissolution; Bankruptcy. 114
Section 14.03. Default on Designated Senior Indebtedness. 115
Section 14.04. Acceleration of Notes. 116
Section 14.05. When Distributions Must Be Paid Over. 116
Section 14.06. Notice. 117
Section 14.07. Subrogation. 117
Section 14.08. Relative Rights. 118
Section 14.09. The Company, the Guarantors and Holders May Not Impair
Subordination. 118
Section 14.10. Distribution or Notice to Representative. 119
Section 14.11. Rights of Trustee and Paying Agent. 120
Section 14.12. Authorization To Effect Subordination. 120
Section 14.13. Payment. 120
Section 14.14. Trust Moneys Not Subordinated; Permitted Junior Securities. 121
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C>
Exhibit A-1 - Form of Series A Note
Exhibit A-2 - Form of Series B Note
Exhibit B - Form of Legend for Book-Entry Securities
Exhibit C - Form of Certificate To Be Delivered in Connection with
Transfers Pursuant to Regulation S
Exhibit D - Form of Guarantee
Exhibit E - Registration Rights Agreement
</TABLE>
- ----------
Note: This Table of Contents shall not, for any purpose, be deemed a part of the
Indenture.
-9-
<PAGE>
INDENTURE, dated as of May 17, 1999, among ATRIUM COMPANIES,
INC., a Delaware corporation (the "Company"), as issuer, the GUARANTORS NAMED
HEREIN, as guarantors (the "Guarantors"), and STATE STREET BANK AND TRUST
COMPANY, as trustee (the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of
(i) 10 1/2% Senior Subordinated Notes due 2009, Series A (the "Initial Notes")
and (ii) 10 1/2% Senior Subordinated Notes due 2009, Series B (the "Exchange
Notes") to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement (as defined herein). The Initial Notes, the
Exchange Notes and the Private Exchange Notes (as defined herein), if any, are
collectively referred to as the "Notes" and are treated as a single class of
securities under this Indenture. To provide therefor, the Company has duly
authorized the execution and delivery of this Indenture.
The Guarantors have duly authorized their senior subordinated
guarantees of the Notes and to provide therefor, the Guarantors have duly
authorized the execution and delivery of this Indenture and their Guarantees (as
defined herein) under the terms set forth herein.
All things necessary have been done to make the Notes and the
Guarantees, when executed by the Company and the Guarantors, respectively, and
authenticated and delivered hereunder and duly issued by the Company and the
Guarantors, respectively, the valid obligations of the Company and the
Guarantors and to make this Indenture a valid agreement of each of the Company,
the Guarantors and the Trustee in accordance with the terms hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders (as hereinafter defined) of the
Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. DEFINITIONS.
"ADDITIONAL ASSETS" means (i) any property or assets (other
than Indebtedness
-10-
<PAGE>
and Capital Stock) in a Related Business; (ii) the Capital Stock of a Person
that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by the Company or a Restricted Subsidiary of the Company; (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of the Company; or (iv) Permitted Investments of the
type and in the amounts described in clause (viii) of the definition thereof;
PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such Restricted
Subsidiary is primarily engaged in a Related Business.
"ADJUSTED NET ASSETS" of a Guarantor at any date shall mean
the lesser of the amount by which (x) the fair value of the property of such
Guarantor exceeds the total amount of liabilities, including, without
limitation, the probable liability of such Guarantor with respect to its
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Guarantee of such Guarantor at such date, and (y) the present fair salable
value of the assets of such Guarantor at such date exceeds the amount that will
be required to pay the probable liability of such Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Restricted
Subsidiary by such Guarantor in respect of the obligations of such Restricted
Subsidiary under the Guarantee), excluding debt in respect of the Guarantee, as
they become absolute and matured.
"AFFILIATE" of any specified Person means (i) any other
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns 10% or more of any class of Capital Stock of the specified Person. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For avoidance of doubt, Ardshiel is an "Affiliate"
of the Company on the Issue Date based on its contractual rights to direct the
management and policies of the Company.
"AFFILIATE TRANSACTION" has the meaning set forth under
Section 10.15.
"ARDSHIEL" means Ardshiel, Inc.
"ASSET ACQUISITION" means (i) an Investment by the Company or
any Restricted Subsidiary in any other Person pursuant to which such Person will
become a Restricted Subsidiary or will be merged or consolidated with or into
the Company or any Restricted Subsidiary or (ii) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute
substantially all of the assets of such Person or
-11-
<PAGE>
any division or line of business of such Person.
"ASSET DISPOSITION" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of
(or other equity interests in) a Restricted Subsidiary (other than directors'
qualifying shares), or of any other property or other assets (each referred to
for the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) a disposition of obsolete or worn out
equipment or equipment that is no longer used or useful in the conduct of the
business of the Company and its Restricted Subsidiaries and that is disposed of
in each case in the ordinary course of business, (iv) dispositions of property
for net proceeds which, when taken collectively with the net proceeds of any
other such dispositions under this clause (iv) that were consummated since the
beginning of the fiscal year in which such disposition is consummated, do not
exceed $1.0 million, and (v) transactions permitted by Section 8.01 and the
creation of any Lien not prohibited by Section 10.17. Notwithstanding anything
to the contrary contained above, a Restricted Payment or other payment or
Investment made in compliance with Section 10.14 shall not constitute an Asset
Disposition except for purposes of determination of the Consolidated Coverage
Ratio.
"ATRIUM HOLDINGS" means Atrium Corporation, a Delaware
corporation and the owner on the date hereof of all the outstanding capital
stock of the Company, and its successors.
"ATRIUM HOLDINGS DISCOUNT NOTES" means the 12% Senior
Discount Debentures Due 2010 of Atrium Holdings, having an aggregate principal
amount at maturity of $80,562,000 as of the Issue Date.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale/Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Notes, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the sum of
the products of (a) the numbers of years (rounded upwards to the nearest month)
from the date of determination to the dates of each successive scheduled
principal payment of such Indebtedness or
-12-
<PAGE>
redemption multiplied by (b) the amount of such payment by (ii) the sum of all
such payments.
"BANKRUPTCY LAW" means Title 11, United States Code or any
similar federal or state law relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or the law of any
other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"BANKRUPTCY ORDER" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation,
receivership, winding-up, dissolution, "concordate" or reorganization, or
appointing a Custodian of a debtor or of all or any substantial part of a
debtor's property, or providing for the staying, arrangement, adjustment or
composition of indebtedness or other relief of a debtor.
"BOARD OF DIRECTORS" means the board of directors of the
Company or any Guarantor, as the case may be, or any duly authorized committee
of such board.
"BOARD RESOLUTION" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company or any Guarantor, as the
case may be, to have been duly adopted by its respective Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in The City
of New York or a place of payment are authorized or obligated by law, regulation
or executive order to close.
"CAPITAL STOCK" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"CAPITALIZED LEASE OBLIGATIONS" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"CASH EQUIVALENTS" means any of the following: (i) any
Investment in direct
-13-
<PAGE>
obligations of the United States of America or any agency thereof or obligations
guaranteed by the United States of America or any agency thereof, (ii)
Investments in time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America having capital surplus and undivided profits aggregating in
excess of $250.0 million (or the foreign currency equivalent thereof) and whose
long-term debt, or whose parent holding company's long term debt, is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act), (iii) repurchase obligations with A term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) Investments in commercial paper, maturing not more than 180 days
after the date of acquisition, issued by A corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Group, (v) Investments in 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-2" by Standard & Poor's Ratings Group or "A" by Moody's Investors
Service, Inc. and (vi) Investments in mutual funds whose investment guidelines
restrict such funds' investments to those satisfying the provisions of any or
all of clauses (i) through (v) above.
"CEDEL" means Cedel Bank, Societe anonyme.
"CHANGE OF CONTROL" means the occurrence of any of the
following events (whether or not approved by the Board of Directors of Parent,
Atrium Holdings or the Company):
(i) the Company consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any
Person, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged
for cash, securities or other property, other than any such transaction
where (a) the outstanding Voting Stock of the Company is converted into
or exchanged for (1) Voting Stock of the surviving or transferee
corporation or its parent corporation and/or (2) cash, securities and
other property in an amount which could be paid by the Company as a
Restricted Payment under this Indenture and (b) immediately
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<PAGE>
after such transaction no "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of more than 50% of
the total voting power of the then outstanding Voting Stock of the
surviving or transferee corporation, as applicable;
(iii) a majority of the Board of Directors of the Company (but
not a committee thereof) shall consist of Persons who are not
Continuing Directors of the Company; or
(iv) (a) prior to the consummation of an Initial Public
Offering, the Permitted Holders fail to collectively beneficially own
(within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, at least a majority of the total voting power
of then outstanding Voting Stock of the Company or fail to have the
ability to appoint a majority of the Board of Directors of the Company
or (b) at or after the consummation of an Initial Public Offering, (1)
any Person or Group (other than the Permitted Holders) shall (A)
beneficially own (within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, more than 50% of the total
voting power of the then outstanding Voting Stock of the Company or (B)
have the right or power to appoint, directly or indirectly, a majority
of the Board of Directors of the Company.
PROVIDED that any Person or group shall be deemed to beneficially own any Voting
Stock 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 then outstanding Voting Stock 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.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, or if at any time after the execution of this
Indenture such Commission is not existing and performing the applicable duties
now assigned to it, then the body or bodies performing such duties at such time.
"COMMODITY AGREEMENT" means any commodity future contract,
commodity option or other similar agreement or arrangement entered into by the
Company or any Restricted Subsidiary that is designed to protect the Company or
any Restricted Subsidiary against fluctuations in the price of commodities used
by the Company or a Restricted Subsidiary as raw materials in the ordinary
course of business.
"COMPANY" means the Person named as the "Company" in the
first paragraph of this Indenture, until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such
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successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request
or order signed in the name of the Company by any one of its Chief Executive
Officer, its President or an Executive Vice President or a Vice President, and
by its Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer or its chief financial officer, and delivered to the Trustee.
"CONSOLIDATED CASH FLOW" for any period means the
Consolidated Net Income for such period, plus the following to the extent
deducted in calculating such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense, (v) exchange or translation losses on foreign currencies,
and (vi) all other noncash items reducing Consolidated Net Income (excluding any
noncash item to the extent it represents an accrual of or reserve for cash
disbursements for any subsequent period prior to the Stated Maturity of the
Notes) and less, to the extent added in calculating Consolidated Net Income, (x)
exchange or translation gains on foreign currencies, (y) noncash items
(excluding such noncash items to the extent they represent an accrual for cash
receipts reasonably expected to be received prior to the Stated Maturity of the
Notes) and (z) dividends or distributions paid pursuant to clause (iv) under
Section 10.14(b), in each case for such period. Notwithstanding the foregoing,
the income tax expense, depreciation expense and amortization expense of a
Subsidiary of the Company shall be included in Consolidated Cash Flow only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income. For any period for which
Consolidated Cash Flow is being measured that includes the fiscal quarter ended
March 31, 1999, severance payments made during such fiscal quarter in an amount
not to exceed $1.8 million shall be added back to Consolidated Cash Flow to the
extent deducted in the calculation thereof.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination and as to which financial statements are available to
(ii) Consolidated Interest Expense for such four fiscal quarters; PROVIDED,
HOWEVER, that (1) if the Company or any of the Restricted Subsidiaries has
Incurred any Indebtedness since the beginning of such period through the date of
determination of the Consolidated Coverage Ratio that remains outstanding or if
the transaction giving rise to the need to calculate Consolidated Coverage Ratio
is an incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a PRO FORMA basis to (A) such Indebtedness (other than Indebtedness
incurred pursuant to the Section 10.12(b) on the date of determination) as if
such Indebtedness had been Incurred on the first day of such period (PROVIDED
that, if such Indebtedness is Incurred under a revolving credit facility
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(or similar arrangement or under any predecessor revolving credit or similar
arrangement), only that portion of such Indebtedness that constitutes the one
year projected average balance of such Indebtedness (as determined in good faith
by senior management of the Company) shall be deemed outstanding for purposes of
this calculation) and (B) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(2) if since the beginning of such period any Indebtedness of the Company or any
of the Restricted Subsidiaries has been repaid, repurchased, defeased or
otherwise discharged (other than Indebtedness under a revolving credit or
similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced), Consolidated Interest Expense for
such period shall be calculated after giving PRO FORMA effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period, (3) if since the beginning of such period the
Company or any of its Restricted Subsidiaries shall have made any Asset
Disposition or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Asset Disposition, Consolidated Cash Flow for
such period shall be reduced by an amount equal to the Consolidated Cash Flow
(if positive) attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the Consolidated
Cash Flow (if negative) attributable thereto for such period, and Consolidated
Interest Expense for such period shall be (i) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of the Company or
any of the Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary of the Company is sold,
transferred or otherwise disposed of, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and the continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale, transfer or other
disposition) and (ii) increased by interest income attributable to the assets
which are the subject of such Asset Disposition for such period, (4) if since
the beginning of such period the Company or any of its Restricted Subsidiaries
(by merger or otherwise) shall have made an Asset Acquisition, Consolidated Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving PRO FORMA effect thereto (including the incurrence of any Indebtedness)
as if such Asset Acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person that subsequently became a
Restricted Subsidiary of the Company or was merged with or into the Company or
any Restricted Subsidiary of the Company since the beginning of such period
shall have made any Asset Disposition or Asset Acquisition that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary of the Company during such period,
Consolidated Cash Flow and Consolidated Interest Expense for such
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period shall be calculated after giving PRO FORMA effect thereto as if such
Asset Disposition or Asset Acquisition occurred on the first day of such period.
For purposes of this definition, whenever PRO FORMA effect is to be given to an
Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the PRO FORMA calculations shall be determined
in accordance with GAAP and Regulation S-X under the Securities Act, to the
extent applicable, in good faith by a responsible financial or accounting
officer of the Company. If any Indebtedness bears a floating rate of interest
and is being given PRO FORMA effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term that extends at least until the end of such period).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
total interest expense of the Company and the Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP, plus, to
the extent not included in such interest expense, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) noncash interest expense, (v) commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers
acceptance financing, (vi) interest actually paid by the Company or any such
Restricted Subsidiary under any guarantee of Indebtedness or other obligation of
any other Person, (vii) net payments (whether positive or negative) pursuant to
Interest Rate Agreements, and (viii) the product of (x) all cash and
Disqualified Stock dividends in respect of all Preferred Stock of Subsidiaries
and Disqualified Stock of the Company held by Persons other than the Company or
a Wholly-Owned Subsidiary times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal, and less, to the extent included in such interest expense, the
amortization of capitalized debt issuance costs.
"CONSOLIDATED NET INCOME" means, for any period, the net
income (loss) of the Company and the consolidated Restricted Subsidiaries for
such period determined in accordance with GAAP; PROVIDED, HOWEVER, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any person acquired by the Company or any of its Restricted Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Restricted Subsidiary of the Company to
the extent that the payment of dividends or the making of distributions by such
Restricted Subsidiary is prohibited, directly or indirectly, by contract,
operation of law or otherwise, (iii) any gain or loss realized upon the sale or
other disposition of any assets of the Company or its consolidated Restricted
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which are
not sold or otherwise disposed of in the ordinary
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course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person, (iv) any extraordinary gain or
loss (including non-recurring expenses related to the Transactions), (v) the
cumulative effect of a change in accounting principles, (vi) noncash
restructuring charges or writeoffs in connection with or related to the
Transactions recorded before or within the one year period following the Issue
Date, (vii) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of the lesser of (A) dividends or distributions paid to the
Company or any of its Restricted Subsidiaries (unless and to the extent such
Restricted Subsidiary is subject to clause (ii) above) by such Person and (B)
the net income of such Person (but in no event less than zero), and the net loss
of such Person (other than an Unrestricted Subsidiary, the net income and net
loss of which will not be included) shall be included only to the extent of the
aggregate Investment of the Company or any of its Restricted Subsidiaries in
such Person and (viii) any noncash expenses attributable to grants or exercises
of employee stock options. Notwithstanding the foregoing, for the purpose of
Section 10.14 only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or to a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under Section 10.14 pursuant to clause (3)(D) under
subsection (a) of such Section 10.14.
"CONTINUING DIRECTOR" means, as of the date of determination,
any Person who (i) was a member of the Board of Directors of such Person on the
date of this Indenture, (ii) was nominated for election or elected to the Board
of Directors of such Person with the affirmative vote of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election, or (iii) is a representative of a Permitted Holder.
"CONTROL" means, with respect to any specified Person, the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"CORPORATE TRUST OFFICE" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at Goodwin Square, 225 Asylum Street, Hartford, CT 06103, Facsimile: (860)
244-1897, Attention: Corporate Trust Administration (Atrium Companies, Inc.
10 1/2% Senior Subordinated Notes due 2009), except for purposes of Section 3.03
and Section 10.02. For purposes of Section 3.03 and Section 10.02, the Corporate
Trust Office is located at the office of State Street Bank and Trust Company,
N.A., an Affiliate of the Trustee, 61 Broadway, New York, NY 10006, Attention:
Corporate Trust Administration (Atrium Companies, Inc. 10 1/2% Senior
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Subordinated Notes due 2009).
"COVENANT DEFEASANCE" has the meaning set forth in Section
4.03.
"CREDIT FACILITY" means the Credit Agreement, dated as of
October 2, 1998, among the Company, Atrium Holdings, Parent, the guarantors
named therein, Merrill Lynch Capital Corporation, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as Lead Arranger, Syndication Agent and Documentation
Agent, and BankBoston, N.A., as Administrative Agent, and any other financial
institutions from time to time party thereto, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing, increasing the total commitment of, or otherwise restructuring
(including by way of adding Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"CUSTODIAN" means any receiver, interim receiver, receiver
and manager, receiver-manager, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law or any other law respecting secured
creditors and the enforcement of their security or any other Person with like
powers whether appointed judicially or out of court and whether pursuant to an
interim or final appointment.
"DEFAULT" means any event which is, or after notice or
passage of time or both would be, an Event of Default.
"DEFEASANCE" has the meaning set forth in Section 4.02.
"DEPOSITORY" means The Depository Trust Company, its nominees
and successors.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) all Senior
Indebtedness, liquidated or contingent, outstanding under the Credit Facility
and (b) any other Senior Indebtedness of the Company which, at the time of
determination, is in an aggregate principal amount outstanding or committed for
of at least $30.0 million and is specifically designated in the instrument
governing such Senior Indebtedness as "Designated Senior Indebtedness" by the
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Company.
"DISQUALIFIED STOCK" means any Capital Stock which, 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 (i) matures (excluding
any maturity as the result of an optional redemption by the issuer thereof) or
is mandatorily redeemable pursuant to a sinking fund obligation or otherwise or
is redeemable at the option of the holder thereof (except upon the occurrence of
a Change of Control or Asset Disposition if such Capital Stock requires that the
Change of Control Offer or Net Available Cash Offer, as applicable, with respect
to the Notes be completed prior to any similar offer being made with respect to
such Capital Stock), in whole or in part, on or prior to the final stated
maturity of the Notes, or (ii) is convertible into or exchangeable (unless at
the sole option of the issuer thereof) for (a) debt securities or (b) any
Capital Stock referred to in (i) above, in each case at any time prior to the
final stated maturity of the Notes.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System.
"EVENT OF DEFAULT" has the meaning set forth in Section 5.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission thereunder.
"EXCHANGE NOTES" means the 10 1/2% Senior Subordinated Notes
due 2009, Series B, to be issued in exchange for the Initial Notes pursuant to
the Registration Rights Agreement.
"EXCHANGE OFFER" shall have the meaning specified in the
Registration Rights Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length transaction,
for cash, between an informed and willing seller under no compulsion to sell and
an informed and willing buyer under no compulsion to buy. Fair market value
shall be determined by the Board of Directors of the Company acting in good
faith evidenced by a board resolution thereof delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date hereof, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a
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significant segment of the accounting profession. All ratios and computations
contained in the Indenture shall be computed in conformity with GAAP.
"GLOBAL NOTES" means one or more Notes in the form of EXHIBIT
A-1 or A-2 bearing the legend set forth in EXHIBIT B.
"GUARANTEE" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee to such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning.
"GUARANTEE" means the guarantee by any Guarantor of the
Company's obligations under the Indenture and the Notes pursuant to the
guarantee in Article Twelve of this Indenture.
"GUARANTOR" means the Subsidiaries listed as guarantors in
this Indenture and any other Subsidiary which is a guarantor of the Notes,
including any Person that executes or is required after the date of this
Indenture to execute a guarantee of the Notes as described in Section 12.04 and
Section 10.22, until a successor replaces such party pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor;
PROVIDED, that for purposes hereof the term "Guarantor" shall not include any
Unrestricted Subsidiary unless specifically provided otherwise or any Person
that has been released from its Guarantee in accordance with the terms of this
Indenture. As of the Issue Date, all of the Company's Restricted Subsidiaries
will be Guarantors.
"HOLDER" or "NOTEHOLDER" means a Person in whose name a Note
is registered in the Note Register.
"INCUR" means issue, assume, guarantee, incur or otherwise
become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary.
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"INDEBTEDNESS" means, with respect to any Person on any date
of determination (without duplication), (i) the principal of and premium (if
any) in respect of indebtedness of such Person for borrowed money, (ii) the
principal of and premium (if any) in respect of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) (other
than obligations with respect to letters of credit securing obligations (other
than obligations described in clauses (i), (ii) and (v)) entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses incurred in the
ordinary course of business payable in accordance with industry practices), (v)
all Capitalized Lease Obligations and all Attributable Indebtedness of such
Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of such Indebtedness shall be the lesser of
the fair market value of such asset at such date of determination and the amount
of such Indebtedness of such other Person, (vii) all Indebtedness of other
Persons to the extent guaranteed by such Person, (viii) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Restricted
Subsidiary of the Company, any Preferred Stock of such Restricted Subsidiary to
the extent such obligation arises on or before the Stated Maturity of the Notes
(but excluding, in each case, any accrued dividends) and (ix) to the extent not
otherwise included in this definition, net obligations under Currency
Agreements, Interest Rate Agreements and Commodity Agreements.
"INDENTURE" means this instrument as originally executed
(including all exhibits and schedules hereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"INDENTURE OBLIGATIONS" means the obligations of the Company
and any other obligor under this Indenture or under the Notes, to pay principal
of, premium, if any, and interest on the Notes when due and payable, whether at
maturity, by acceleration, call for redemption or repurchase or otherwise, and
all other amounts due or to become due under or in connection with this
Indenture, the Notes or the Guarantees and the performance of all other
obligations to the Trustee (including, but not limited to, payment of all
amounts due the Trustee under Section 6.07 hereof) and the Holders of the Notes
under this Indenture, the Notes and the Guarantees, according to the terms
thereof.
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"INITIAL NOTES" means the 10 1/2% Senior Subordinated Notes
due 2009, Series A, of the Company.
"INITIAL PUBLIC OFFERING" means a primary underwritten public
offering of the common stock of Parent, Atrium Holdings or the Company 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.
"INITIAL PURCHASER" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
"INTEREST" means, when used with respect to any Note, the
amount of all interest accruing on such Note, including all liquidated damages
payable on the Notes pursuant to the Registration Rights Agreement and all
interest accruing subsequent to the occurrence of any events specified in
Sections 5.01(i), (j) and (k) or which would have accrued but for any such
event, whether or not such claims are allowable under applicable law. "INTEREST
PAYMENT DATE" means, when used with respect to any Note, the Stated Maturity of
an installment of interest on such Note, as set forth in such Note.
"INTEREST RATE AGREEMENT" means with respect to any Person
any interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"INVESTMENT" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts payable on the balance sheet of such
Person) or other extension of credit (including by way of guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a bank
deposit other than a time deposit) or 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), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of Section 10.14, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in a Restricted Subsidiary to be
designated as an Unrestricted Subsidiary) of the fair market value of the net
assets of such Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the portion (proportionate to the Company's equity interest in an Unrestricted
Subsidiary to be redesignated as a Restricted Subsidiary) of the fair market
value of the net
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assets of such Unrestricted Subsidiary at the time such Unrestricted Subsidiary
is redesignated as a Restricted Subsidiary, (ii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined in good faith by the Board of
Directors and evidenced by a resolution of the Board of Directors certified in
an Officers' Certificate, and (iii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"ISSUE DATE" means the original issue date of the Notes under
this Indenture.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"MATURITY DATE" means, with respect to any Note, the date on
which any principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"NET AVAILABLE CASH" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets subject to such Asset
Disposition) therefrom, in each case net of (i) all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all Federal,
state, foreign and local taxes required to be paid or accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness that is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
any Person owning a beneficial interest in assets subject to sale or minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) the deduction of appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition; PROVIDED, HOWEVER, that
upon any reduction in such reserves (other than to the extent resulting from
payments of the respective reserved liabilities), Net Available Cash shall be
increased by the amount of such reduction to reserves and retained by the
Company or any
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Restricted Subsidiary of the Company after such Asset Disposition, and (v) any
portion of the purchase price from an Asset Disposition placed in escrow
(whether as a reserve for adjustment of the purchase price, for satisfaction of
indemnities in respect of such Asset Disposition or otherwise in connection with
such Asset Disposition); PROVIDED, HOWEVER, that upon the termination of such
escrow, Net Available Cash shall be increased by any portion of funds therein
released to the Company or any Restricted Subsidiary.
"NET AVAILABLE CASH OFFER" has the meaning set forth under
Section 10.16.
"NON-RECOURSE DEBT" means Indebtedness as to which neither
the Company nor any Restricted Subsidiary (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) other than a non-recourse
pledge of the Capital Stock of an Unrestricted Subsidiary securing Indebtedness
of such Unrestricted Subsidiary or (b) is directly or indirectly liable (as a
guarantor or otherwise).
"NON-U.S. PERSON" has the meaning assigned to such term in
Regulation S.
"NOTES" has the meaning specified in the Recitals of this
Indenture.
"NOTES AMOUNT" has the meaning set forth under Section 10.16.
"NOTES PORTION OF UNUTILIZED NET AVAILABLE CASH" has the
meaning set forth under Section 10.16
"OFFER" means a Change of Control Offer made pursuant to
Section 10.11 or a Net Available Cash Offer made pursuant to Section 10.16.
"OFFERING MEMORANDUM" means the offering memorandum dated as
of May 10, 1999 relating to the Notes.
"OFFICER" means, with respect to the Company or any
Guarantor, the Chief Executive Officer, the President, an Executive Vice
President, a Vice President, the Secretary, an Assistant Secretary, the
Treasurer, an Assistant Treasurer, or the Chief Financial Officer.
"OFFICERS' CERTIFICATE" means a certificate signed by the
Chief Executive Officer, the President, the Chief Financial Officer, an
Executive Vice President, or a Vice President, and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer of the Company or
any Guarantor, as the case may be, and delivered to the Trustee.
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"144A GLOBAL NOTE" means a permanent global note in
registered form representing the aggregate principal amount of Notes sold in
reliance on Rule 144A under the Securities Act.
"OPINION OF COUNSEL" means a written opinion of counsel who
may be counsel for the Company, a Guarantor, or the Trustee, and who shall be
reasonably acceptable to the Trustee.
"OTHER GUARANTEED INDEBTEDNESS" has the meaning set forth
under Section 10.22.
"OTHER INDEBTEDNESS" has the meaning set forth under Section
10.16.
"OUTSTANDING" means, as of the date of determination, all
Notes theretofore authenticated and delivered under this Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company or any
Guarantor or any Affiliate thereof) in trust or set aside and
segregated in trust by the Company or any Guarantor or any Affiliate
thereof (if the Company or such Guarantor or Affiliate shall act as
Paying Agent) for the Holders of such Notes; PROVIDED, HOWEVER, that if
such Notes are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made;
(iii) Notes with respect to which the Company has effected
defeasance or covenant defeasance as provided in Article Four, to the
extent provided in Sections 4.02 and 4.03; and
(iv) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture, other
than any such Notes in respect of which there shall have been presented
to the Trustee proof satisfactory to it that such Notes are held by a
bona fide purchaser in whose hands the Notes are valid obligations of
the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company, any Guarantor or any other obligor upon the Notes or any Affiliate
of the Company, any Guarantor or such
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other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Notes that a Responsible Officer of the Trustee knows to be so owned shall be so
disregarded. The Company shall notify the Trustee, in writing, when it
repurchases or otherwise acquires Notes, of the aggregate principal amount of
such Notes so repurchased or otherwise acquired. Notes so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act as a Holder
with respect to such Notes and that the pledgee is not the Company, any
Guarantor or any other obligor upon the Notes or any Affiliate of the Company,
any Guarantor or such other obligor. If the Paying Agent holds, in its capacity
as such, on any Maturity Date or on any optional redemption date money
sufficient to pay all accrued interest and principal with respect to such Notes
payable on that date and is not prohibited from paying such money to the Holders
thereof pursuant to the terms of this Indenture, then on and after that date
such Notes cease to be Outstanding and interest on them ceases to accrue. Notes
may also cease to be outstanding to the extent expressly provided in Article
Four.
"PARENT" means D and W Holdings, Inc., a Delaware corporation
and the owner on the date hereof of all the outstanding capital stock of Atrium
Holdings, and its successors.
"PERMITTED HOLDERS" means (i) GE Investment Private Placement
Partners II, a Limited Partnership, (ii) Ardshiel, or (iii) any of their
Affiliates.
"PERMITTED INDEBTEDNESS" means
(i) (A) Indebtedness of the Company owing to and held by any
Restricted Subsidiary so long as such Indebtedness is subordinated to
the Notes to the same extent that the Notes are subordinated to Senior
Indebtedness or (B) Indebtedness of a Restricted Subsidiary owing to
and held by the Company or any Restricted Subsidiary; PROVIDED,
HOWEVER, that any subsequent issuance or transfer of any Capital Stock
or any other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of any
such Indebtedness (except, in the case of subclause (A), to a
Restricted Subsidiary or, in the case of subclause (B), to the Company
or a Restricted Subsidiary) shall be deemed in each case to constitute
the Incurrence of such Indebtedness by the issuer thereof;
(ii) Indebtedness represented by (x) the Notes, (y) any
Indebtedness (other than the Indebtedness described in subclauses (i),
(ii) and (iv) under Section 10.12(b) and other than Indebtedness
Incurred pursuant to clause (i) above or clause (iv), (v), (vi)
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or (vii) below) outstanding on the Issue Date and (z) any Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this
clause (ii) or Incurred as described in Section 10.12(a);
(iii) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary or was otherwise acquired by the Company);
PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur
$1.00 of additional Indebtedness pursuant to Section 10.12(a) after
giving effect to the Incurrence of such Indebtedness pursuant to this
clause (iii) and (B) Refinancing Indebtedness Incurred by a Restricted
Subsidiary in respect of Indebtedness Incurred by such Restricted
Subsidiary pursuant to this clause (iii);
(v) Indebtedness of the Company or any Restricted Subsidiary
(A) in respect of performance bonds, bankers' acceptances and surety or
appeal bonds provided by the Company or any of the Restricted
Subsidiaries to their customers in the ordinary course of their
business and not for money borrowed, (B) in respect of performance
bonds or similar obligations of the Company or any of the Restricted
Subsidiaries for or in connection with pledges, deposits or payments
made or given in the ordinary course of business and not for money
borrowed in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or
environmental obligations, (C) arising from guarantees to suppliers,
lessors, licensees, contractors, franchises or customers of obligations
(other than Indebtedness) incurred in the ordinary course of business
and not for money borrowed and (D) under Currency Agreements, Interest
Rate Agreements and Commodity Agreements; PROVIDED, HOWEVER that in the
case of subclause (D), such agreements are entered into for bona fide
hedging purposes of the Company or its Restricted Subsidiaries (as
determined in good faith by the Board of Directors or senior management
of the Company) and, in the case of Interest Rate Agreements and
Currency Agreements, such Interest Rate Agreements and Currency
Agreements correspond in terms of notional amount, duration, currencies
and interest rates, as applicable, to Indebtedness of the Company or
its Restricted Subsidiaries Incurred without violation of this
Indenture or the business transactions of the Company or the Restricted
Subsidiaries on customary terms entered into in the ordinary course of
business and otherwise in compliance with this Indenture, as
applicable;
(vi) Indebtedness of the Company or any Restricted Subsidiary
arising from agreements
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providing for indemnification, adjustment of purchase price or similar
obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of the
Restricted Subsidiaries pursuant to such agreements, in each case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of the Company (other than guarantees of
Indebtedness or other obligations Incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary of the
Company for the purpose of financing such acquisition) in a principal
amount not to exceed the gross proceeds actually received by the
Company or any of the Restricted Subsidiaries in connection with such
disposition;
(viii) Indebtedness consisting of (A) guarantees by the Company
or any Restricted Subsidiary of Indebtedness Incurred by a Restricted
Subsidiary that is a Guarantor without violation of this Indenture and
(B) guarantees by a Restricted Subsidiary of Indebtedness Incurred by
the Company without violation of this Indenture (so long as such
Restricted Subsidiary could have Incurred such Indebtedness directly
without violation of this Indenture, including, without limitation,
Section 10.22); and
(ix) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument drawn against insufficient funds in
the ordinary course of business; PROVIDED that such Indebtedness is
extinguished within two Business Days of its incurrence.
"PERMITTED INVESTMENT" means an Investment by the Company or
any of the Restricted Subsidiaries in:
(i) the Company or a Restricted Subsidiary of the Company;
PROVIDED, HOWEVER, that the primary business of such Restricted
Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such
other Person becomes a Restricted Subsidiary of the Company or is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary
of the Company; PROVIDED, HOWEVER, that in each case such Person's
primary business is a Related Business;
(iii) Cash Equivalents;
(iv) receivables owing to the Company or any of the
Restricted Subsidiaries, created or acquired in the ordinary course of
business and payable or dischargeable in
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accordance with customary trade terms;
(vi) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary
course of business;
(vii) (a) loans or advances by the Company or a Restricted
Subsidiary to employees of Parent, Atrium Holdings, the Company or any
Subsidiary of the Company for purposes of purchasing the Company's,
Atrium Holding's or Parent's common stock in an aggregate amount
outstanding at any one time not to exceed $5.0 million and (b) other
loans and advances by the Company or a Restricted Subsidiary to
employees of Parent, Atrium Holdings, the Company or any Subsidiary of
the Company made in the ordinary course of business of the Company or
such Restricted Subsidiary;
(viii) stock, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to the
Company or any of the Restricted Subsidiaries or in satisfaction of
judgments or claims;
(ix) a Person engaged in a Related Business or a loan or
advance to the Company the proceeds of which are used solely to make an
Investment in a Person engaged in a Related Business or a guarantee by
the Company of Indebtedness of any Person in which such Investment has
been made; PROVIDED, HOWEVER, that no Permitted Investments may be made
pursuant to this clause (viii) to the extent the amount thereof would,
when taken together with all other Permitted Investments made pursuant
to this clause (viii) exceed $5.0 million in the aggregate (plus, to
the extent not previously reinvested, any return of capital realized on
Permitted Investments made pursuant to this clause (viii), or any
release or other cancellation of any guarantee constituting such
Permitted Investment);
(x) Persons to the extent such Investment is received by the
Company or any Restricted Subsidiary as consideration for asset
dispositions effected in compliance with Section 10.16;
(xi) prepayments and other credits to suppliers made in the
ordinary course of business of the Company and the Restricted
Subsidiaries; and
(xii) Investments in connection with pledges, deposits,
payments or performance bonds made or given in the ordinary course of
business and not for money borrowed in connection with or to secure
statutory, regulatory or similar obligations, including obligations
under health, safety or environmental obligations.
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"PERMITTED JUNIOR SECURITIES" means (i) Capital Stock (other
than Disqualified Stock) issued by the Company to pay interest on the Notes or
issued in exchange for the Notes, (ii) securities substantially identical to the
Notes issued by the Company in payment of interest accrued thereon or (iii)
securities issued by the Company which are subordinated to the Senior
Indebtedness at least to the same extent as the Notes and having an Average Life
at least equal to the remaining Average Life of the Notes.
"PERMITTED LIENS" means:
(i) Liens on property or shares of Capital Stock of a Person
existing at the time such Person is merged into or consolidated with
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not secure any property or assets of the Company
or any Restricted Subsidiary other than the property or assets subject
to the Liens prior to such merger or consolidation;
(ii) Liens on a property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary; PROVIDED that such
Liens were not created, incurred or assumed in connection with such
acquisition;
(iii) Liens existing on the Issue Date;
(iv) Liens in favor of the Company or any Restricted
Subsidiary so long as held by the Company or any Restricted Subsidiary;
(v) Liens securing Indebtedness consisting of Capitalized
Lease Obligations, purchase money obligations, mortgage financings,
industrial revenue bonds or other monetary obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the
business of the Company or the Restricted Subsidiaries or in a Related
Business, or repairs, additions or improvements to such assets;
PROVIDED, HOWEVER, that any such Lien encumbers only the assets so
financed, purchased, constructed or improved;
(vi) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or
successive refinancings), in whole or in part, of any Indebtedness
secured by Liens referred to in the clauses above so long as such Lien
does not extend to any other property (other than improvements
thereto);
(vii) Liens securing letters of credit or surety bonds entered
into in the ordinary course of business and consistent with past
business practice and not for money borrowed; and
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(vii) Liens on and pledges of the Capital Stock of any
Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary.
"PERSON" means any individual, corporation, partnership,
joint venture, association, joint stock company, limited liability company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"PREDECESSOR NOTE" means, with respect to any particular
Note, every previous Note evidencing all or a portion of the same debt as that
evidenced by such particular Note; and, for the purposes of this definition, any
Note authenticated and delivered under Section 3.07 hereof in exchange for a
mutilated Note or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"PRIVATE EXCHANGE SECURITIES" shall have the meaning
specified in the Registration Rights Agreement.
"PRIVATE PLACEMENT LEGEND" shall mean the first paragraph of
the legend initially set forth in the Securities in the form set forth on
EXHIBIT A-1.
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of
May 10, 1999 among the Company, the Guarantors and the Initial Purchaser.
"QUALIFIED CAPITAL STOCK" of any Person shall mean any
Capital Stock of such Person which is not Disqualified Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"RECAPITALIZATION DATE" means October 2, 1998.
"REFINANCING INDEBTEDNESS" means Indebtedness (including
Disqualified Stock) that refunds, refinances, replaces, renews, repays or
extends (including pursuant to any defeasance or discharge mechanism)
(collectively, "refinances," and "refinanced" shall have a correlative meaning)
any Indebtedness existing on the Issue Date or Incurred in compliance
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with this Indenture (including Indebtedness of the Company that refinances
Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness; PROVIDED,
HOWEVER, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier
than the earlier of (A) the Stated Maturity of the Notes and (B) the Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the lesser of (A) the Average Life of the Notes and
(B) the Average Life of the Indebtedness being refinanced, and (iii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced, plus the amount of any accrued or unpaid interest
thereon, plus the amount of any stated or reasonably determined prepayment
premium paid in connection with such refinancing, plus the amount of expenses of
the Company or a Restricted Subsidiary incurred in connection with such
refinancing.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of May 17, 1999 by and among the Company, the Guarantors and
the Initial Purchaser, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof attached hereto
as EXHIBIT E.
"REGULAR RECORD DATE" means the Regular Record Date specified
in the Notes.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S GLOBAL NOTE" means a permanent global note in
registered form representing the aggregate principal amount of Notes sold in
reliance on Regulation S under the Securities Act.
"RELATED BUSINESS" means any business which is the same as or
related, ancillary or complementary to any of the businesses of the Company and
its Restricted Subsidiaries on the Issue Date, as reasonably determined by the
Company's Board of Directors.
"REPRESENTATIVE" means any trustee, agent or representative
(if any) of an issue of Senior Indebtedness.
"RESPONSIBLE OFFICER" means, with respect to the Trustee and
any officer in the Corporate Trust Administration Department of the Trustee and
also means, with
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respect to a particular corporate trust matter, any other officer of the Trustee
to whom any corporate trust matter is referred because of his or her knowledge
of and familiarity with the particular subject.
"RESTRICTED NOTE" means a Note that constitutes a "restricted
security" within the meaning of Rule 144(a)(3) under the Securities Act;
PROVIDED, HOWEVER, that the Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether any Note
constitutes a Restricted Note.
"RESTRICTED PAYMENTS" has the meaning set forth under Section
10.14.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Subsidiary
leases it from such Person.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the Commission thereunder.
"SENIOR INDEBTEDNESS" means, with respect to the Company or
any Guarantor, as applicable, the principal of, premium, if any, and interest
(including interest that would accrue but for the filing of a petition
initiating any proceeding under any state or federal bankruptcy laws, whether or
not such claim is allowable in such proceeding) on any Indebtedness of the
Company or such Guarantor, as the case may be, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to any Indebtedness of the
Company or such Guarantor, as the case may be. Without limiting the generality
of the foregoing, "Senior Indebtedness" will include the principal of, premium,
if any, and interest (including interest that would accrue but for the filing of
a petition initiating any proceeding under any state or federal bankruptcy laws,
whether or not such claim is allowable in such proceeding) and all indemnity,
fees, expenses and other payment obligations from time to time owed to the
lenders under the Credit Facility. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include, to the extent constituting Indebtedness, (i)
Indebtedness evidenced by the Notes or the Guarantees, (ii) Indebtedness that is
expressly subordinate or junior in right of
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payment to any Indebtedness of the Company or any Guarantor, (iii) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Company or any
Guarantor, (iv) Indebtedness which is represented by Disqualified Capital Stock,
(v) Indebtedness for goods, materials or services purchased in the ordinary
course of business or Indebtedness consisting of trade payables or other current
liabilities (other than any current liabilities owing under the Credit Facility
or the current portion of any long-term Indebtedness which would constitute
Senior Indebtedness but for the operation of this clause (v)), (vi) Indebtedness
or other obligations of or amounts owed by the Company or any Guarantor for
compensation to employees or for services rendered to the Company or such
Guarantor, (vii) any liability for federal, state, local or other taxes owed or
owing by the Company or any Guarantor, (viii) Indebtedness of the Company or any
Guarantor to a Subsidiary of the Company and (ix) that portion of any
Indebtedness which at the time of issuance is issued in violation of this
Indenture (but, as to any such Indebtedness, no such violation shall be deemed
to exist for purposes of this clause (ix) if the holder(s) of such Indebtedness
or their representative and the Trustee shall have received an Officers'
Certificate of the Company to the effect that the incurrence of such
Indebtedness does not violate this Indenture).
"SENIOR SUBORDINATED INDEBTEDNESS" means the Notes, the
Guarantees and any other Indebtedness of the Company or a Guarantor that either
(x) specifically provides that such Indebtedness ranks PARI PASSU with the Notes
or the Guarantee of such Guarantor, as the case may be, in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company or a Guarantor, as the case may be, which is not
Senior Indebtedness or (y) is otherwise deemed not to be Senior Indebtedness
pursuant to the definition thereof unless it meets the definition of
Subordinated Obligations.
"SIGNIFICANT SUBSIDIARY" means (i) any Restricted Subsidiary
that, together with its Restricted Subsidiaries, would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission (PROVIDED that for purposes of Section 9.02(i), a
5% threshold under Rule 1-02 shall be used rather than the 10% threshold
provided in Rule 1-02) and (ii) for purposes of Section 5.01, any other
Restricted Subsidiary that when aggregated with all other Restricted
Subsidiaries that are not Significant Subsidiaries as to which an event
described under clauses(h), (i), (j) or (k) under Section 5.01 has occurred,
together with their Restricted Subsidiaries, would constitute a Significant
Subsidiary pursuant to clause (i) above (using a 5% threshold under Rule 1-02
rather than the 10% threshold provided in Rule 1-02). "SPECIAL RECORD DATE"
means, with respect to the payment of any Defaulted Interest, a date fixed by
the Trustee pursuant to Section 3.08 hereof.
"SPECIAL RECORD DATE" means, with respect to the payment of
any Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.08
hereof.
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"STATED MATURITY" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"SUBORDINATED OBLIGATION" means any Indebtedness of the
Company or a Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the Notes or the
Guarantee of such Guarantor, as applicable, pursuant to a written agreement or
by law (including, without limitation, Disqualified Capital Stock).
"SUBSIDIARY" of any Person means any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person. Unless otherwise specified herein, each
reference to a Subsidiary shall refer to a Subsidiary of the Company.
"SURVIVING PERSON" means, with respect to any Person involved
in any consolidation or merger, or any sale, assignment, conveyance, transfer,
lease or other disposition of all or substantially all of its properties and
assets as an entirety, the Person formed by or surviving such merger or
consolidation or the Person to which such sale, assignment, conveyance, transfer
or lease is made.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated
as of October 2, 1998, as amended on the Issue Date, by and among Parent and its
subsidiaries named therein, as the same may be amended from time to time in
accordance with its terms and the terms of the Credit Facility after the Issue
Date so long as such agreement as so amended is no less favorable to the Company
or the holders of the Notes in any material respect than the Tax Sharing
Agreement as amended and in effect on the Issue Date.
"TRANSACTIONS" means (i) the recapitalization of the Company
that occurred on the Recapitalization Date and (ii) the acquisition by the
Company of all the outstanding Capital Stock of Heat, Inc., H.I.G. Vinyl, Inc.
and Champagne Industries, Inc. on the Issue Date.
"TRANSFER RESTRICTED SECURITIES" shall have the meaning
specified in the Registration Rights Agreement.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act
of 1939, as
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amended.
"TRUSTEE" means the Person named as the "Trustee" in the
first paragraph of this Indenture, until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"UNRESTRICTED NOTES" means one or more Notes that do not and
are not required to bear the Private Placement Legend in the form set forth in
EXHIBIT A, including, without limitation, the Exchange Notes.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so
designated has consolidated total assets of $10,000 or less or (B) if such
Subsidiary has consolidated total assets greater than $10,000, then such
designation would be permitted under Section 10.14. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED,
HOWEVER, that (x) immediately after giving effect to such designation no Default
shall have occurred and be continuing and (y) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately following such designation, if
incurred at such time, would have been permitted to be incurred for all purposes
of this Indenture. Any such designation by the Board of Directors shall be
evidenced to the holders of the Notes by promptly delivering to the Trustee a
copy of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"UNUTILIZED NET AVAILABLE CASH" has the meaning set forth
under Section 10.16.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"VOTING STOCK" of a corporation means all classes of Capital
Stock of such
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corporation then outstanding and normally entitled to vote in the election of
directors.
"WHOLLY-OWNED SUBSIDIARY" means a Restricted Subsidiary of
the Company, at least 99% of the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary.
Section 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Act" 1.05
"Agent Member" 3.16
"Applicable Premium" 13.07
"Blockage Notice" 14.03
"Change of Control Offer" 10.11
"Change of Control Purchase Date" 10.11
"Cleaning Agency" 3.16
"Defaulted Interest" 3.08
"Defeased Notes" 4.01
"Equity Offering" 13.07
"insolvent Person" 4.04
"Net Available Cash Offer Purchase Date" 10.16
"Note Register" 3.06
"Paying Agent" or "Agent" 3.03
"Payment Blockage Period" 14.03
"pay the Notes" 14.03
"Physical Notes" 3.16
"Public Market" 13.07
"Registrar" 3.03
"Required Filing Dates" 10.10
"Restricted Payments" 10.14
"Restricted Period" 3.17
"Treasury Rate" 13.07
</TABLE>
Section 1.03. RULES OF CONSTRUCTION.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them
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in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) all references to "$" or "dollars" refer to the lawful
currency of the United States of America; and
(f) the words "include," "included" and "including" as used
herein are deemed in each case to be followed by the phrase "without
limitation."
Section 1.04. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company or
any Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or any
Guarantor stating that the information with respect to such factual matters is
in the possession of the Company or any Guarantor, unless such counsel knows, or
in the exercise of reasonable care should know, that the certificate or opinion
or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments
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under this Indenture, they may, but need not, be consolidated, with proper
identification of each matter covered therein, and form one instrument.
Section 1.05. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in Person or by an
agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Holders signing such instrument or instruments. Proof of
execution (as provided below in subsection (b) of this Section 1.05) of any
such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 6.01
hereof) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Note shall bind every
future Holder of the same Note or the Holder of every Note issued upon the
transfer thereof or in exchange therefor or in lieu thereof to the same
extent as the original Holder, in respect of anything done, suffered or
omitted to be done by the Trustee, any Paying Agent or the Company or any
Guarantor in reliance thereon, whether or not notation of such action is
made upon such Note.
Section 1.06. NOTICES, ETC., TO THE TRUSTEE, THE COMPANY AND THE
GUARANTORS.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with:
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(a) the Trustee by any Holder or by the Company or any
Guarantor shall be sufficient for every purpose hereunder if made, given,
furnished or filed, in writing, to or with the Trustee at Goodwin Square,
225 Asylum Street, Hartford, CT 06103 Facsimile: (860) 244-1897, Attention:
Corporate Trust Administration (Atrium Companies, Inc. 10 1/2% Senior
Subordinated Notes due 2009) or at any other address previously furnished in
writing to the Holders, the Company and the Guarantors by the Trustee; or
(b) the Company or a Guarantor by the Trustee or by any
Holder shall be sufficient for every purpose (except as otherwise expressly
provided herein) hereunder if in writing and mailed, first-class postage
prepaid, to the Company or such Guarantor addressed to it at Atrium
Companies, Inc., 1341 West Mockingbird Lane, Suite 1200W, Dallas, Texas
75247, Facsimile: (214) 630-5058, Attention: Chief Financial Officer, or at
any other address previously furnished in writing to the Trustee by the
Company.
Section 1.07. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise expressly
provided herein) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at the address of such Holder as it appears in
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice, nor
any defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when mailed
to a Holder in the aforesaid manner shall be conclusively deemed to have been
received by such Holder whether or not actually received by such Holder. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service
or by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.08. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with
any provision of the
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Trust Indenture Act or another provision which is required or deemed to be
included in this Indenture by any of the provisions of the Trust Indenture Act,
such provision or requirement of the Trust Indenture Act shall control.
If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or
excluded, as the case may be.
Section 1.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
Section 1.10. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
and the Guarantors, shall bind their respective successors and assigns, whether
so expressed or not.
Section 1.11. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes or
any Guarantee issued pursuant hereto shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
Section 1.12. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes or in any Guarantee
issued pursuant hereto, express or implied, shall give to any Person (other than
the parties hereto and their successors hereunder, any Paying Agent and the
Holders) any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Company or of
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a Guarantor shall not have any liability for any obligations of the Company or a
Guarantor under the Notes, the Guarantees or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation.
Section 1.15. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
Section 1.16. EXHIBITS.
All exhibits attached hereto are by this reference made a
part hereof with the same effect as if herein set forth in full.
Section 1.17. COUNTERPARTS.
This Indenture may be executed in any number of counterparts
and by telecopier, each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
Section 1.18. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
ARTICLE TWO
NOTE AND GUARANTEE FORMS
Section 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication
with respect thereto and the Guarantees shall be in substantially the forms set
forth, or referenced, in EXHIBIT A-1, EXHIBIT A-2 and EXHIBIT D, respectively,
annexed hereto, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with any applicable law
or with the rules of the Depository, any clearing agency or
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any securities exchange or as may, consistently herewith, be determined by the
officers executing such Notes and Guarantees, as evidenced by their execution
thereof.
The definitive Notes and Guarantees shall be printed,
typewritten, lithographed or engraved or produced by any combination of these
methods or may be produced in any other manner permitted by the rules of any
securities exchange on which the Notes and such Guarantees may be listed, if
any, all as determined by the officers executing such Notes and Guarantees, as
evidenced by their execution of such Notes and Guarantees.
Each Note shall be dated the date of its issuance and shall
show the date of its authentication. The terms and provisions contained in the
Notes shall constitute, and are expressly made, a part of this Indenture.
ARTICLE THREE
THE NOTES
Section 3.01. TITLE AND TERMS.
PRINCIPAL AMOUNT. The aggregate principal amount of Notes
which may be authenticated and delivered under this Indenture is limited to
$175,000,000 in aggregate principal amount of Notes, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 3.04, 3.05, 3.06, 3.07,
9.06, 10.11 and 10.16.
MATURITY AND INTEREST. The Notes will mature on May 1, 2009.
Interest on the Notes will accrue at the rate of 10 1/2% per annum from the
Issue Date through maturity.
Interest will be payable semi-annually on each May 1 and
November 1, commencing November 1, 1999, to the holders of record of Notes at
the close of business on the April 15 and October 15, respectively, immediately
preceding such interest payment date. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date. Interest on the Notes shall be computed on the basis
of a 360-day year of twelve 30-day months.
The terms and provisions contained in the Notes annexed
hereto as EXHIBITS A-1 and A-2 (including the Guarantees annexed hereto as
EXHIBIT D) shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company, the Guarantors and the
Trustee, by their execution and delivery
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of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Section 3.02. OPTIONAL REDEMPTION.
The Notes will be redeemable at the option of the Company as
set forth in the Notes and in Article Thirteen.
Section 3.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall
be located in the Borough of Manhattan in The City of New York, State of New
York) where Notes may be presented for registration of transfer or for exchange
(the "Registrar"), an office or agency (which shall be located in the Borough of
Manhattan in The City of New York, State of New York) where Notes may be
presented for payment (the "Paying Agent" or "Agent") and an office or agency
where notices and demands to or upon the Company in respect of the Notes, the
Guarantees and this Indenture may be served. The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Company may have one or
more co-registrars and one or more additional paying agents. The term "Paying
Agent" or "Agent" includes any additional paying agent. The Company may act as
its own Paying Agent, except for the purposes of payments on account of
principal on the Notes pursuant to Sections 10.11 and 10.16 hereof.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the Trust Indenture Act. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the
Trustee shall act as such and shall be entitled to appropriate compensation in
accordance with Section 6.07 hereof.
The Company initially appoints the Trustee as the Registrar
and Paying Agent and agent for service of notices and demands at the Corporate
Trust Office in connection with the Notes.
Section 3.04. EXECUTION AND AUTHENTICATION.
The Initial Notes and the Trustee's certificate of
authentication shall be substantially in the form of EXHIBIT A-1 hereto. The
Exchange Notes and the Trustee's certificate of authentication relating thereto
shall be substantially in the form of EXHIBIT A-2 hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. The Company shall approve the form of the Notes and any notation, legend
or endorsement thereon. Each Note shall be dated the date of issuance
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and shall show the date of its authentication. Each Note shall have an executed
Guarantee from each of the Guarantors endorsed thereon substantially in the form
of EXHIBIT D hereto.
Notes shall be issued initially in the form of one or more
Global Notes, substantially in the form set forth in EXHIBIT A-1, deposited with
the Trustee, as custodian for the Depository, duly executed by the Company (and
having an executed Guarantee from each of the Guarantors endorsed thereon) and
authenticated by the Trustee as hereinafter provided and shall bear the legend
set forth in EXHIBIT B. The aggregate principal amount of the Global Notes may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depository, as hereinafter provided.
All Notes offered and sold in reliance on Regulation S shall
remain in the form of a Global Note until the consummation of the Exchange Offer
pursuant to the Registration Rights Agreement; PROVIDED, HOWEVER, that all of
the time periods specified in the Registration Rights Agreement to be complied
with by the Company and the Guarantors have been so complied with.
Two Officers shall sign, or one Officer shall sign, and one
Officer (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to, the Notes for the Company, and the
Guarantees for the Guarantors, by manual or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a
Note or a Guarantee, as the case may be, was an Officer or Assistant Secretary
at the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Note, the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for original
issue in an aggregate principal amount not to exceed $175,000,000, (ii) Private
Exchange Notes from time to time only in exchange for a like principal amount of
Initial Notes and (iii) Unrestricted Notes from time to time only in exchange
for (A) a like principal amount of Initial Notes or (B) a like principal amount
of Private Exchange Notes, in each case upon a written order of the Company in
the form of an Officers' Certificate of the Company. Each such written order
shall specify the amount of Notes to be authenticated and the date on which the
Notes are to be authenticated, whether the Notes are to be Initial Notes,
Private Exchange Notes or Unrestricted Notes and such other information as the
Trustee may reasonably request. The aggregate principal amount of Notes
outstanding at any time may not exceed $175,000,000, except as provided in
Section 3.07.
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Notwithstanding the foregoing, all Notes issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Notes may vote or consent) as one class and no series of Notes will have
the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Notes. Unless otherwise provided in
the appointment, an authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only,
without coupons, in denominations of $1,000 and any integral multiple thereof.
Section 3.05. TEMPORARY NOTES.
Until definitive Notes are prepared and ready for delivery,
the Company may execute and upon a Company Order the Trustee shall authenticate
and deliver temporary Notes. Temporary Notes shall be substantially in the form
of definitive Notes, in any authorized denominations, but may have variations
that the Company reasonably considers appropriate for temporary Notes as
conclusively evidenced by the Company's execution of such temporary Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay but in no event later
than the date that the Exchange Offer is consummated. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 10.02, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of like tenor and of
authorized denominations. Until so exchanged the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
Section 3.06. TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 10.02 being sometimes
referred to herein as the "Note Register") in which, subject to such reasonable
regulations as the Registrar may prescribe,
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the Company shall provide for the registration of Notes and of transfers and
exchanges of Notes. The Trustee is hereby initially appointed Registrar for the
purpose of registering Notes and transfers of Notes as herein provided.
Subject to Sections 3.16 and 3.17, when Notes are presented
to the Registrar or a co-Registrar with a request from the Holder of such Notes
to register the transfer or exchange for an equal principal amount of Notes of
other authorized denominations, the Registrar shall register the transfer or
make the exchange as requested; PROVIDED, HOWEVER, that every Note presented or
surrendered for registration of transfer or exchange shall be duly endorsed or
be accompanied by a written instrument of transfer or exchange in form
satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. Whenever any Notes are so
presented for exchange, the Company and any Guarantor shall execute, and the
Trustee shall authenticate and deliver, the Notes and Guarantees which the
Holder making the exchange is entitled to receive. No service charge shall be
made to the Noteholder for any registration of transfer or exchange. The Company
may require from the Noteholder payment of a sum sufficient to cover any
transfer taxes or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Section 9.06, 10.11, 10.16 or 13.06 hereof (in which events the
Company will be responsible for the payment of all such taxes which arise solely
as a result of the transfer or exchange and do not depend on the tax status of
the Holder). The Trustee shall not be required to exchange or register the
transfer of any Note for a period of 15 days immediately preceding the first
mailing of notice of redemption of Notes to be redeemed or of any Note selected,
called or being called for redemption except, in the case of any Note where
public notice has been given that such Note is to be redeemed in part, the
portion thereof not to be redeemed.
All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Company, evidencing the
same Indebtedness, and entitled to the same benefits under this Indenture, as
the Notes surrendered upon such registration of transfer or exchange.
Any Holder of a beneficial interest in a Global Note shall,
by acceptance of such Global Note, agree that transfers of beneficial interests
in such Global Notes may be effected only through a book-entry system maintained
by the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a
book-entry system.
Section 3.07. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If a mutilated Note is surrendered to the Trustee or if the
Holder of a Note
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of claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall execute and upon a Company Order, the Trustee shall authenticate
and deliver a replacement Note of like tenor and principal amount, bearing a
number not contemporaneously outstanding, and the Guarantors shall execute a
replacement Guarantee, if the Holder of such Note furnishes to the Company and
to the Trustee, in the case of such loss, destruction or theft, evidence
reasonably acceptable to them of the ownership and the destruction, loss or
theft of such Note and an indemnity bond shall be posted by such Holder,
sufficient in the judgment of the Company or the Trustee, as the case may be, to
protect the Company, the Trustee or any Agent from any loss that any of them may
suffer if such Note is replaced. The Company may charge such Holder for the
Company's and any Guarantor's expenses in replacing such Note (including (i)
expenses of the Trustee charged to the Company and (ii) any tax or other
governmental charge that may be imposed) and the Trustee may charge the Company
for the Trustee's expenses in replacing such Note.
Every replacement Note and Guarantee issued pursuant to this
Section in lieu of any destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Company and each Guarantor,
whether or not the destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.08. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date and interest
on such defaulted interest at the then applicable interest rate borne by the
Notes, to the extent lawful (such defaulted interest and interest thereon herein
collectively called "Defaulted Interest") shall forthwith cease to be payable to
the Holder on the Regular Record Date; and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in subsection (a) or
(b) below:
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(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed
in the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Note and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as provided in
this subsection (a). Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15
days and not less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company in writing
of such Special Record Date. In the name and at the expense of the Company,
the Trustee shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at its address as it appears in the Note
Register, not less than 10 days prior to such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Notes (or their respective Predecessor Notes) are
registered on such Special Record Date and shall no longer be payable
pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after written notice given by the
Company to the Trustee of the proposed payment pursuant to this subsection
(b), such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
Section 3.09. PERSONS DEEMED OWNERS.
Prior to and at the time of due presentment for registration
of transfer, the
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Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name any Note is registered in the Note Register as the owner of
such Note for the purpose of receiving payment of principal of, premium, if any,
and (subject to Section 3.08) interest on such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
Section 3.10. CANCELLATION.
All Notes surrendered for payment, redemption, registration
of transfer or exchange shall be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company and any Guarantor may at
any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company or such Guarantor may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Trustee. The Registrar and the Paying Agent shall
forward to the Trustee any Notes surrendered to them for registration of
transfer or exchange, redemption or payment. The Trustee and no one else shall
cancel all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section 3.10, except as
expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be destroyed and certification of their destruction delivered to the
Company unless by a Company Order the Company shall direct that the canceled
Notes be returned to it. The Trustee shall provide the Company a list of all
Notes that have been canceled from time to time as requested by the Company. If
the Company or any Affiliate of the Company acquires any Notes (other than by
redemption pursuant to Section 13.07 or an Offer pursuant to Section 10.11 or
10.16), such acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until such Notes are
delivered to the Trustee for cancellation.
Section 3.11. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date,
date established for the payment of Defaulted Interest, Stated Maturity, Change
of Control Purchase Date or Net Available Cash Offer Purchase Date of any Note
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) payment of principal, premium, if any, or interest
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date, date established for the payment of Defaulted Interest, at the
Stated Maturity or on the Change of Control Purchase Date or Net Available Cash
Offer Purchase Date, as the case may be. In such event, no interest shall accrue
with respect to such payment for the period from and after such Interest
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Payment Date, Redemption Date, date established for the payment of Defaulted
Interest, Stated Maturity, Change of Control Purchase Date or Net Available Cash
Offer Purchase Date, as the case may be, to the next succeeding Business Day
and, with respect to any Interest Payment Date, interest for the period from and
after such Interest Payment Date shall accrue with respect to the next
succeeding Interest Payment Date.
Section 3.12. CUSIP AND CINS NUMBERS.
The Company in issuing the Notes may use "CUSIP" and "CINS"
numbers (if then generally in use), and if so, the Trustee shall use the CUSIP
or CINS numbers, as the case may be, in notices of redemption or exchange as a
convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP or CINS
number, as the case may be, printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee in writing of any change in
the CUSIP or CINS number of any type of Notes.
Section 3.13. PAYING AGENT TO HOLD MONEY IN TRUST.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Company in making any such payment. Money held in
trust by the Paying Agent need not be segregated except as required by law and
except if the Company, any Guarantor or any of their respective Affiliates is
acting as Paying Agent, and in no event shall the Paying Agent be liable for any
interest on any money received by it hereunder. The Company at any time may
require the Paying Agent to pay all money held by it to the Trustee and account
for any funds disbursed and the Trustee may at any time during the continuance
of any Event of Default, upon a Company Order to the Paying Agent, require such
Paying Agent to pay forthwith all money so held by it to the Trustee and to
account for any funds disbursed. Upon making such payment, the Paying Agent
shall have no further liability for the money delivered to the Trustee.
Section 3.14. [Intentionally Omitted].
Section 3.15. DEPOSITS OF MONIES.
Prior to 12:00 p.m. New York City time on each Interest
Payment Date, Stated Maturity, Redemption Date, Change of Control Purchase Date
and Net Available Cash Offer Purchase Date, the Company shall have deposited
with the Paying Agent in immediately available funds money sufficient to make
cash payments, if any, due on such
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Interest Payment Date, Stated Maturity, Redemption Date, Change of Control
Purchase Date and Net Available Cash Offer Purchase Date, as the case may be, in
a timely manner which permits the Paying Agent to remit payment to the Holders
on such Interest Payment Date, Stated Maturity, Redemption Date, Change of
Control Purchase Date and Net Available Cash Offer Purchase Date, as the case
may be.
Section 3.16. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) The Global Notes initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as
set forth in EXHIBIT B.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Note, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in the Global Notes may
be transferred or exchanged for Physical Notes (as defined below) in
accordance with the rules and procedures of the Depository. In addition,
Notes in the form of EXHIBIT A-1 or EXHIBIT A-2, as the case may be (without
bearing the legends set forth on EXHIBIT B (the "Physical Notes")), shall be
transferred to all beneficial owners in exchange for their beneficial
interests in Global Notes if (i) the Depository notifies the Company that it
is unwilling or unable to continue as Depository for any Global Note, or
that it will cease to be a "Clearing Agency" under the Exchange Act, and in
either case a successor depositary is not appointed by the Company within 90
days of such notice or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a written request from the
Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion
of the beneficial interest in any Global Note to beneficial owners pursuant
to paragraph (b), the Registrar shall (if one or more Physical Notes are to
be issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Note in an amount equal to the principal
amount of the beneficial interest in such Global Note to be
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transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Physical Notes of like tenor and
principal amount of authorized denominations.
(d) In connection with the transfer of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount
at maturity of Physical Notes of like tenor of authorized denominations.
(e) Any Physical Note constituting a Restricted Note
delivered in exchange for an interest in a Global Note pursuant to
subparagraph (b) , (c) or (d) of this Section 3.16 shall, except as
otherwise provided by Section 3.17, bear the Private Placement Legend set
forth on EXHIBIT A-1.
(f) The Holder of any Global Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
Section 3.17. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-U.S. PERSONS. The following additional
provisions shall apply with respect to the registration of any proposed
transfer of an Initial Note to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement Legend,
if (x) the requested transfer is after the second anniversary of
the Issue Date; PROVIDED, HOWEVER, that neither the Company nor
any Affiliate of the Company has held any beneficial interest in
such Note, or portion thereof, at any time on or prior to the
second anniversary of the Issue Date and such transfer can
otherwise be lawfully made under the Securities Act without
registering such Initial Notes thereunder or (y) the proposed
transferor has delivered to the Registrar a certificate
substantially in the form of EXHIBIT C hereto;
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the Regulation S
Global Note upon receipt by the Registrar of (x) written
instructions given in accordance with the Depository's and the
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Registrar's procedures and (y) the appropriate certificate, if
any, required by clause (y) of paragraph (i) above, together with
any required legal opinions and certifications, the Registrar
shall register the transfer and reflect on its books and records
the date and an increase in the principal amount of the Regulation
S Global Note in an amount equal to the principal amount of
Physical Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred;
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the
Registrar of (x) written instructions given in accordance with the
Depository's and the
Registrar's procedures and (y) the appropriate certificate, if
any, required by clause (y) of paragraph (i) above, together with
any required legal opinions and certifications, the Registrar
shall register the transfer and reflect on its books and records
the date and (A) a decrease in the principal amount of the Global
Note from which such interests are to be transferred in an amount
equal to the principal amount of the Notes to be transferred and
(B) an increase in the principal amount of the Regulation S Global
Note in an amount equal to the principal amount of the Global Note
to be transferred; and
(iv) until the 41st day after the Issue Date (the "Restricted
Period"), an owner of a beneficial interest in the Regulation S
Global Note may not transfer such interest to a transferee that is
a U.S. Person or for the account or benefit of a U.S. Person
within the meaning of Rule 902(o) of the Securities Act. During
the Restricted Period, all beneficial interests in the Regulation
S Global Note shall be transferred only through Cedel or
Euroclear, either directly if the transferor and transferee are
participants in such systems, or indirectly through organizations
that are participants.
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of an Initial Note
to a QIB (excluding Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement Legend,
if (x) the requested transfer is after the second anniversary of
the Issue Date; PROVIDED, HOWEVER, that neither the Company nor
any Affiliate of the Company has held any beneficial interest in
such Note, or portion thereof, at any time on or prior to the
second anniversary of the Issue Date and such transfer can
otherwise be lawfully made under the Securities Act without
registering such Initial Note thereunder or (y) such transfer is
being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised
the Company and the Registrar in writing, that the sale has been
made in compliance with the provisions of Rule 144A to a
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transferee who has signed the certification provided for on the
form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Note for its own
account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB
within the meaning of Rule 144A, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A;
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the 144A Global
Note, upon receipt by the Registrar of written instructions given
in accordance with the Depository's and the Registrar's
procedures, the Registrar shall register the transfer and reflect
on its book and records the date and an increase in the principal
amount of the 144A Global Note in an amount equal to the principal
amount of Physical Notes to be transferred, and the Trustee shall
cancel the Physical Note so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the
Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall
register the transfer and reflect on its books and records the
date and (A) a decrease in the principal amount of the Global Note
from which interests are to be transferred in an amount equal to
the principal amount of the Notes to be transferred and (B) an
increase in the principal amount of the 144A Global Note in an
amount equal to the principal amount of the Global Note to be
transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Private Placement
Legend, the Registrar shall deliver Notes that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or replacement
of Notes bearing the Private Placement Legend, the Registrar shall deliver
only Notes that bear the Private Placement Legend unless (i) the
circumstances contemplated by paragraph (a)(i)(x) of this Section 3.17
exist, (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or
(iii) such Note has been sold pursuant to an effective registration
statement under the Securities Act.
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(d) OTHER TRANSFERS. If a Holder proposes to transfer a Note
constituting a Restricted Note pursuant to any exemption from the
registration requirements of the Securities Act other than as provided for
by Section 3.17(a) and (b), the Registrar shall only register such transfer
or exchange if such transferor delivers an Opinion of Counsel satisfactory
to the Company and the Registrar that such transfer is in compliance with
the Securities Act and the terms of this Indenture.
(e) GENERAL. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Note only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 3.16 or this Section
3.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable prior written notice to the Registrar.
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant DEFEASANCE.
The Company may, at its option by Board Resolution, at any
time, with respect to the Notes, elect to have either Section 4.02 or Section
4.03 be applied to all of the Outstanding Notes (the "Defeased Notes"), upon
compliance with the conditions set forth below in this Article Four.
Section 4.02. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.02, the Company and each Guarantor shall be deemed
to have been discharged from their obligations with respect to the Defeased
Notes and the related Guarantees on the date the conditions set forth below are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the Defeased Notes, which shall thereafter be deemed
to be "Outstanding" only for the purposes of Section 4.05
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and the other Sections of this Indenture referred to in (a) and (b) below, and
to have satisfied all its other obligations under such Notes and this Indenture
insofar as such Notes are concerned (and the Trustee, at the expense of the
Company, and, upon Company Request, shall execute proper instruments
acknowledging the same), except for the following, which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
Defeased Notes to receive, solely from the trust funds described in Section 4.04
and as more fully set forth in such section, payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (b) the Company's obligations with respect to such Defeased Notes under
Sections 3.05, 3.06, 3.07, 10.02 and 10.03, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder, including, without limitation,
the Trustee's rights under Section 6.07, and (d) this Article Four. Subject to
compliance with this Article Four, the Company may exercise its option under
this Section 4.02 notwithstanding the prior exercise of its option under Section
4.03 with respect to the Notes.
Section 4.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.03, the Company and each Guarantor shall be
released from their obligations under any covenant or provision contained in
Sections 10.10 through 10.22 and the provisions of Section 8.01 (other than
clause (i) of Section 8.01(a) and (b)) shall not apply, with respect to the
Defeased Notes, on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Defeased Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Defeased Notes, the Company and each
Guarantor may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in Sections 10.10 through 10.22 or
Section 8.01 (other than clause (i) of Section 8.01(a) and (b)), whether
directly or indirectly, by reason of any reference elsewhere herein to any such
Section or Article or by reason of any reference in any such Section or Article
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default under such Section 5.01(d), (f), (g), (h),
(i), (j) or (k)) (with respect only to Significant Subsidiaries in the case of
Section 5.01(i), (j) or (k) (other than a Default thereunder arising by reason
of the covenant defeasance itself), but, except as specified above, the
remainder of this Indenture and such Defeased Notes shall be unaffected thereby.
Section 4.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
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The following shall be the conditions to application of
either Section 4.02 or Section 4.03 to the Defeased Notes:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.09 who shall agree to comply with the provisions
of this Article Four applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Notes, (a)
cash in United States dollars in an amount, or (b) U.S. Government
Obligations which through the scheduled payment of principal, premium, if
any, and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in
an amount, or (c) a combination thereof, in any such case, sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of, premium,
if any, and interest on the Defeased Notes at the Stated Maturity of such
principal or installment of principal, premium, if any, or interest or at
redemption (if a notice of redemption has been duly given in accordance with
Article Thirteen), as the case may be; PROVIDED, HOWEVER, that the Company
may only make such deposit if Article Fourteen does not prohibit payments on
the Notes at the time of the deposit; PROVIDED FURTHER, HOWEVER, that the
Trustee shall have been irrevocably instructed to apply such cash or the
proceeds of such U.S. Government Obligations to said payments with respect
to the Notes;
(2) No Default shall have occurred and be continuing on the
date of such deposit or, insofar as Section 5.01(i), (j) or (k) are
concerned, at any time during the period ending on the ninety-first day
after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such period);
(3) Neither the Company nor any Subsidiary of the Company is
an "insolvent Person" within the meaning of any applicable Bankruptcy Law on
the date of such deposit or at any time during the period ending on the
ninety-first day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
(4) Such defeasance or covenant defeasance shall not cause
the Trustee for the Notes to have a conflicting interest in violation of
Section 6.08 and for purposes of the Trust Indenture Act with respect to any
securities of the Company or any Guarantor;
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(5) Such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, this Indenture
or any other material agreement or instrument to which the Company or any
Guarantor is a party or by which it is bound;
(6) Such defeasance or covenant defeasance shall not result
in the trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act of 1940, as amended, unless
such trust shall be registered under such Act or exempt from registration
thereunder;
(7) The Company shall have delivered to the Trustee an
Opinion of Counsel in the United States to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(8) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of the Notes or any Guarantee over
the other creditors of the Company or any Guarantor with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, any
Guarantor or others;
(9) No event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and
interest on the Notes on the date of such deposit on the date of such
deposit;
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel (which counsel shall
practice in the United States), each stating that (i) all conditions
precedent provided for relating to either the defeasance under Section 4.02
or the covenant defeasance under Section 4.03 (as the case may be) have been
complied with as contemplated by this Section 4.04 and (ii) if any other
Indebtedness of the Company or any Guarantor shall then be outstanding or
committed, such defeasance or covenant defeasance will not violate the
provisions of the agreements or instruments evidencing such Indebtedness;
(11) In the case of an election under Section 4.02, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date hereof, there has
been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Notes will not recognize income, gain
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or loss for Federal income tax purposes as a result of such defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred; and
(12) In the case of an election under Section 4.03, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred.
Opinions required to be delivered under this Section shall be
delivered by independent counsel and may have such qualifications as are
customary for opinions of the type required and reasonably acceptable to the
Trustee, and counsel delivering such opinion may rely on certificates of the
Company or government officials customary for opinions of the type required.
Section 4.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the proviso of the last paragraph of Section
10.03, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this Section 4.05, the "Trustee") pursuant to Section 4.04 in
respect of the Defeased Notes shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Notes and this Indenture, to the
payment, either directly or through any Paying Agent (other than the Company) as
the Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law. Money deposited with the Trustee or a Paying Agent pursuant to this
Article Four shall not be subject to Article Fourteen.
The Company shall pay and indemnify the Trustee and hold it
harmless against any tax, fee or other charge imposed on or assessed against the
U.S. Government Obligations deposited pursuant to Section 4.04 or the principal,
premium, if any, and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
Defeased Notes.
Anything in this Article Four to the contrary
notwithstanding, the Trustee
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shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 4.04
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance.
Section 4.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money
or U.S. Government Obligations in accordance with Section 4.02 or 4.03, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the obligations of the Company and of any Guarantor under this Indenture, the
Notes and the Guarantees shall be revived and reinstated as though no deposit
had occurred pursuant to Section 4.02 or 4.03, as the case may be, until such
time as the Trustee or Paying Agent is permitted to apply all such money and
U.S. Government Obligations in accordance with Section 4.02 or 4.03, as the case
may be; PROVIDED, HOWEVER, that if the Company makes any payment of principal,
premium, if any, or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money and U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 5.01. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(a) default in any payment of interest on any Note when the
same becomes due and payable, and such default continues for a period of 30
days (without regard to the provisions of Article Fourteen); or
(b) default in the payment of the principal of any Note when
the same becomes due and payable at its Stated Maturity, upon optional
redemption, upon
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required repurchase, upon acceleration or otherwise (without regard to the
provisions of Article Fourteen); or
(c) the Company or any Guarantor fails to comply with any of
its obligations described under Article Eight; or
(d) the Company or any Guarantor fails to comply with any of
its obligations described under Sections 10.10 through 10.23, inclusive (in
each case other than a failure to repurchase Notes when required pursuant to
the provisions described under Section 10.11 or Section 10.16, which failure
shall constitute an Event of Default under clause (b) above) and such
failure continues for 30 days after written notice of such failure requiring
the Company to remedy the same shall have been given (i) to the Company by
the Trustee or (ii) to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the Notes then outstanding; or
(e) the Company or any Guarantor fails to comply with any of
its obligations in the Notes, the Guarantees or this Indenture (other than
those referred to in clauses (a), (b), (c) or (d) above) and such failure
continues for 60 days after written notice of such failure requiring the
Company to remedy the same shall have been given (x) to the Company by the
Trustee or (y) to the Company and the Trustee by the holders of at least 25%
in aggregate principal amount of the Notes then outstanding; or
(f) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total amount
of such unpaid or accelerated Indebtedness in the aggregate exceeds $10.0
million at the time and such default shall not have been cured or such
acceleration rescinded within a 30 day period; or
(g) one or more judgments or decrees for the payment of money
in excess of $10.0 million in the aggregate (to the extent not covered by
insurance) is entered against the Company or any Significant Subsidiary and
such judgment or decree remains undischarged or unstayed for a period of 60
days after such judgment becomes final and non-appealable; or
(h) (i) any Guarantee of a Significant Subsidiary ceases to
be in full force and effect or is declared null and void or (ii) any
Guarantor that is a Significant Subsidiary denies that it has any further
liability under any Guarantee, or gives notice to such effect (other than,
in each case, by reason of the termination of this
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Indenture or the release of any such Guarantee in accordance with the terms
of this Indenture); or
(i) the Company or any Significant Subsidiary of the Company
pursuant to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the making of a Bankruptcy Order in an
involuntary case or proceeding or the commencement of any case
against it;
(iii) consents to the appointment of a Custodian of it or for
any substantial part of its property;
(iv) makes a general assignment for the benefit of its
creditors;
(v) files an answer or consent seeking reorganization or
relief;
(vi) shall admit in writing its inability to pay its debts
generally; or
(vii) consents to the filing of a petition in bankruptcy; or
(j) a court of competent jurisdiction in any involuntary case
or proceeding enters a Bankruptcy Order against the Company or any
Significant Subsidiary, and such Bankruptcy Order remains unstayed and in
effect for 60 consecutive days; or
(k) a Custodian shall be appointed out of court with respect
to the Company or any Significant Subsidiary or with respect to all or any
substantial part of the assets or properties of the Company or any
Significant Subsidiary.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than as specified in Section
5.01(i), (j) or (k) with respect to the Company) shall occur and be continuing,
the Trustee, by notice to the Company, or the Holders of at least 25% in
aggregate principal amount of the Notes then Outstanding, by notice to the
Trustee and the Company, may declare the principal of, premium, if any, and
accrued interest on all of the Outstanding Notes due and payable immediately,
upon which declaration all such amounts payable in respect of the Notes will
become and be immediately due and payable; PROVIDED that so long as the Credit
Facility shall be in full force and effect, if an Event of Default shall have
occurred and be continuing (other than as specified in Section 5.01(i), (j) or
(k) with respect to the Company), any such
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acceleration shall not be effective until the earlier to occur of (x) five
Business Days following delivery of a notice of such acceleration to the
Representative under the Credit Facility and (y) the acceleration of any
Indebtedness under the Credit Facility. If an Event of Default specified in
Section 5.01(i), (j) or (k) with respect to the Company occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the Outstanding Notes will IPSO FACTO become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes.
At any time after a declaration of acceleration, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the Notes that has become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 5.13.
No such rescission shall affect any subsequent Default or
impair any right consequent thereon.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company and each Guarantor covenant that if an Event of
Default specified in Section 5.01(a) or 5.01(b) shall have occurred and be
continuing, the Company and each Guarantor will, jointly and severally, upon
demand of the Trustee, pay to the Trustee, for the benefit of the Holders of
such Notes, the whole amount then due and payable on such Notes for principal,
premium, if any, and interest, with interest upon the overdue principal,
premium, if any, and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate then
borne by the Notes; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company and each Guarantor fail to pay such amounts
forthwith upon such demand, the Trustee, in its own name and as trustee of an
express trust, may, but is not obligated under this paragraph to, institute a
judicial proceeding for the collection of the sums so due and unpaid and may,
but is not obligated under this paragraph to, prosecute such proceeding to
judgment or final decree, and may, but is not obligated under this paragraph to,
enforce the same against the Company, any Guarantor
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or any other obligor upon the Notes and collect the moneys adjudged or decreed
to be payable in the manner provided by law out of the property of the Company
or any Guarantor or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion but is not obligated under this paragraph to, (i) proceed
to protect and enforce its rights and the rights of the Holders under this
Indenture or any Guarantee by such appropriate private or judicial proceedings
as the Trustee shall deem most effectual to protect and enforce such rights,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted herein, including,
without limitation, seeking recourse against any Guarantor or (ii) proceed to
protect and enforce any other proper remedy, including, without limitation,
seeking recourse against any Guarantor. No recovery of any such judgment upon
any property of the Company or any Guarantor shall affect or impair any rights,
powers or remedies of the Trustee or the Holders.
Section 5.04. TRUSTEE MAY FILE PROOFS OF CLAIMS.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Notes, including each Guarantor, or the property of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, fees, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any Custodian, in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its
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agents and counsel, and any other amounts due the Trustee under Section 6.07
hereof.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
Section 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture, the
Notes or any Guarantee may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
fees, expenses, disbursements and advances of the Trustee, its agents and
counsel, be for the ratable benefit of the Holders of the Notes in respect of
which such judgment has been recovered.
Section 5.06. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to the holders of Senior Indebtedness to the extent
required by Article Fourteen.
Third: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for interest;
Fourth: to Holders for principal and premium, if any, amounts
owing under the Notes, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal and
premium, if any; and
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Fifth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may
fix a record date and payment date for any payment to Holders pursuant to this
Section 5.06.
Section 5.07. LIMITATION ON SUITS.
No holder of any of the Notes has any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or any remedy thereunder, unless
(i) such Holder has previously given the Trustee notice that
an Event of Default is continuing,
(ii) the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes have made written request, and
offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee under the Notes and this Indenture,
(iii) the Trustee has failed to institute such proceeding
within 60 days after receipt of such notice and offer of
indemnity, and
(iv) the Trustee, within such 60-day period, has not received
directions inconsistent with such written request by Holders of a
majority in aggregate principal amount of the Outstanding Notes.
Such limitations do not apply, however, to a suit instituted by a
holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing to, any provision of
this Indenture, any Note or any Guarantee to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Note or any Guarantee, except in the manner provided in this Indenture and
for the equal and ratable benefit of all the Holders.
Section 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST.
Notwithstanding any other provision in this Indenture, but
subject to
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Article Fourteen, the Holder of any Note shall have the right, which is absolute
and unconditional, to receive cash payment of the principal of, premium, if any,
and (subject to Section 3.08 hereof) interest on such Note on the respective
Stated Maturities expressed in such Note (or, in the case of redemption, a
Change of Control Offer or Net Available Cash Offer, on the Redemption Date,
Change of Control Purchase Date or Net Available Cash Offer Purchase Date,
respectively) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
Section 5.09. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture, any Note or any Guarantee and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, each of the Guarantor, the Trustee and the Holders shall,
subject to any determination in such proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 5.10. RIGHTS AND REMEDIES CUMULATIVE.
Except as provided in Section 3.07, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 5.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
Five or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
Section 5.12. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of
the Outstanding Notes shall have the right to direct the time, method and place
of conducting any
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proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, PROVIDED, HOWEVER, that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture, any Note or any Guarantee or expose the Trustee
to personal liability; and
(b) subject to Section 315 of the TIA, the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction.
Section 5.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes may on behalf of the Holders of all
the Notes waive any past Default hereunder and its consequences, except a
Default:
(a) in the payment of the principal of, premium, if any, or
interest on any Note or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the Holder
of each Outstanding Note affected thereby.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 5.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Note by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on any Note on or after the
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respective Stated Maturities expressed in such Note (or, in the case of
redemption, a Change of Control Offer or Net Available Cash Offer on or after
the Redemption Dates, Change of Control Purchase Date or Net Available Cash
Offer Purchase Date, as the case may be).
Section 5.15. WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each of the Company and the Guarantors covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury or other law wherever enacted, now or at
any time hereafter in force, which would prohibit or forgive the Company or any
Guarantor from paying all or any portion of the principal of, premium, if any,
or interest on the Notes contemplated herein or in the Notes or which may affect
the covenants or the performance of this Indenture; and each of the Company and
the Guarantors (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
Section 6.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions which by provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use
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the same degree of care and skill in its exercise thereof, as a prudent
Person would exercise or use under the circumstances in the conduct of such
Person's own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that no
provision of this Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 6.01.
Section 6.02. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Default which is
continuing and known to the Trustee, the Trustee shall transmit by mail to all
Holders, as their names and addresses appear in the Note Register, notice of
such Default hereunder known to the Trustee, unless such Default shall have been
cured or waived; PROVIDED, HOWEVER, that, except in the case of a Default in the
payment of the principal of, premium, if any, or interest on any Note, the
Trustee shall be protected in withholding such notice if and so long as a trust
committee of Responsible Officers of the Trustee in good faith determines that
the withholding of such notice is in the interest of the Holders.
Section 6.03. CERTAIN RIGHTS OF TRUSTEE.
Subject to Section 6.01 hereof and the provisions of Section
315 of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and
any board resolution of the Company or any Guarantor may be sufficiently
evidenced by a Board Resolution thereof;
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(c) the Trustee may consult with counsel and any written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon in accordance
with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by the
Trustee in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within
the discretion, rights or powers conferred upon it by this Indenture other
than any liabilities arising out of its own negligence, bad faith or willful
misconduct;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security, other evidence
of indebtedness or other paper or document unless requested in writing so to
do by the Holders of not less than a majority in aggregate principal amount
of the Notes then Outstanding; PROVIDED, HOWEVER, that, if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation
is, in the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the Trustee may
require reasonable indemnity against such expenses or liabilities as a
condition to proceeding; the reasonable expenses of every such investigation
shall be paid by the Company or, if paid by the Trustee or any predecessor
Trustee, shall be repaid by the Company upon demand; PROVIDED, FURTHER, the
Trustee in its discretion may make such further inquiry or investigation
into such facts or matters as it may deem fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company and its
Subsidiaries, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with
due care by it hereunder.
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Section 6.04. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF NOTES OR
APPLICATION OF PROCEEDS THEREOF.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
and the Guarantors, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Notes or of any Guarantee except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Notes and perform its obligations hereunder and that
the statements made by it in a Statement of Eligibility and Qualification on
Form T-1, if any, to be supplied to the Company are true and accurate subject to
the qualifications set forth therein. The Trustee shall not be accountable for
the use or application by the Company of Notes or the proceeds thereof.
Section 6.05. TRUSTEE AND AGENTS MAY HOLD NOTES; COLLECTIONS; ETC.
The Trustee, any Paying Agent, Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Notes, with the same rights it would have if it were not the Trustee,
Paying Agent, Registrar or such other agent and, subject to Sections 6.08 and
6.13 hereof and Sections 310 and 311 of the Trust Indenture Act, may otherwise
deal with the Company and receive, collect, hold and retain collections from the
Company with the same rights it would have if it were not the Trustee, Paying
Agent, Registrar or such other agent.
Section 6.06. MONEY HELD IN TRUST.
All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required herein or by law. The Trustee shall not be under any liability for
interest on any moneys received by it hereunder, except as otherwise agreed in
writing with the Company.
Section 6.07. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR
CLAIM.
The Company and each Guarantor covenant and agree:
(a) to pay to the Trustee from time to time, and the Trustee
shall be
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entitled to, reasonable compensation for all services rendered by it
hereunder (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) to reimburse the Trustee and each predecessor Trustee upon
its request for all reasonable expenses, fees, disbursements and
advances incurred or made by or on behalf of it in accordance with any
of the provisions of this Indenture (including the reasonable
compensation, fees, and the expenses and disbursements of its counsel
and of all agents and other Persons not regularly in its employ),
except any such expense, disbursement or advance as may arise from its
negligence, bad faith or willful misconduct; and
(c) to indemnify the Trustee and each predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense
incurred without negligence, bad faith or willful misconduct on its
part, arising out of or in connection with the acceptance or
administration of this Indenture or the trusts hereunder and its
duties hereunder, including enforcement of this Section 6.07.
The obligations of the Company and each Guarantor under this Section to
compensate and indemnify the Trustee and each predecessor Trustee and to pay or
reimburse the Trustee and each predecessor Trustee for expenses, fees,
disbursements and advances shall constitute an additional obligation hereunder
and shall survive the satisfaction and discharge of this Indenture.
Section 6.08. CONFLICTING INTERESTS.
The Trustee shall be subject to and comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and (2)
and which shall have (or whose obligations under this Indenture shall be
guaranteed by an entity that has) a combined capital and surplus of at least
$100,000,000. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of any Federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section,
the Trustee shall resign immediately in the manner and
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with the effect hereinafter specified in this Article.
Section 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee, or any trustee or trustees hereinafter
appointed, may at any time resign by giving written notice thereof to the
Company at least 20 Business Days prior to the date of such proposed
resignation. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee by written instrument executed by authority
of the Board of Directors of the Company, a copy of which shall be delivered to
the resigning Trustee and a copy to the successor Trustee. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 20 Business Days after the giving of such notice of resignation, the
resigning Trustee may, or any Holder who has been a bona fide Holder of a Note
for at least six consecutive months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee. Such court may thereupon, after such notice,
if any, as it may deem proper, appoint a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the
Holders of a majority in principal amount of the Outstanding Notes, delivered to
the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act in accordance with Section 6.08
hereof after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Note for at least six consecutive months,
or
(2) the Trustee shall cease to be eligible under Section 6.09
hereof and shall fail to resign after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Note for at
least six consecutive months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its
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property or affairs for the purpose or rehabilitation, conservation or
liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Note who has been a bona fide
Holder of a Note for at least six consecutive months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution of its Board of Directors, shall
promptly appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders of the Notes and accepted
appointment in the manner hereinafter provided, the Holder of any Note who has
been a bona fide Holder for at least six consecutive months may, subject to
Section 5.14,on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Notes as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company or
the successor Trustee, upon payment of amounts due it pursuant to Section 6.07,
such retiring Trustee shall duly assign, transfer and deliver to the successor
Trustee all moneys and property at the time held by it hereunder and shall
execute and deliver an
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instrument transferring to such successor Trustee all the rights, powers, duties
and obligations of the retiring Trustee. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights
and powers.
No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under this
Article.
Upon acceptance of appointment by any successor Trustee as
provided in this Section 6.11, the successor, at the expense of the Company,
shall give notice thereof to the Holders of the Notes, by mailing such notice to
such Holders at their addresses as they shall appear on the Note Register. If
the acceptance of appointment is substantially contemporaneous with the
resignation, then the notice called for by the preceding sentence may be
combined with the notice called for by Section 6.10
Section 6.12. MERGER, CONVERSION, AMALGAMATION, CONSOLIDATION OR
SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or amalgamated, or any
corporation resulting from any merger, conversion, amalgamation or consolidation
to which the Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee (including the
trust created by this Indenture), shall be the successor of the Trustee
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided such corporation shall be eligible
under this Article Six to serve as Trustee hereunder.
In case at the time such successor to the Trustee under this
Section 6.12 shall succeed to the trusts created by this Indenture any of the
Notes shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor Trustee
and deliver such Notes so authenticated; and, in case at that time any of the
Notes shall not have been authenticated, any successor to the Trustee under this
Section 6.12 may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Trustee shall have been
authenticated.
Section 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY AND
GUARANTORS.
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If and when the Trustee shall be or become a creditor of the
Company or any Guarantor (or other obligor on the Notes), the Trustee shall be
subject to the provisions of the TIA regarding the collection of claims against
the Company or any such Guarantor (or any such other obligor). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
set forth therein.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. PRESERVATION OF INFORMATION; COMPANY TO FURNISH TRUSTEE NAMES
AND ADDRESSES OF HOLDERS.
(a) The Trustee shall preserve the names and addresses of
the Noteholders and otherwise comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish or cause the Registrar to furnish
to the Trustee before each Interest Payment Date, and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Noteholders.
Neither the Company nor the Trustee shall be under any responsibility with
regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to
the Trustee
(i) semi-annually, not more than 15 days after each
Regular Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date; and
(ii) at such other times as the Trustee may reasonably
request in writing, within 30 days after receipt by the Company of any
such request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished;
PROVIDED, HOWEVER, that if and so long as the Trustee shall be the Registrar, no
such list need be furnished pursuant to this Subsection 7.01(b).
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Section 7.02. COMMUNICATIONS OF HOLDERS.
Holders may communicate with other Holders with respect to
their rights under this Indenture or under the Notes pursuant to Section 312(b)
of the Trust Indenture Act. The Company and the Trustee and any and all other
Persons benefited by this Indenture shall have the protection afforded by
Section 312(c) of the Trust Indenture Act.
Section 7.03. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 following the date of this Indenture, the Trustee shall mail to all
Holders, as their names and addresses appear in the Note Register, a brief
report dated as of such May 15, in accordance with, and to the extent required
under Section 313 of the Trust Indenture Act. At the time of its mailing to
Holders, a copy of each such report shall be filed by the Trustee with the
Company, the Commission and with each stock exchange on which the Notes are
listed. The Company shall notify the Trustee when the Notes are listed on any
stock exchange.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
(a) The Company shall not consolidate with or merge with
or into, or sell, convey, transfer or lease all or substantially all its assets
to, any Person, or permit any of its Restricted Subsidiaries to enter into any
such transaction if such transaction would result in the sale, conveyance,
transfer or lease of all or substantially all of the assets of the Company and
the Restricted Subsidiaries on a consolidated basis, unless:
(i) the Surviving Person shall be a corporation organized
and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Surviving Person (if not the
Company) shall expressly assume, by a supplemental indenture, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and this Indenture and
the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction
(and treating any
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Indebtedness which becomes an obligation of the Surviving Person or any
Restricted Subsidiary of the Surviving Person as a result of such
transaction as having been Incurred by the Surviving Person or such
Restricted Subsidiary at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing; and
(iii) immediately after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the
Surviving Person or any Restricted Subsidiary of the Surviving Person as
a result of such transaction as having been Incurred by the Surviving
Person or such Restricted Subsidiary at the time of such transaction),
the Surviving Person would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 10.12(a) hereof.
Notwithstanding clauses (ii) and (iii) of the first sentence of this paragraph:
(1) any Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Wholly-Owned Subsidiary that is a Guarantor; and (2) the Company may merge with
an Affiliate incorporated solely for the purpose of reincorporating the Company
in another jurisdiction to realize tax or other benefits.
(b) No Guarantor (other than a Guarantor whose Guarantee
is to be released in accordance with the terms of Section 12.05) shall, in any
transaction or series of related transactions, consolidate with or merge with or
into another Person, whether or not such Person is affiliated with such
Guarantor and whether or not such Guarantor is the Surviving Person, unless:
(i) the Surviving Person (if other than such Guarantor)
is a corporation organized and validly existing under the laws of the
United States, any State thereof or the District of Columbia;
(ii) the Surviving Person (if other than such Guarantor)
expressly assumes by a supplemental indenture all the obligations of
such Guarantor under its Guarantee and the performance and observance of
every covenant of this Indenture and the Registration Rights Agreement
to be performed or observed by such Guarantor; and
(iii) immediately after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the
Surviving Person or any Restricted Subsidiary of the Surviving Person as
a result of such transaction as having been Incurred by the Surviving
Person or such Restricted Subsidiary at the time of such transaction),
no Default or Event of Default shall have occurred and be
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continuing.
(c) In connection with any consolidation, merger,
transfer, lease or other disposition contemplated hereby, the Company shall
deliver, or cause to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, transfer, lease or
other disposition and the supplemental indenture in respect thereof comply with
the requirements of this Indenture. In addition, each Guarantor, in the case of
a transaction described in Section 8.01(a), unless it is the other party to the
transaction or unless its Guarantee will be released and discharged in
accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Guarantee will continue to apply to
the obligations of the Company or the Surviving Person under this Indenture.
Section 8.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger of the Company or any
Guarantor, or any sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or any Guarantor in accordance with Section 8.01 hereof in which the
Company or a Guarantor is not the Surviving Person, the Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, under this Indenture, the Notes and the Registration Rights
Agreement or such Guarantor under this Indenture, the Guarantee of such
Guarantor and the Registration Rights Agreement, as the case may be, with the
same effect as if such successor corporation had been named as the Company or
such Guarantor, as the case may be, herein, and in the Notes, the Guarantee of
such Guarantor and in the Registration Rights Agreement and, thereafter, except
in the case of (a) a lease or (b) any sale, assignment, conveyance, transfer or
other disposition to a Restricted Subsidiary of the Company or such Guarantor,
the Company shall be discharged from all obligations and covenants under this
Indenture, the Notes and the Registration Rights Agreement and such Guarantor
shall be discharged from all obligations and covenants under this Indenture, the
Registration Rights Agreement and the Guarantee of such Guarantor, as the case
may be.
For all purposes of this Indenture and the Notes (including
this Article Eight and Sections 10.12, 10.14 and 10.17 hereof), Subsidiaries of
any Surviving Person will, upon such transaction or series of related
transactions described in this Article Eight, become Restricted Subsidiaries
unless and until designated as Unrestricted Subsidiaries pursuant to and in
accordance with the terms of this Indenture and all Indebtedness, and all Liens
on property or assets, of the Company and the Restricted Subsidiaries in
existence immediately prior to such transaction or series of related
transactions will be deemed to have been incurred upon such transaction or
series of related transactions.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS WITHOUT
CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the
Guarantors, when authorized by a Board Resolution of the Board of Directors of
the Company and each Guarantor, and the Trustee, at any time and from time to
time, may amend, waive, modify or supplement this Indenture or the Notes or the
Guarantees for any of the following purposes:
(a) to evidence the succession of another Person to the
Company or a Guarantor, and the assumption by any such successor of the
covenants of the Company or such Guarantor herein and in the Notes
and/or in any Guarantee, as the case may be, in accordance with Article
Eight;
(b) to add to the covenants of the Company or any
Guarantor for the benefit of the Holders, or to surrender any right or
power herein conferred upon the Company or any Guarantor, as applicable,
herein, in the Notes or in any Guarantee, as the case may be;
(c) to cure any ambiguity or to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, in the Notes, or in any Guarantee;
(d) to comply with the requirements of the Commission in order
to maintain the qualification of this Indenture under the Trust
Indenture Act;
(e) to secure the Notes pursuant to the requirements of
Section 10.17 hereof or otherwise or to add a Guarantor pursuant to the
requirements of Section 10.22 hereof or otherwise;
(f) to evidence and provide the acceptance of the
appointment of a successor Trustee hereunder; or
(g) to make any other provisions with respect to matters or
questions arising under this Indenture, the Notes or any Guarantee;
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PROVIDED, that, in any case, such provisions shall not materially adversely
affect the interests or rights of any of the Holders of the Notes and the
Company shall have delivered to the Trustee an Opinion of Counsel to such
effect.
Notwithstanding the foregoing, an amendment under this Section
may not make any change that adversely affects the rights under Article Fourteen
of any holder of Senior Indebtedness of the Company or a Guarantor then
outstanding unless the holders of such Senior Indebtedness (or any group or
Representative thereof authorized to give a consent) consent to such change.
Section 9.02. SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS WITH CONSENT
OF HOLDERS.
Amendments and modifications of this Indenture or the Notes
may be made by the Company, the Guarantors and the Trustee with the consent of
the Holders of not less than a majority of the aggregate principal amount of the
outstanding Notes; PROVIDED, HOWEVER, that no such modification or amendment
may, without the consent of the Holder of each outstanding Note affected
thereby,
(a) reduce the amount of Notes whose Holders must consent
to an amendment;
(b) reduce the stated rate of or extend the stated time
for payment of interest on any Note;
(c) reduce the principal of or change the Stated Maturity
of any Note;
(d) reduce the premium payable upon the redemption or
repurchase of any Note or change the time at which any Note may be
redeemed;
(e) make any Note payable in money other than that stated
in the Note;
(f) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes;
(g) modify the ranking or priority of any Note or the
Guarantee of any Guarantor in any adverse manner;
(h) following the occurrence of a Change of Control or an
Asset
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Disposition, modify in a manner materially adverse to the Holders of
Notes affected thereby the provisions of any covenant (or the related
definitions) in this Indenture requiring the Company to make and
consummate an offer to purchase with respect to such Change of Control
or a Net Available Cash Offer with respect to such Asset Disposition;
(i) release any Guarantor that is a Significant
Subsidiary from any of its obligations under its Guarantee or this
Indenture otherwise than in accordance with this Indenture; or
(j) make any change in the amendment or waiver provisions
which require each affected Holder's consent.
Upon the written request of the Company and each Guarantor
accompanied by a copy of a Board Resolution of the Board of Directors of the
Company and each Guarantor authorizing the execution of any such supplemental
indenture or other agreement, instrument or waiver, and upon the filing with the
Trustee of evidence of the consent of Holders as aforesaid, the Trustee shall
join with the Company and each Guarantor in the execution of such supplemental
indenture or other agreement, instrument or waiver.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture or
other agreement, instrument or waiver, but it shall be sufficient if such Act
shall approve the substance thereof.
Notwithstanding the foregoing, an amendment under this Section
may not make any change that adversely affects the rights under Article Fourteen
of any holder of Senior Indebtedness of the Company or a guarantor (or any group
or Representative thereof authorized to give a consent) consent to such change.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS.
In executing, or accepting the additional trusts created by,
any supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01 hereof) shall be fully protected in relying upon, an Opinion of Counsel and
an Officers' Certificate from each obligor under the Notes
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entering into such supplemental indenture, agreement, instrument or waiver, each
stating that the execution of such supplemental indenture, agreement, instrument
or waiver (a) is authorized or permitted by this Indenture and (b) does not
violate the provisions of any agreement or instrument evidencing any other
Indebtedness of the Company, any Guarantor or any other Subsidiary of the
Company. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture, agreement, instrument or waiver which affects the
Trustee's own rights, duties or immunities under this Indenture, the Notes, any
Guarantee or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article Nine, this Indenture, the Notes, if applicable, and/or the applicable
Guarantee shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture, the Notes, if applicable, and/or
the applicable Guarantee, as the case may be, for all purposes; every Holder of
Notes theretofore or thereafter authenticated and delivered hereunder shall be
bound thereby.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the Trust Indenture Act as then in
effect.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the Board
of Directors of the Company, to any such supplemental indenture may be prepared
and executed by the Company and each Guarantor and authenticated and delivered
by the Trustee upon a Company Order in exchange for Outstanding Notes.
Section 9.07. RECORD DATE.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
supplemental indenture, agreement or instrument or any waiver, and shall
promptly notify the Trustee of any such record date. If a record date is fixed,
those Persons who were Holders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to consent to such
supplemental indenture, agreement or instrument or waiver or to revoke any
consent
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previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective with respect to such
supplemental indenture, agreement or instrument or waiver which is entered into
more than 90 days after such record date.
Section 9.08. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if a notation of the consent is not made on
any Note. However, any such Holder or subsequent Holder may revoke the consent
as to his Note or portion of a Note if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. An
amendment or waiver shall become effective in accordance with its terms and
thereafter bind every Holder.
ARTICLE TEN
COVENANTS
Section 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Notes in accordance with the terms of the
Notes, this Indenture and the Registration Rights Agreement.
Section 10.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain, in the Borough of Manhattan in The
City of New York, State of New York, an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The office
of the Trustee at its Corporate Trust Office shall be such office or agency of
the Company, unless the Company shall designate and maintain some other office
or agency for one or more of such purposes. The Company shall give prompt
written notice to the Trustee of any change in the location of any such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
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The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York, State of New
York) where the Notes may be presented or surrendered for any or all such
purposes, and may from time to time rescind such designation; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in The City of New York, State
of New York for such purposes. The Company shall give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such other office or agency.
Section 10.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company or any of its Affiliates shall at any time act
as its own Paying Agent, it will, on or before each due date of the principal
of, premium, if any, or interest on any of the Notes, segregate and hold in
trust for the benefit of the Holders entitled thereto a sum sufficient to pay
the principal, premium, if any, or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
If the Company or any of its Affiliates is not acting as
Paying Agent, the Company will, on or before each due date of the principal of,
premium, if any, or interest on, any Notes, deposit with a Paying Agent a sum in
same day funds sufficient to pay the principal, premium, if any, or interest so
becoming due, such sum to be held in trust for the benefit of the Holders
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent will agree with the Trustee,
subject to the provisions of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the
principal of, premium, if any, or interest on Notes in trust for the
benefit of the Holders entitled thereto until such sums shall be paid to
such Holders or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company
or any Guarantor (or any other obligor upon the Notes) in the making of
any payment of principal of, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such
Default, upon the
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written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all
aspects with the provisions of this Indenture relating to the duties,
rights and liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent will be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company upon receipt of a Company Request therefor, or (if then held by
the Company) will be discharged from such trust; and the Holder of such Note
will thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, will thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, at the option of the Company
in the New York Times or the Wall Street Journal (national edition), notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
Section 10.04. CORPORATE EXISTENCE.
Subject to Article Eight, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory), licenses and franchises of
the Company and each of the Restricted Subsidiaries; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right, license or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
the Restricted Subsidiaries as a whole and that the loss thereof is not adverse
in any material respect to the Holders; PROVIDED FURTHER, that the foregoing
shall not
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prohibit a sale, transfer or conveyance of a Subsidiary of the Company or any of
its assets in compliance with the terms of this Indenture.
Section 10.05. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed (i) upon the Company or
any of its Restricted Subsidiaries or (ii) upon the income, profits or property
of the Company or any of the Restricted Subsidiaries and (b) all material lawful
claims for labor, materials and supplies, which, if unpaid, could reasonably be
expected to become a Lien upon the property of the Company or any of the
Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim (x) whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted and for which appropriate provision has been made in
accordance with GAAP or (y) if the failure to so pay, discharge or cause to be
paid or discharged could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect (as defined in the Purchase Agreement).
Section 10.06. MAINTENANCE OF PROPERTIES.
The Company shall cause all material properties owned by the
Company or any of the Restricted Subsidiaries or used or held for use in the
conduct of their respective businesses to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section 10.06 shall prevent (a) the Company from discontinuing
the maintenance of any of such properties if such discontinuance is, in the
judgment of the Company (as evidenced, in each instance, by a Board Resolution
of the Company), desirable in the conduct of its business or the business of any
of the Restricted Subsidiaries and is not disadvantageous in any material
respect to the Holders or (b) a sale, transfer, merger, consolidation or
conveyance of assets in compliance with Article Eight or Section 10.16 and, in
each case, otherwise in compliance with the provisions of this Indenture.
Section 10.07. INSURANCE.
The Company shall maintain, and shall cause the Restricted
Subsidiaries to
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maintain, insurance with responsible carriers against such risks and in such
amounts, and with such deductibles, retentions, self-insured amounts and
co-insurance provisions, as are customarily carried by similar businesses of
similar size and type, including property and casualty loss, and workers'
compensation insurance.
Section 10.08. BOOKS AND RECORDS.
The Company shall keep proper books of record and account, in
which full and correct entries will be made of all financial transactions and
the assets and business of the Company and each Restricted Subsidiary of the
Company in material compliance with GAAP.
Section 10.09. GUARANTEES.
Each of the Guarantors and the Company shall, and the Company
will cause each of the Guarantors to, ensure at all times that, unless otherwise
permitted by this Indenture, each Guarantee will remain in full force and
effect.
Section 10.10. PROVISION OF FINANCIAL STATEMENTS.
For so long as the Notes are outstanding, whether or not the
Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any
successor provision thereto, the Company shall, to the extent permitted by
Commission practice and applicable law and regulations, file with the Commission
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the Commission pursuant to such Section
13(a) or 15(d), or any successor provision thereto, if the Company was so
subject, such documents to be filed with the Commission on or prior to the date
(the "Required Filing Dates") by which the Company would have been required so
to file such documents if the Company was so subject. The Company shall also in
any event within 15 days of each Required Filing Date, whether or not permitted
or required to be filed with the Commission, (i) transmit or cause to be
transmitted by mail to all holders of Notes, as their names and addresses appear
in the security register, without cost to such holders and (ii) file with the
Trustee, copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, if the Company were subject to either of such Sections.
In addition, for so long as any Notes remain outstanding, the
Company shall furnish to the holders of Notes and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act, and, to any beneficial holder of Notes
known to the Company, if not obtainable from the
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Commission, information of the type that would be filed with the Commission
pursuant to the foregoing provisions, upon the request of any such holder.
Section 10.11. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each
Holder shall have the right to require the Company to repurchase all or any part
of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, such repurchase to be made in accordance with Section 10.11(b)
below.
(b) Within 30 days following any Change of Control,
unless the Company has mailed a redemption notice with respect to all the
outstanding Notes in connection with such Change of Control, the Company shall
mail a notice (the "Change of Control Offer") to each Holder with a copy to the
Trustee stating:
(i) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such Holder's
Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of
purchase;
(ii) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed) (the
"Change of Control Purchase Date");
(iii) the procedures determined by the Company, consistent
with this Indenture, that a Holder must follow in order to have its
Notes purchased;
(iv) that the Change of Control Offer is being made
pursuant to this Section 10.11 and that all Notes tendered into the
Change of Control Offer will be accepted for payment; and that the
Change of Control Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by applicable law;
(v) the purchase price (including the amount of accrued
interest, if any) for each Note, the Change of Control Purchase Date and
the date on which the Change of Control Offer expires;
(vi) that any Note not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
(vii) that, unless the Company shall default in the payment
of the
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purchase price, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date;
(viii) that Holders electing to have Notes purchased
pursuant to a Change of Control Offer will be required to surrender
their Notes to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the Change of Control
Purchase Date and must complete any form letter of transmittal proposed
by the Company and acceptable to the Trustee and the Paying Agent;
(ix) that Holders of Notes will be entitled to withdraw
their election if the Paying Agent receives, not later than 5:00 p.m.,
New York City time, on the Change of Control Purchase Date, a facsimile
transmission or letter setting forth the name of the Holders, the
principal amount of Notes the Holders delivered for purchase, the Note
certificate number (if any) and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(x) that Holders whose Notes are purchased only in part
will be issued Notes of like tenor equal in principal amount to the
unpurchased portion of the Notes surrendered;
(xi) the instructions that Holders must follow in order to
tender their Notes; and
(xii) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
Commission pursuant to the Exchange Act (or, if the Company is not
permitted to file any such reports with the Commission, the comparable
reports prepared pursuant to Section 10.10), a description of material
developments in the Company's business, information with respect to pro
forma historical financial information after giving effect to such
Change of Control and such other information concerning the
circumstances and relevant facts regarding such Change of Control and
Change of Control Offer as would, in the good faith judgment of the
Company, be material to a Holder of Notes in connection with the
decision of such Holder as to whether or not it should tender Notes
pursuant to the Change of Control Offer.
On the Change of Control Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof in integral multiples of $1,000
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent money, in immediately available funds, sufficient to pay the purchase
price of all Notes or portions thereof so tendered and accepted and (iii)
deliver to the Trustee the Notes so accepted together with an Officers'
Certificate setting forth the Notes or portions thereof tendered to and accepted
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for payment by the Company. The Paying Agent shall promptly mail or deliver to
the Holders of Notes so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Note of like tenor equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Change of Control Offer not later than the
first Business Day following the Change of Control Purchase Date.
(c) The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase of Notes
pursuant to this Section 10.11. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Indenture, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in this Indenture
by virtue thereof.
Section 10.12. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any of the
Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness or
issue Disqualified Stock and shall not permit any of the Restricted Subsidiaries
to issue Preferred Stock other than to (and so long as it is held by) the
Company or a Wholly-Owned Subsidiary; PROVIDED, HOWEVER, that the Company and a
Guarantor may Incur Indebtedness and the Company may issue Disqualified Stock,
if on the date thereof and immediately after giving PRO FORMA effect thereto and
the use of the proceeds thereof (in accordance with the definition of
"Consolidated Coverage Ratio"), the Consolidated Coverage Ratio is at least
equal to (i) 2.00:1.00 on or prior to May 1, 2001, and (ii) 2.25:1.00 after May
1, 2001.
(b) Notwithstanding the foregoing paragraph (a), each and all
of the following shall be permitted:
(i) Indebtedness Incurred by the Company or any Guarantor
pursuant to the Credit Facility (including, without limitation, any
renewal, extension, refunding, restructuring, replacement or
refinancing thereof referred to in the definition thereof); PROVIDED,
HOWEVER, that the aggregate principal amount of all Indebtedness
Incurred pursuant to this clause (i) does not exceed $175.0 million at
any time outstanding (PROVIDED, that any refinancing of the Credit
Facility incurred under Section 10.12(a) shall be deemed not to be
outstanding under or Incurred pursuant to this clause (i)), less the
aggregate principal amount thereof required to be repaid with the net
proceeds of Asset Dispositions (to the extent, in the case of a
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repayment of revolving credit Indebtedness, the commitment to advance
the loans repaid has been terminated);
(ii) Indebtedness Incurred by the Company or any Guarantor
represented by Capitalized Lease Obligations, mortgage financing or
purchase money obligations, in each case Incurred for the purpose of
financing all or any part of the purchase price or cost of construction
or improvement of property used in a Related Business or Incurred to
refinance any such purchase price or cost of construction or
improvement, in each case Incurred no later than 365 days after the
date of such acquisition or the date of completion of such construction
or improvement; PROVIDED, HOWEVER, that the principal amount of any
Indebtedness Incurred pursuant to this clause (ii) shall not exceed
$10.0 million at any time outstanding;
(iii) Permitted Indebtedness; and
(iv) Indebtedness Incurred by the Company or any Guarantor
(other than Indebtedness described in clauses (i)-(iii) above) in a
principal amount outstanding which, when taken together with the
principal amount of all other Indebtedness Incurred pursuant to this
clause (iv) and then outstanding, will not exceed $20.0 million (it
being understood that any Indebtedness Incurred under this clause (iv)
shall cease to be deemed Incurred or outstanding for purposes of this
clause (iv) but shall be deemed to be Incurred for purposes of Section
10.12(a) from and after the first date on which the Company or such
Guarantor could have Incurred such Indebtedness under such Section
10.12(a) without reliance upon this clause (iv)).
For purposes of determining compliance with this Section
10.12, in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness permitted by this Section 10.12, the Company in
its sole discretion shall classify, and may from time to time reclassify, such
item of Indebtedness and only be required to include the amount of such
Indebtedness as one of such types and such item of Indebtedness may be divided
and classified in more than one of such types.
(c) The Company will not permit any Unrestricted Subsidiary to
Incur any Indebtedness other than Non-Recourse Debt.
Section 10.13. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company ending after the date hereof, a
written statement signed by the chief executive officer and either the principal
financial officer or principal accounting
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officer of the Company, stating (i) that a review of the activities of the
Company during the preceding fiscal year has been made under the supervision of
the signing officers with a view to determining whether the Company has kept,
observed, performed and fulfilled its obligations under this Indenture, and (ii)
that, to the knowledge of each officer signing such certificate, the Company has
kept, observed, performed and fulfilled each and every covenant and condition
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions, conditions and covenants hereof (or,
if a Default shall have occurred, describing all such Defaults of which such
officers may have knowledge, their status and what action the Company is taking
or proposes to take with respect thereto). When any Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Restricted Subsidiary
gives any notice or takes any other action with respect to a claimed Default,
the Company shall notify the Trustee of such Default, notice or action and shall
deliver to the Trustee by registered or certified mail or by telegram, or
facsimile transmission followed by hard copy by registered or certified mail an
Officers' Certificate specifying such event, notice or other action within 30
days after the Company becomes aware of such occurrence and what action the
Company is taking or proposes to take with respect thereto.
Section 10.14. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock, except (A) dividends or distributions
payable in its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase such Capital Stock, and
(B) dividends or distributions by a Restricted Subsidiary paid (i) to
the Company or a Restricted Subsidiary of the Company and (ii) if such
Restricted Subsidiary paying the dividend or making the distribution is
not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on
a PRO RATA basis; or
(ii) purchase, redeem, retire or otherwise acquire for
value any Capital Stock of the Company held by Persons other than a
Restricted Subsidiary of the Company or any Capital Stock of a
Restricted Subsidiary of the Company held by Persons other than the
Company or another Restricted Subsidiary (in either case, other than in
exchange for its Capital Stock (other than Disqualified Stock); or
(iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to any scheduled maturity, scheduled
repayment or scheduled
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sinking fund payment, any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one
year of the date of purchase, repurchase or acquisition); or
(iv) make any Investment (other than a Permitted
Investment) in any Person
(any of the foregoing actions described in clauses (i) through (iv), other than
the exclusions therefrom, collectively, "Restricted Payments"), unless at the
time the Company or such Restricted Subsidiary makes such Restricted Payment:
(1) no Default shall have occurred and be continuing (or
would result therefrom);
(2) immediately after giving PRO FORMA effect to such
Restricted Payment, the Company would have been able to Incur an
additional $1.00 of Indebtedness pursuant to Section 10.12(a); and
(3) the aggregate amount of such Restricted Payment and
all other Restricted Payments declared or made subsequent to the
Issue Date would not exceed the sum of (without duplication):
(A) 50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from the
first day of the fiscal quarter beginning on or after the Issue
Date to the end of the most recent fiscal quarter ending prior
to the date of such Restricted Payment as to which financial
results are available (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); plus
(B) the aggregate net cash proceeds received by
the Company from the issue or sale of its Capital Stock (other
than Disqualified Stock) or other common equity capital
contributions on and subsequent to the Recapitalization Date
(less all Restricted Payments made on the Recapitalization
Date); plus
(C) the amount by which Indebtedness of the Company
or a Restricted Subsidiary that is a Guarantor (other than
Indebtedness owed to the Company or a Restricted Subsidiary) is
reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary) subsequent to
the Issue Date of any Indebtedness of the
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Company or a Restricted Subsidiary that is a Guarantor into or
for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or other property, distributed by
the Company or such Restricted Subsidiary that is a Guarantor,
as applicable, upon such conversion or exchange to the holders
of such Indebtedness on account of such Indebtedness other than
on account of interest in respect thereof); plus
(D) the amount equal to the net reduction in
Investments (other than Permitted Investments or Investments
made pursuant to clause (ix) of Section 10.14(b)) made after the
Issue Date by the Company or any of its Restricted Subsidiaries
in any Person resulting from (i) repurchases or redemptions of
such Investments by such Person, proceeds realized upon the sale
of such Investment to a purchaser who is not an Affiliate of the
Company and repayments of loans or advances or other transfers
of assets by such Person to the Company or any Restricted
Subsidiary of the Company or (ii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in
each case as provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted Subsidiary, the amount
of Investments previously included in the calculation of the
amount of Restricted Payments; PROVIDED, HOWEVER, that no amount
shall be included under this clause (D) to the extent it is
already included in Consolidated Net Income.
(b) Notwithstanding the foregoing paragraph (a) above, the
foregoing provisions shall not prohibit the following actions:
(i) dividends paid within 60 days after the date of
declaration if at such date of declaration such dividend would have
complied with this Section 10.14;
(ii) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Capital Stock of
the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary or an employee stock ownership plan or
similar trust); PROVIDED, HOWEVER, that the net cash proceeds from such
sale shall be excluded from clause (3)(B) of the preceding paragraph of
this Section 10.14;
(iii) any purchase or redemption of Subordinated
Obligations of the Company made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Subordinated Obligations of the
Company; PROVIDED, HOWEVER, that such new Subordinated Obligations (1)
do not have a Stated Maturity earlier
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than the earlier of (x) the Stated Maturity for the Notes and (y) the
Stated Maturity for the Subordinated Obligations being purchased or
redeemed and (2) are expressly subordinated in right of payment to the
Notes at least to the same extent as the Subordinated Obligations being
purchased or redeemed;
(iv) dividends, distributions or loans by the Company to
Atrium Holdings to fund the payment of audit, accounting, legal or other
similar expenses of Atrium Holdings and Parent, to pay franchise or
other similar taxes of Atrium Holdings and Parent and to pay other
corporate overhead expenses of Atrium Holdings and Parent, so long as
such dividends, distributions or loans are paid as and when needed by
Atrium Holdings or Parent and so long as the aggregate amount of
payments pursuant to this clause (iv) does not in any calendar year
exceed $1.0 million;
(v) payments to Parent (either directly or indirectly
through Atrium Holdings) pursuant to the Tax Sharing Agreement;
(vi) so long as no Default has occurred and is continuing
or would result therefrom, payments of dividends on the Company's common
stock after an initial public offering of common stock of the Company,
Atrium Holdings or Parent in an annual amount not to exceed 6.0% of the
gross proceeds (before deducting underwriting discounts and commissions
and other fees and expenses of the offering) received by the Company
(directly or as a common equity contribution from Atrium Holdings or
Parent) from shares of common stock sold for the account of the Company,
Atrium Holdings or Parent, as the case may be (and not for the account
of any stockholder), in such initial public offering;
(vii) so long as no Default has occurred and is continuing
and would result therefrom, the payment of dividends or distributions to
Atrium Holdings (A) in amounts and at the times necessary to permit
Parent to purchase, redeem, acquire, cancel or otherwise retire for
value Capital Stock of Parent, in each case held by officers, directors
or employees of Parent, Atrium Holdings, the Company or any of the
Company's Subsidiaries, upon, in connection with or following death,
disability, retirement, severance or termination of employment or
service or pursuant to any agreement under which such Capital Stock was
issued, (B) to enable Parent to redeem or repurchase stock purchase or
similar rights in respect of its Capital Stock or (C) to enable Parent
to make cash payments to holders of its Capital Stock in lieu of the
issuance of fractional shares of its Capital Stock; PROVIDED, HOWEVER,
that the amount of such payments pursuant to subclauses (A), (B) and (C)
of this clause (vii) after the Issue Date does not exceed $5.0 million
in any fiscal year and $10.0 million in the aggregate after the Issue
Date;
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(viii) so long as (A) no Default has occurred and is
continuing or would result therefrom and (B) the Company is able to
Incur an additional $1.00 of Indebtedness pursuant to Section
10.12(a), the payment of dividends to Atrium Holdings after September
30, 2003 in an amount not to exceed the interest then unpaid and
accrued on the Atrium Holdings Discount Notes at the rate in effect on
the Issue Date; PROVIDED, HOWEVER, that no such dividend shall be paid
more than one Business Day prior to the due date for such interest;
(ix) any dividend paid to Atrium Holdings on the Issue
Date to repay Atrium Holdings Discount Notes on the Issue Date in the
amount disclosed in the Offering Memorandum; and
(x) so long as no Default has occurred and is continuing
and would result therefrom, Restricted Payments, in addition to those
otherwise permitted in clauses (i) through (viii) above, in an
aggregate amount not to exceed $5.0 million.
In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date in accordance with clause (3) of Section
10.14(a), amounts expended pursuant to clauses (vi), (vii) and (viii) of the
immediately preceding paragraph shall be included in such calculation, and
amounts expended pursuant to clauses (i), (ii), (iii), (iv), (v), (ix) and (x)
of the immediately preceding paragraph shall be excluded in such calculation.
(c) The amount of any non-cash Restricted Payment shall
be the fair market value, on the date such Restricted Payment is made, as
determined in good faith by the Board of Directors, of the assets or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment.
Section 10.15. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company shall not, and shall not permit any of
the Restricted Subsidiaries to, directly or indirectly, enter into or conduct
any transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with or for
the benefit of any Affiliate of the Company or of a Restricted Subsidiary (an
"Affiliate Transaction") unless
(i) the terms of such Affiliate Transaction are no less
favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate,
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(ii) in the event such Affiliate Transaction (or series of
related Affiliate Transactions) involves an aggregate amount in excess
of $2.5 million, the terms of such transaction have been approved by
at least a majority of the members of the Board of Directors of the
Company (and such majority determines that such Affiliate Transaction
satisfies the criteria in (a) above), and
(iii) in the event such Affiliate Transaction (or series of
related Affiliate Transactions) involves an aggregate amount in excess
of $7.5 million, the Company has received a written opinion from an
independent investment banking firm of nationally recognized standing
that such Affiliate Transaction is fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of
view.
(b) The requirements of Section 10.15(a) shall not apply
to (i) any Restricted Payment or other payment or Investment permitted to be
made pursuant to Section 10.14, (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to
employment arrangements, or any stock options and stock ownership plans for the
benefit of employees, officers and directors, consultants and advisors approved
by the Board of Directors of the Company, (iii) loans or advances to employees
in the ordinary course of business of the Company or any of the Restricted
Subsidiaries, (iv) any transaction between or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries (so long as no
Person (other than a Restricted Subsidiary) that is an Affiliate of the Company
has any direct or indirect interest in such Restricted Subsidiary), (v)
indemnification agreements with, and the payment of fees and indemnities to,
directors, officers and employees of the Company and its Restricted
Subsidiaries, in each case in the ordinary course of business, (vi) transactions
pursuant to agreements as in existence on the Issue Date, (vii) any employment,
noncompetition or confidentiality agreements entered into by the Company or any
of the Restricted Subsidiaries with its employees in the ordinary course of
business, (viii) the issuance of Capital Stock of the Company, (ix) amounts paid
by the Company to Ardshiel on the Issue Date in connection with the Transactions
and (x) any obligations of the Company in respect of management fees payable to
Ardshiel pursuant to agreements as in effect on the Issue Date.
Section 10.16. LIMITATION ON SALE OF ASSETS.
(a) The Company shall not, and shall not cause or permit
any of the Restricted Subsidiaries to, directly or indirectly, make any Asset
Disposition, unless (i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Disposition at least
equal to the fair market value, as determined in good faith by the Company's
Board of Directors, of the assets sold or otherwise disposed of and
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(ii) at least 75% of such consideration consists of cash or Cash Equivalents.
If all or a portion of the Net Available Cash of any Asset
Disposition is not required to be applied to repay permanently any Senior
Indebtedness outstanding as required by the terms thereof, or the Company
determines not to apply such Net Available Cash to the permanent repayment of
the Senior Indebtedness which is required to be prepaid, or if no Senior
Indebtedness is outstanding, then the Company or such Restricted Subsidiary may
apply such Net Available Cash to acquire Additional Assets within 360 days after
the receipt thereof.
To the extent all or part of the Net Available Cash in respect
of any Asset Disposition is not applied within 360 days of the applicable Asset
Disposition as described in the immediately preceding paragraph of this Section
10.16 (such Net Available Cash, the "Unutilized Net Available Cash"), the
Company shall, within 20 days after the date that is 360 days from the receipt
of such Net Available Cash, make an offer to purchase (the "Net Available Cash
Offer") all outstanding Notes up to a maximum principal amount (expressed as a
multiple of $1,000) of Notes equal to the Notes Portion of Unutilized Net
Available Cash, at a purchase price in cash equal to 100% thereof, plus accrued
and unpaid interest thereon, if any, to the purchase date; PROVIDED, HOWEVER,
that the Net Available Cash Offer may be deferred until there is aggregate
Unutilized Net Available Cash equal to or in excess of $10.0 million, at which
time the entire amount of such Unutilized Net Available Cash, and not just the
amount in excess of $10.0 million, shall be applied as required pursuant to this
paragraph.
In the event that any other Indebtedness of the Company which
ranks PARI PASSU with the Notes (the "Other Indebtedness") requires that an
offer to repurchase such Indebtedness be made upon the consummation of any Asset
Disposition, the Company may apply the Unutilized Net Available Cash otherwise
required to be applied to a Net Available Cash Offer to offer to purchase such
Other Indebtedness and to a Net Available Cash Offer so long as the amount of
such Unutilized Net Available Cash applied to repurchase the Notes is not less
than the Notes Portion of Unutilized Net Available Cash. With respect to any
Unutilized Net Available Cash, the Company shall make the Net Available Cash
Offer in respect thereof at the same time as the analogous offer to purchase is
made under any Other Indebtedness and the purchase date in respect thereof shall
be the same under the Net Available Cash Offer as the purchase date in respect
thereof pursuant to any Other Indebtedness.
For purposes of this Section 10.16(a), "Notes Portion of
Unutilized Net Available Cash" in respect of a Net Available Cash Offer means
(a) if no Other Indebtedness is concurrently being offered to be purchased, the
amount of the Unutilized Net Available Cash in respect of such Net Available
Cash Offer and (b) if Other
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Indebtedness is concurrently being offered to be purchased, an amount equal to
the product of (x) the Unutilized Net Available Cash in respect of such Net
Available Cash Offer and (y) a fraction the numerator of which is the principal
amount of all Notes tendered pursuant to the Net Available Cash Offer related to
such Unutilized Net Available Cash (the "Notes Amount") and the denominator of
which is the sum of the Notes Amount and the lesser of the aggregate principal
face amount or accreted value as of the relevant purchase date of all Other
Indebtedness tendered pursuant to a concurrent offer to purchase such Other
Indebtedness made at the time of such Net Available Cash Offer.
With respect to any Net Available Cash Offer effected pursuant
to this Section 10.16, to the extent that the principal amount of the Notes
tendered pursuant to such Net Available Cash Offer exceeds the Notes Portion of
Unutilized Net Available Cash with respect thereto, the Notes shall be purchased
PRO RATA based on the principal amount of the Notes tendered by each Holder.
Holders whose Notes are purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered.
To the extent the Notes Portion of Unutilized Net Available
Cash available for any Net Available Cash Offer effected pursuant to this
Section 10.16 exceeds the aggregate purchase price for the Notes validly
tendered and purchased by the Company pursuant thereto, such excess shall no
longer be deemed Unutilized Net Available Cash and shall be available to the
Company and its Restricted Subsidiaries for any purpose not prohibited under
this Indenture.
For the purposes of this Section 10.16, the following will be
deemed to be cash (but not Net Available Cash): (x) the assumption by the
transferee of Indebtedness (other than Subordinated Obligations) of the Company
or any Guarantor and the release of the Company or such Guarantor from all
liability on such Indebtedness in connection with such Asset Disposition (in
which case the Company shall, without further action, be deemed to have applied
such assumed Indebtedness in accordance with the second paragraph under this
Section 10.16(a)) and (y) securities received by the Company or any Restricted
Subsidiary of the Company from the transferee that are promptly converted (but
in no event later than 30 days after the relevant Asset Disposition) by the
Company or such Restricted Subsidiary into cash.
(b) Notice of a Net Available Cash Offer shall be mailed
by the Company not more than 20 days after the obligation to make such Net
Available Cash Offer arises to the Holders of Notes at their last registered
addresses with a copy to the Trustee and the Paying Agent. The Net Available
Cash Offer shall remain open from the time of mailing for at least 20 Business
Days or such longer period as may be required by applicable law and until 5:00
p.m., New York City time, on the last day of the period (the
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"Net Available Cash Offer Purchase Date"). The notice, which shall govern the
terms of the Net Available Cash Offer, shall include such disclosures as are
required by law and shall state:
(i) that the Net Available Cash Offer is being made
pursuant to this Section 10.16 and that all Notes in integral
multiples of $1,000 tendered into the Net Available Cash Offer shall
be accepted for payment; PROVIDED, HOWEVER, that if the aggregate
principal amount of Notes tendered in the Net Available Cash Offer
exceeds the Note Portion of Unutilized Net Available Cash, the Company
shall select the Notes to be purchased on a PRO RATA basis based upon
the aggregate principal amount of such Notes tendered by each Holder;
and that the Net Available Cash Offer shall remain open for a period
of 20 Business Days or such longer period as may be required by
applicable law;
(ii) the purchase price (including the amount of accrued
interest, if any) for each Note, the Net Available Cash Offer Purchase
Date and the date on which the Net Available Cash Offer expires;
(iii) that any Note not tendered for payment shall continue
to accrue interest in accordance with the terms thereof;
(iv) that, unless the Company shall default in the payment
of the purchase price, any Note accepted for payment pursuant to the
Net Available Cash Offer shall cease to accrue interest after the Net
Available Cash Offer Purchase Date;
(v) that Holders electing to have Notes purchased
pursuant to a Net Available Cash Offer shall be required to surrender
their Notes to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the Net Available Cash
Offer Purchase Date and must complete any form letter of transmittal
proposed by the Company and acceptable to the Trustee and the Paying
Agent;
(vi) that any Holder of Notes shall be entitled to
withdraw its election if the Paying Agent receives, not later than
5:00 p.m., New York City time, on the Net Available Cash Offer
Purchase Date, a facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Notes the Holder
delivered for purchase, the Note certificate number (if any) and a
statement that such Holder is withdrawing its election to have such
Notes purchased;
(vii) that Holders whose Notes are purchased only in part
shall be issued
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Notes of like tenor equal in principal amount to the unpurchased
portion of the Notes surrendered;
(viii) the instructions that Holders must follow in order to
tender their Notes; and
(ix) information concerning the business of the Company,
the most recent annual and quarterly reports of the Company filed with
the Commission pursuant to the Exchange Act (or, if the Company is not
permitted to file any such reports with the Commission, the comparable
reports prepared pursuant to Section 10.10), a description of material
developments in the Company's business, information with respect to
pro forma historical financial position and results of operations
after giving effect to such Asset Disposition and such other
information concerning the circumstances and relevant facts regarding
such Asset Disposition and Net Available Cash Offer as would, in the
good faith judgment of the Company, be material to a Holder of Notes
in connection with the decision of such Holder as to whether or not it
should tender Notes pursuant to the Net Available Cash Offer.
On the Net Available Cash Offer Purchase Date, the Company
shall (i) accept for payment (subject to pro ration as described in the sixth
paragraph under Section 10.16(a)) Notes or portions thereof in integral
multiples of $1,000 tendered pursuant to the Net Available Cash Offer, (ii)
deposit with the Paying Agent money, in immediately available funds, sufficient
to pay the purchase price of all Notes or portions thereof so tendered and
accepted and (iii) deliver to the Trustee the Notes so accepted together with an
Officers' Certificate setting forth the Notes or portions thereof tendered to
and accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail or deliver
to such Holders a new Note of like tenor equal in principal amount to any
unpurchased portion of the Note surrendered. Any Notes not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Net Available Cash Offer not later
than the first Business Day following the Net Available Cash Offer Purchase
Date.
(c) The Company shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase of Notes
pursuant to this Section 10.16. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Indenture, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in this
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Indenture by virtue thereof.
Section 10.17. LIMITATION ON LIENS.
The Company shall not, and shall not cause or permit the
Restricted Subsidiaries to, directly or indirectly, Incur or permit or suffer to
exist any Liens of any kind securing any Senior Subordinated Indebtedness or
Subordinated Obligations against or upon any of their respective properties or
assets now owned or hereafter acquired, or any proceeds therefrom or any income
or profits therefrom, unless the Notes are, or in the case of a Restricted
Subsidiary that is a Guarantor, the Guarantee of such Guarantor is, equally and
ratably secured with such Senior Subordinated Indebtedness (or, in the case of
Subordinated Obligations, prior to such Subordinated Obligations) with a Lien on
the same properties and assets securing such Senior Subordinated Indebtedness or
Subordinated Obligations, as the case may be, for so long as such Senior
Subordinated Indebtedness or Subordinated Obligations, as the case may be, are
secured by such Lien, except for Permitted Liens.
Section 10.18. LIMITATION ON INCURRENCE OF SENIOR SUBORDINATED INDEBTEDNESS.
The Company shall not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to all Senior Subordinated
Indebtedness (including the Notes) to the same extent as the Notes are
subordinated in right of payment to Senior Indebtedness. No Guarantor shall
Incur any Indebtedness if such Indebtedness is contractually subordinate or
junior in ranking in any respect to any Senior Indebtedness of such Guarantor
unless such Indebtedness is Senior Subordinated Indebtedness of such Guarantor
or is contractually subordinated in right of payment to all Senior Subordinated
Indebtedness of such Guarantor (including its Guarantee of the Notes) to the
same extent as its Guarantee is subordinated in right of payment to Senior
Indebtedness of such Guarantor.
Section 10.19. LIMITATION ON SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Company shall not permit any of the Restricted
Subsidiaries to issue any Capital Stock to any Person (other than to the Company
or a Wholly-Owned Subsidiary of the Company) or permit any Person (other than
the Company or a Wholly-Owned Subsidiary of the Company) to own any Capital
Stock of a Restricted Subsidiary of the Company, if in either case as a result
thereof such Restricted Subsidiary
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would no longer be a Restricted Subsidiary of the Company; PROVIDED, HOWEVER,
that this Section 10.19 shall not prohibit (x) the Company or any of the
Restricted Subsidiaries from selling, transferring or otherwise disposing of all
of the Capital Stock of any Restricted Subsidiary or (y) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary in compliance with this
Indenture.
Section 10.20. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not cause or permit any of
the Restricted Subsidiaries to, directly or indirectly, create or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock to the Company or any other Restricted
Subsidiary or pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary, (ii) make any loans or advances to the Company
or to any other Restricted Subsidiary which directly or indirectly owns the
Capital Stock of such Restricted Subsidiary or (iii) transfer any of its
property or assets to the Company or to any other Restricted Subsidiary which
directly or indirectly owns the Capital Stock of such Restricted Subsidiary,
except for:
(a) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date, including,
without limitation, the Credit Facility and this Indenture;
(b) any encumbrance or restriction with respect to such a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness issued by such Restricted Subsidiary on or prior to the
date on which such Restricted Subsidiary was acquired by the Company
and outstanding on such date (other than Indebtedness issued as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary of the Company or was acquired by the
Company);
(c) any encumbrance or restriction with respect to such a
Restricted Subsidiary (A) pursuant to an agreement evidencing
Indebtedness Incurred without violation of this Indenture or (B)
effecting a refinancing of Indebtedness issued pursuant to an agreement
referred to in clause (a) or (b) above or this clause (c) or contained
in any amendment to an agreement referred to in clause (a) or (b) above
or this clause (c); PROVIDED, HOWEVER, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in
any of such agreement, refinancing agreement or amendment, taken as a
whole, are no less favorable to the
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holders of the Notes in any material respect, as determined in good
faith by the Board of Directors of the Company, than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in,
in the case of (A) above, the Credit Facility, and in the case of (B)
above, the agreement being refinanced or amended;
(d) in the case of clause (iii) above, any encumbrance or
restriction (A) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by
virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture, (C)
that is included in a licensing agreement to the extent such
restrictions limit the transfer of the property subject to such
licensing agreement or (D) arising or agreed to in the ordinary course
of business and that does not, individually or in the aggregate,
detract from the value of property or assets of the Company or any of
its Subsidiaries in any manner material to the Company or any such
Restricted Subsidiary;
(e) in the case of clause (iii) above, restrictions
contained in security agreements, mortgages or similar documents
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such
security agreements; PROVIDED, that such Indebtedness and such Lien is
permitted by this Indenture;
(f) any restriction with respect to such a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition; and
(g) encumbrances or restrictions arising or existing by reason
of applicable law.
Section 10.21. [Intentionally Omitted].
Section 10.22. LIMITATIONS ON GUARANTEES BY RESTRICTED SUBSIDIARIES.
The Company shall not cause or permit any of the Restricted
Subsidiaries, directly or indirectly, to guarantee the payment of any
Indebtedness of the Company ("Other Guaranteed Indebtedness") unless such
Restricted Subsidiary (A) is a Guarantor or (B) simultaneously executes and
delivers a supplemental indenture pursuant to
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Section 12.04 pursuant to which it will become a Guarantor; PROVIDED, HOWEVER,
that if such Other Guaranteed Indebtedness is (i) Senior Subordinated
Indebtedness, the Guarantee of such Restricted Subsidiary shall be PARI PASSU in
right of payment with the guarantee of the Other Guaranteed Indebtedness; or
(ii) Subordinated Obligations, the Guarantee of such Restricted Subsidiary shall
be senior in right of payment to the guarantee of the Other Guaranteed
Indebtedness (which guarantee of such Subordinated Obligations shall provide
that such guarantee is subordinated to the Guarantee of such Restricted
Subsidiary to the same extent and in the same manner as the Other Guaranteed
Indebtedness is subordinated to the Notes); PROVIDED, FURTHER, HOWEVER, that
each Restricted Subsidiary issuing a Guarantee, pursuant to this Section 10.22
will be automatically and unconditionally released and discharged from its
obligations under such Guarantee upon the release or discharge of the guarantee
of the Other Guaranteed Indebtedness that resulted in the creation of such
Guarantee, except a discharge or release by, or as a result of, any payment
under the guarantee of such Other Guaranteed Indebtedness by such Restricted
Subsidiary, pursuant to Section 12.05. In addition, the Company may, at any
time, cause a Restricted Subsidiary to become a Guarantor by executing and
delivering a supplemental indenture providing for the guarantee of payments of
the Notes by such Restricted Subsidiary on the basis provided in this Indenture.
Section 10.23. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company, the
Guarantors and any other obligor on the Notes shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture (including any covenants compliance with which constitutes
a condition precedent) relating to the proposed action have been complied with,
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such documents,
certificates and/or opinions is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or
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opinion are based;
(iii) a statement that, in the opinion of each such
individual, he or she has made such examination or investigation as is
necessary to enable him or her to express an informed opinion as to
whether such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as
to surviving rights or registration of transfer or exchange of Notes herein
expressly provided for) and the Trustee, on written demand of and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when either
(i) (a) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.07 hereof and
(ii) Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 10.03) have been delivered to the Trustee for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with the
Trustee in trust an amount of money in dollars sufficient to pay and
discharge the entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for the principal of,
premium, if any, and interest to the date of such deposit;
(ii) the Company or any Guarantor has paid or caused to be
paid all other sums payable hereunder by the Company and the Guarantor
(other than amounts that become payable under Section 6.07); and
(iii) the Company and each of the Guarantors have delivered
to the Trustee (a) irrevocable instructions to apply the deposited
money toward payment of the Notes at the Stated Maturities and the
Redemption Dates thereof, and (b) an
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Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with (PROVIDED,
that such Opinion of Counsel may rely as to matters of fact upon an
Officer's Certificate).
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 6.07 and,
if money shall have been deposited with the Trustee pursuant to subclause
(a)(ii) of this Section 11.01, the obligations of the Trustee under Section
11.02 and the last paragraph of Section 10.03 shall survive.
Section 11.02. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section
10.03, all money deposited with the Trustee pursuant to Section 11.01 shall be
held in trust and applied by it, in accordance with the provisions of the Notes
and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent), as the Trustee may
determine, to the Persons entitled thereto, of the principal of, premium, if
any, and interest on the Notes for whose payment such money has been deposited
with the Trustee.
ARTICLE TWELVE
GUARANTEE OF NOTES
Section 12.01. UNCONDITIONAL GUARANTEE.
Each Guarantor hereby jointly and severally absolutely and
unconditionally guarantees to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, irrespective
of the invalidity, illegality, or unenforceability of this Indenture, the Notes
or any extension, compromise, waiver or release in respect of any obligation of
the Company or any other Guarantor under any Note, this Indenture or any
modification or amendment of or supplement to this Indenture, that: (a) the
principal of, premium, if any, and interest on the Notes will be duly and
punctually paid in full when due, whether at maturity, upon redemption or
repurchase, by acceleration or otherwise, and interest on the overdue principal
and (to the extent permitted by law) interest, if any, on the Notes and all
other obligations of the Company or the Guarantor to the Holders or the Trustee
hereunder or thereunder (including fees, expenses or other) and all other
Indenture Obligations will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in
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case of any extension of time of payment or renewal of any Notes or any of such
other Indenture Obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
Stated Maturity, by acceleration or otherwise. Failing payment when due of any
amount so guaranteed, or failing performance of any other obligation of the
Company to the Holders, for whatever reason, each Guarantor shall be obligated
to pay, or to perform or cause the performance of, the same immediately. An
Event of Default under this Indenture or the Notes shall constitute an event of
default under this Guarantee, and shall entitle the Holders of Notes to
accelerate the obligations of the Guarantor hereunder in the same manner and to
the same extent as the obligations of the Company.
Each Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Guarantor, the
recovery of any judgment against the Company, any action to enforce the same,
whether or not a Guarantee is affixed to any particular Note, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.
Each Guarantor hereby waives the benefit of diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenants
that its Guarantee shall not be discharged except by complete performance of the
obligations contained in the Notes, this Indenture and this Guarantee. This
Guarantee is a guarantee of payment and not of collection. If any Holder or the
Trustee is required by any court or otherwise to return to the Company or to any
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or such Guarantor, any amount paid by the
Company or such Guarantor to the Trustee or such Holder, this Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between it, on the one hand, and the
Holders of Notes and the Trustee, on the other hand, (a) subject to this Article
Twelve, the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article Five hereof for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (b) in the
event of any acceleration of such obligations as provided in Article Five
hereof, such obligations (whether or not due and payable) shall forthwith become
due and payable by the Guarantor for the purpose of this Guarantee.
Section 12.02. SUBORDINATION OF GUARANTEES.
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The obligations of any Guarantor under its Guarantee will be
subordinated, to the same extent as the obligations of the Company in respect of
the Notes, to the prior payment in full of all Senior Indebtedness of such
Guarantor, which will include any guarantee issued by such Guarantor of any
Senior Indebtedness; provided that payment blockage periods in respect of the
Guarantees may only be instituted by a holder of Designated Senior Indebtedness
of the Company entitled to the benefit of a guarantee from the applicable
Guarantor at the same time as instituted in respect of Senior Indebtedness of
the Company and for a contemporaneous period.
Section 12.03. EXECUTION AND DELIVERY OF GUARANTEE.
To further evidence the Guarantee set forth in Section 12.01,
each Guarantor hereby agrees that a notation of such Guarantee in the form
annexed hereto as EXHIBIT D shall be endorsed on each Note authenticated and
delivered by the Trustee and executed by either manual or facsimile signature of
an Officer of each Guarantor.
Each of the Guarantors hereby agrees that its Guarantee set
forth in Section 12.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this
Indenture or a Guarantee no longer holds that office at the time the Trustee
authenticates such Note or at any time thereafter, such Guarantor's Guarantee of
such Note shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of each Guarantor.
Section 12.04. ADDITIONAL GUARANTORS.
Any Person that was not a Guarantor on the date of this
Indenture may become a Guarantor by executing and delivering to the Trustee (a)
a supplemental indenture in form and substance satisfactory to the Trustee,
which subjects such Person to the provisions (including the representations and
warranties) of this Indenture as a Guarantor, (b) in the event that as of the
date of such supplemental indenture any Transfer Restricted Securities are
outstanding, an instrument in form and substance satisfactory to the Trustee
which subjects such Person to the provisions of the Registration Rights
Agreement with respect to such outstanding Transfer Restricted Securities, and
(c) an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized and executed by such Person and constitutes the legal,
valid and binding obligation of such Person (subject to such customary
assumptions and exceptions as may be
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acceptable to the Trustee in its reasonable discretion).
Section 12.05. RELEASE OF A GUARANTOR.
Upon (i) any sale, exchange or transfer (including, without
limitation, by way of merger or consolidation), to any Person not an Affiliate
of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, any Restricted Subsidiary of the Company that
is a Guarantor, which transaction is in compliance with the terms of this
Indenture (including, but not limited to, Article Eight and Section 10.16 under
this Indenture) and so long as such Restricted Subsidiary has been or
simultaneous with its release under the Guarantee will be unconditionally
released from all guarantees, if any, by it of other Indebtedness of the Company
or any Restricted Subsidiaries or (ii) with respect to any Guarantees created
after the date of this Indenture pursuant to Section 10.22, the release by the
holders of the Other Guaranteed Indebtedness of the Company of their guarantee
by such Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness) in accordance with the terms of
Section 10.22, at a time when (A) no other Indebtedness of the Company has been
guaranteed by such Restricted Subsidiary, or (B) the holders of all such Other
Guaranteed Indebtedness which is guaranteed by such Restricted Subsidiary also
release their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in full of all obligations under such Indebtedness), in
either case, such Guarantor shall be automatically and unconditionally released
and discharged from all obligations under this Article Twelve without any
further action required on the part of the Trustee or any Holder. The Trustee
shall deliver an appropriate instrument evidencing such release upon receipt of
a request of the Company accompanied by an Officers' Certificate certifying as
to the compliance with this Section. Any Guarantor not so released will remain
liable for the full amount of principal of, premium, if any, and interest on the
Notes as provided in this Article Twelve.
Section 12.06. WAIVER OF SUBROGATION.
Until this Indenture is discharged and all of the Notes are
discharged and paid in full, each Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Company that arise from the existence, payment, performance or
enforcement of the Company's obligations under the Notes or this Indenture and
such Guarantor's obligations under this Guarantee and this Indenture, in any
such instance including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any claim or remedy against the Company, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such
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claim or other rights. If any amount shall be paid to any Guarantor in violation
of the preceding sentence and any amounts owing to the Trustee or the Holders of
Notes under the Notes, this Indenture, or any other document or instrument
delivered under or in connection with such agreements or instruments, shall not
have been paid in full, such amount shall have been deemed to have been paid to
such Guarantor for the benefit of, and held in trust for the benefit of, the
Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit
of such Holders to be credited and applied to the Notes, whether matured or
unmatured, in accordance with the terms of this Indenture. Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Indenture and that the waiver set
forth in this Section 12.06 is knowingly made in contemplation of such benefits.
Section 12.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT
REGARDING DISSOLUTION, ETC. OF GUARANTORS.
Upon any payment or distribution of assets of any Guarantor
referred to in this Article Twelve, the Trustee, subject to the provisions of
Section 6.01, and the Holders, shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Twelve; PROVIDED,
HOWEVER, that the foregoing shall apply only if such court has been fully
apprised of the provisions of this Article Twelve.
Section 12.08. ARTICLE TWELVE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article Twelve shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article Twelve in addition to or in place of the Trustee.
Section 12.09. NO SUSPENSION OF REMEDIES.
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Nothing contained in this Article Twelve shall limit the right
of the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Article Five or to pursue any rights or
remedies hereunder or under applicable law.
Section 12.10. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the Guarantee
by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer
or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or
state law. To effectuate the foregoing intention, the Holders and such Guarantor
hereby irrevocably agree that the obligations of such Guarantor under this
Guarantee shall be limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor (including, without
limitation, any guarantees under the Credit Facility), and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under this Article Twelve, will result
in the obligations of such Guarantor under its Guarantee not constituting such
fraudulent transfer or conveyance.
Section 12.11. CONTRIBUTION FROM OTHER GUARANTORS.
Each Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Guarantor in a PRO
RATA amount based on the Adjusted Net Assets of each Guarantor, determined in
accordance with GAAP, so long as the exercise of such right does not impair the
rights of Holders of Notes under any Guarantee.
Section 12.12. OBLIGATIONS REINSTATED.
The obligations of each Guarantor hereunder shall continue to
be effective or shall be reinstated, as the case may be, if at any time any
payment which would otherwise have reduced the obligations of any Guarantor
hereunder (whether such payment shall have been made by or on behalf of the
Company or by or on behalf of a Guarantor) is rescinded or reclaimed from any of
the Holders upon the insolvency, bankruptcy, liquidation or reorganization of
the Company or any Guarantor or otherwise, all as though such payment had not
been made. If demand for, or acceleration of the time for, payment by the
Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization
of the Company, all such Indebtedness otherwise subject to demand for payment or
acceleration shall nonetheless be payable by each Guarantor as provided herein.
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Section 12.13. NO OBLIGATION TO TAKE ACTION AGAINST THE COMPANY.
Neither the Trustee nor any other Person shall have any
obligation to enforce or exhaust any rights or remedies or to take any other
steps under any security for this Indenture Obligations or against the Company
or any other Person or any property of the Company or any other Person before
the Trustee is entitled to demand payment and performance by any or all
Guarantors of their liabilities and obligations under their Guarantees or under
this Indenture.
Section 12.14. DEALING WITH THE COMPANY AND OTHERS.
The Holders, without releasing, discharging, limiting or
otherwise affecting in whole or in part the obligations and liabilities of any
Guarantor hereunder and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to
the Company or any other Person;
(b) take or abstain from taking security or collateral
from the Company or from perfecting security or collateral of the
Company;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to the
obligations or matters contemplated by this Indenture or the Notes;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the
Company or from any security upon such part of the Indenture
Obligations as the Holders may see fit or change any such application
in whole or in part from time to time as the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right
to deal with, the Company and all other Persons and any security as
the Holders or the Trustee may see fit.
ARTICLE THIRTEEN
REDEMPTIONS AND OFFERS TO PURCHASE
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Section 13.01. NOTICE TO TRUSTEE.
If the Company elects to redeem Notes pursuant to Section
13.07 it shall furnish to the Trustee, at least 30 days but not more than 60
days before notice of any redemption is to be mailed to Holders (or such shorter
times as may be satisfactory to the Trustee), an Officers' Certificate stating
that the Company has elected to redeem Notes pursuant to Section 13.07, the date
notice of redemption is to be mailed to Holders, the redemption date, the
aggregate principal amount of Notes to be redeemed, the redemption price for
such Notes, the amount of accrued and unpaid interest on such Notes as of the
redemption date and the manner in which Notes are to be selected for redemption
if less than all Outstanding Notes are to be redeemed. If the Trustee is not the
Registrar, the Company shall, concurrently with delivery of its notice to the
Trustee of a redemption, cause the Registrar to deliver to the Trustee a
certificate (upon which the Trustee may rely) setting forth the name of, and the
aggregate principal amount of Notes held by each Holder.
If the Company is required to offer to purchase Notes pursuant
to Sections 10.11 or 10.16, it shall furnish to the Trustee, at least two
Business Days before notice of the corresponding Offer is to be mailed to
Holders, an Officers' Certificate setting forth that the Offer is being made
pursuant to Sections 10.11 or 10.16, as the case may be, the Change of Control
Purchase Date or the Net Available Cash Offer Purchase Date, the maximum
principal amount of Notes the Company is offering to purchase pursuant to such
Offer, the purchase price for such Notes, and the amount of accrued and unpaid
interest on such Notes as of the Change of Control Purchase Date or the Net
Available Cash Offer Purchase Date, as the case may be.
The Company will also provide the Trustee with any additional
information that the Trustee reasonably requests in connection with any
redemption or Offer.
Section 13.02. SELECTION OF NOTES TO BE REDEEMED OR PURCHASED.
In the event that less than all of the Notes are to be
redeemed at any time, selection of Notes for redemption shall be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a PRO RATA basis, by lot or by such method
as the Trustee will deem fair and appropriate; PROVIDED, HOWEVER, that no Notes
of a principal amount of $1,000 or less shall be redeemed in part; PROVIDED,
FURTHER, HOWEVER, that any such redemption made with the net proceeds of a
Equity Offering shall be made on a PRO RATA basis or on as nearly a PRO RATA
basis as practicable (subject to the procedures of The Depository Trust Company
or any other depositary). If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note
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will state the portion of the principal amount thereof to be redeemed. A new
Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original Note.
Section 13.03. NOTICE OF REDEMPTION.
(a) At least 30 days but not more than 60 days before any
redemption date, the Company shall mail a notice of redemption by first class
mail to each Holder of Notes or portions thereof that are to be redeemed at its
registered address. With respect to any redemption of Notes, the notice shall
identify the Notes or portions thereof to be redeemed and shall state: (1) the
redemption date; (2) the redemption price for the Notes and the amount of unpaid
and accrued interest on such Notes as of the date of redemption; (3) the
paragraph of the Notes pursuant to which the Notes called for redemption are
being redeemed; (4) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date, upon surrender of such Note, a new Note or Notes in principal amount equal
to the unredeemed portion will be issued; (5) the name and address of the Paying
Agent; (6) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price for, and any accrued and unpaid interest
on, such Notes; (7) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date; and (8) that no representation is made as to the
correctness or accuracy of the CUSIP number listed in such notice and printed on
the Notes.
(b) At the Company's request, the Trustee shall (at the
Company's expense) give the notice of any redemption to Holders; PROVIDED,
HOWEVER, that the Company shall deliver to the Trustee, at least 45 days prior
to the date of redemption and at least 10 days prior to the date that notice of
the redemption is to be mailed to Holders, an Officers' Certificate that (i)
requests the Trustee to give notice of the redemption to Holders, (ii) sets
forth the information to be provided to Holders in the notice of redemption, as
set forth in the preceding paragraph, and (iii) sets forth the aggregate
principal amount of Notes to be redeemed and the amount of accrued and unpaid
interest thereon as of the redemption date. If the Trustee is not a Registrar,
the Company shall, concurrently with any such request, cause the Registrar to
deliver to the Trustee a certificate (upon which the Trustee may rely) setting
forth the name of, the address of, and the aggregate principal amount of Notes
held by, each Holder; PROVIDED FURTHER that any such Officers' Certificate may
be delivered to the Trustee on a date later than permitted under this Section
13.03(b) if such later date is acceptable to the Trustee.
Section 13.04. EFFECT OF NOTICE OF REDEMPTION.
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Once notice of redemption is mailed, Notes called for
redemption become due and payable on the redemption date at the price set forth
in the Note.
Section 13.05. DEPOSIT OF REDEMPTION PRICE.
(a) On or prior to any redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of, and accrued interest on, all Notes or portions thereof to
be redeemed on that date. After any redemption date, the Trustee or the Paying
Agent shall promptly return to the Company any money that the Company deposited
with the Trustee or the Paying Agent in excess of the amounts necessary to pay
the redemption price of, and accrued interest on, all Notes to be redeemed.
(b) If the Company complies with the preceding paragraph,
interest on the Notes or portions thereof to be redeemed will cease to accrue on
such Notes or portions thereof on the applicable redemption date, whether or not
such Notes are presented for payment, and the Holders of such Notes shall have
no further rights with respect to such Notes except for the right to receive the
redemption price plus unpaid interest on the Notes through the redemption date,
upon surrender of such Notes. If a Note is redeemed on or after an interest
record date but on or prior to the related interest payment date, then any
accrued and unpaid interest shall be paid to the Person in whose name such Note
was registered at the close of business of such record date. If any Note called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest will be
paid on the unpaid principal, premium, if any, and interest from the redemption
date until such principal, premium and interest is paid, at the rate of interest
provided in the Notes, the Registration Rights Agreement and Section 10.01.
Section 13.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder of such Notes at
the Company's expense a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
Section 13.07. OPTIONAL REDEMPTION.
(a) Except as set forth below, prior to May 1, 2004 the
Notes are not redeemable at the Company's option. The Notes will be redeemable
at the option of the Company, in whole or in part, at any time on or after May
1, 2004, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the date of redemption, if redeemed during the 12-month
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period beginning on May 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C> <C>
2004 105.250%
2005 103.500%
2006 101.750%
2007 and thereafter 100.000%
</TABLE>
(b) On or prior to May 1, 2002, the Company may, other
than in any circumstance resulting in a Change of Control, at its option, use
the net proceeds of one or more Equity Offerings (as defined below) following
which there is a Public Market (as defined below) to redeem up to 35% of the
originally issued aggregate principal amount of the Notes, at a redemption price
in cash equal to 110.50% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of redemption; PROVIDED, that at
least 65% of the originally issued aggregate principal amount of Notes is
outstanding following such redemption. Notice of any such redemption must be
given not later than 60 days after the consummation of any such Equity Offering.
As used in the preceding paragraph, an "Equity Offering" means
any public offering registered with the Commission for cash by Atrium Holdings
or Parent (to the extent the net cash proceeds thereof are contributed to the
common equity capital of the Company) or the Company of its Capital Stock (other
than Disqualified Capital Stock).
A "Public Market" exists at any time with respect to the
common stock of Atrium Holdings, Parent or the Company if (a) the common stock
of Atrium Holdings, Parent or the Company, as applicable, is then registered
with the Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and
traded either on a national securities exchange or in the National Association
of Securities Dealers Automated Quotation System and (b) at least $50.0 million
in gross proceeds from the sale of common stock of Atrium Holdings, Parent or
the Company, as applicable, by means of an effective registration statement
under the Securities Act has been raised prior to such time.
(c) At any time on or prior to May 1, 2004, the Notes may
be redeemed as a whole and not in part at the option of the Company upon the
occurrence of a Change of Control, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium (as defined below) as of,
and accrued and unpaid interest, if any, to, the date of redemption. Notice of
any such redemption must be given not later than 90 days after the occurrence of
such Change of Control.
As used in the preceding paragraph, "Applicable Premium"
means, with
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respect to a Note at any redemption date, the greater of (i) 1.0% of the
principal amount of such Note on such redemption date and (ii) the excess of (A)
the present value at such time of (1) the redemption price of such Note on May
1, 2004 (as described above under Section 13.07(a)) plus (2) all required
interest payments due on such Note through May 1, 2004, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
principal amount of such Note on such redemption date.
As used in the preceding paragraph, "Treasury Rate" means the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H.15 (519) which has become publicly
available at least two business days prior to the applicable redemption date
(or, if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the period from such
redemption date to May 1, 2004; PROVIDED, HOWEVER, that if the period from such
redemption date to May 1, 2004 is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the period from such
redemption date to May 1, 2004 is less than one year, the weekly average yield
on actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
Section 13.08. PROCEDURES RELATING TO MANDATORY OFFERS.
(a) On the Change of Control Purchase Date or the Net
Available Cash Offer Purchase Date, as the case may be, for any Offer the
Company will (i) in the case of an Offer resulting from a Change of Control,
accept for payment all Notes or portions thereof tendered pursuant to such Offer
and, in the case of an Offer resulting from one or more Asset Dispositions,
accept for payment the maximum principal amount of Notes or portions thereof
tendered pursuant to such Offer that can be purchased out of the Note Portion of
Unutilized Net Cash Proceeds from such Asset Dispositions to the extent provided
in Section 10.16, (ii) deposit with the Paying Agent the aggregate purchase
price of all Notes or portions thereof accepted for payment and any accrued and
unpaid interest on such Notes as of the Purchase Date, and (iii) deliver, or
cause to be delivered, to the Trustee all Notes tendered pursuant to the Offer,
together with an Officers' Certificate setting forth the name of each Holder
that tendered Notes and the principal amount of the Notes or portions thereof
tendered by each such Holder.
(b) With respect to any Net Available Cash Offer, (i) if
less than all of the Notes tendered pursuant to such Offer are to be accepted
for payment by the Company for any reason consistent with this Indenture, the
Trustee shall select on or prior to the Net
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Available Cash Offer Purchase Date, the Notes or portions thereof to be accepted
for payment pursuant to Section 10.16, and (ii) if the Company deposits with the
Paying Agent on or prior to the Net Available Cash Offer Purchase Date, an
amount sufficient to purchase all Notes accepted for payment, interest shall
cease to accrue on such Notes on the Net Available Cash Offer Purchase Date;
PROVIDED, HOWEVER, that if the Company fails to deposit an amount sufficient to
purchase all Notes accepted for payment, the deposited funds shall be used to
purchase on a PRO RATA basis all Notes accepted for payment and interest shall
continue to accrue on all Notes not purchased.
(c) Promptly after consummation of an Offer, (i) the
Paying Agent shall mail to each Holder of Notes or portions thereof accepted for
payment an amount equal to the purchase price for, plus any accrued and unpaid
interest on, such Notes, (ii) with respect to any tendered Note not accepted for
payment in whole or in part, the Trustee shall return such Note to the Holder
thereof, and (iii) with respect to any Note accepted for payment in part, the
Trustee shall authenticate and mail to each such Holder a new Note equal in
principal amount to the unpurchased portion of the tendered Note.
(d) The Company will (i) publicly announce the results of
the Offer to Holders not later than the first Business Day after each Change of
Control Purchase Date or Net Available Cash Offer Purchase Date, as the case may
be, and (ii) as set forth in Section 10.11 and Section 10.16, comply with the
applicable tender offer rules and all other securities laws and regulations in
connection with any Offer.
ARTICLE FOURTEEN
SUBORDINATION
Section 14.01. AGREEMENT TO SUBORDINATE.
The Company and each Guarantor agree, and each Holder by
accepting a Note and the related Guarantee agrees, any provisions of this
Indenture or the Notes to the contrary notwithstanding, that all obligations
owed under and in respect of the Notes and the Guarantees are subordinated in
right of payment, to the extent and in the manner provided in this Article
Fourteen, to the prior payment in full of all Senior Indebtedness of the Company
or the Guarantors, as applicable, and that the subordination of the Notes and
the Guarantees pursuant to this Article Fourteen is for the benefit of all
holders of all Senior Indebtedness of the Company and the Guarantors, as
applicable, whether outstanding on the Issue Date or incurred thereafter.
Section 14.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
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(a) Upon any payment or distribution of the assets of the
Company or any Guarantor upon a total or partial liquidation or a total or
partial dissolution or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to the Company or such Guarantor or their
respective properties, as applicable, holders of Senior Indebtedness of the
Company or such Guarantor, as applicable, shall be entitled to receive payment
in full of all such Senior Indebtedness before the Holders shall be entitled to
receive any payment of principal of or interest in or other costs with respect
to the Notes from the Company or such Guarantor, as applicable, and until all
such Senior Indebtedness is paid in full, any payment or distribution to which
the Holders would be entitled but for this Section 14.02 shall be made to the
holders of such Senior Indebtedness (PRO RATA to such holders on the basis of
the amounts of Senior Indebtedness held by them) as their interests may appear.
Upon any such insolvency or liquidation proceeding or other like proceeding
referred to above with respect to the Company or any Guarantor, any payment or
distribution of assets of the Company or such Guarantor, as applicable, of any
kind or character, whether in cash, property or securities, to which the Holders
or the Trustee would be entitled to except for the provisions of this Indenture
shall be paid by the Company or such Guarantor, as applicable, any Custodian or
other Person making such payment or distribution, or by the Holders or by the
Trustee if received by them, directly to the holders of Senior Indebtedness of
the Company or such Guarantor, as applicable, (PRO RATA to such holders on the
basis of the amounts of Senior Indebtedness held by them) or their
Representatives, as their interests may appear, for application to the payment
of all such outstanding Senior Indebtedness until all such Senior Indebtedness
has been paid in full, after giving effect to all other payments or
distributions to, or provisions made for, holders of such Senior Indebtedness.
(b) Notwithstanding anything to the contrary in this
Indenture, any disposition by or involving the Company or any Guarantor, or the
liquidation or dissolution of the Company or any Guarantor following any
disposition, shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 14.02 if such disposition is
permitted under Article Eight.
Section 14.03. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.
(a) Neither the Company nor any Guarantor may pay principal
of, premium (if any) or interest on the Notes or make any deposit pursuant to
Sections 4.02 and 4.03 and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if (i) any Designated Senior Indebtedness of the
Company or such Guarantor, as applicable, is not paid when due or (ii) any other
default on Designated Senior Indebtedness of the Company or such Guarantor, as
applicable, occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms, unless, in either case, (x) the
default has been cured or waived and/or any such acceleration has been
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rescinded or (y) such Designated Senior Indebtedness has been paid in full;
PROVIDED, HOWEVER, the Company or such Guarantor may pay the Notes, whether
directly by the Company or by such Guarantor, without the regard to the
foregoing if the Company or such Guarantor and the Trustee receive written
notice approving such payment from the Representative of the Designated
Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of this sentence has occurred and is continuing.
(b) During the continuance of any default (other than a
default described in Section 14.03(a) (i) and (ii)) with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, neither the Company (in the case of the Designated Senior Indebtedness
of the Company) nor any Guarantor (in the case of Designated Senior Indebtedness
of the Guarantor and subject to Section 12.02) may pay the Notes for a period
(the "Payment Blockage Period") commencing upon the receipt by the Trustee (with
a copy to the Company) of written notice (a "Blockage Notice") of such default
from the Representative of the holders of such Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company or such Guarantor from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice is no longer continuing or (iii) because such Designated
Senior Indebtedness has been repaid in full). Notwithstanding the provisions
described in the immediately preceding sentence, but subject to the provisions
of Section 14.03(a) and the provisions of Section 14.02(a), the Company or the
Guarantors, as applicable, may resume payments on the Notes after the end of
such Payment Blockage Period. Not more than one Blockage Notice may be given in
any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior during such period, and there shall be a period of
at least 180 consecutive days in each 360-day period when no Payment Blockage
Period is in effect. A non-payment default with respect to Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period cannot be made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 365 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days and subsequently recurs.
Section 14.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify each holder of Designated Senior
Indebtedness of the Company or their Representatives of the acceleration and
provide copies of such notice to
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the Trustee.
Section 14.05. WHEN DISTRIBUTIONS MUST BE PAID OVER.
If the Company or the Guarantors shall make any payment to the
Trustee on account of the principal of, or premium, if any, or interest on, the
Notes, or any other obligation in respect to the Notes, or the Holders shall
receive from any source any payment on account of the principal of, or premium,
if any, or interest on, the Notes or any obligation in respect of the Notes, at
a time when such payment is prohibited by this Article Fourteen, the Trustee or
such Holders shall hold such payment in trust for the benefit of, and shall pay
over and deliver to, the holders of Senior Indebtedness of the Company or such
Guarantor, as applicable, (PRO RATA as to each of such holders on the basis of
the respective amounts of such Senior Indebtedness held by them), or their
Representative or the trustee under the indenture or other agreement (if any)
pursuant to which such Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all such
outstanding Senior Indebtedness until all such Senior Indebtedness has been paid
in full after giving effect to all other payments or distributions to, or
provisions made for, the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness of the
Company or the Guarantors, the Trustee undertakes to perform only such
obligations on its part as are specifically set forth in this Article Fourteen,
and no implied covenants or obligations with respect to any holders of Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness of the Company or the Guarantors, and shall not be liable to any
holders of such Senior Indebtedness if the Trustee shall pay over or distribute
to, or on behalf of, Holders, the Company or the Guarantors or any other Person
money or assets to which any holders of such Senior Indebtedness are entitled
pursuant to this Article Fourteen.
Section 14.06. NOTICE.
Neither the Trustee nor the Paying Agent shall at any time be
charged with the knowledge of the existence of any facts that would prohibit the
making of any payment to or by the Trustee or Paying Agent under this Article
Fourteen, unless the Trustee or the requisite Holders have given notice of
acceleration of the Notes or unless and until the Trustee or Paying Agent shall
have received written notice thereof from the Company, any Guarantor or one or
more holders of Senior Indebtedness of the Company or any Guarantors or a
Representative of any holders of such Senior Indebtedness pursuant to Section
14.11; and, prior to the receipt of any such written notice, the Trustee or
Paying Agent shall be entitled to assume conclusively that no such facts exist.
The Trustee shall be
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entitled to rely on the delivery to it of written notice by a Person
representing itself to be a holder of Senior Indebtedness of the Company or
any Guarantor (or a Representative thereof) to establish that such notice has
been given.
The Company or the Guarantors shall promptly notify the
Trustee and the Paying Agent in writing of any facts it knows that would cause a
payment of principal of, or premium, if any, or interest on, the Notes or any
other obligation in respect of the Notes to violate this Article Fourteen, but
failure to give such notice shall not affect the subordination of the Notes and
the Guarantees to the Senior Indebtedness of the Company and the Guarantors, as
applicable, provided in this Article Fourteen or the rights of holders of such
Senior Indebtedness under this Article Fourteen.
Section 14.07. SUBROGATION.
After all Senior Indebtedness of the Company and the
Guarantors has been paid in full and until the Notes are paid in full, Holders
shall be subrogated (equally and ratably with all other Senior Subordinated
Indebtedness) to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of such Senior Indebtedness. A distribution made under this Article Fourteen to
holders of Senior Indebtedness that otherwise would have been made to Holders is
not, as between the Company or the Guarantors and Holders, a payment by the
Company or the Guarantors on its Senior Indebtedness.
Section 14.08. RELATIVE RIGHTS.
The provisions of this Article Fourteen are and are intended
solely for the purpose of defining the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the
Company or the Guarantors and Holders, the Company's or the Guarantors'
Indenture Obligations, which are absolute and unconditional, to pay principal
of, and premium, if any, and interest on, the Notes in accordance with their
terms; (2) affect the relative rights of Holders and the Company's or the
Guarantors' creditors other than their rights in relation to holders of Senior
Indebtedness; or (3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders of Senior Indebtedness, if any, under this Article Fourteen.
Nothing contained in this Article Fourteen or elsewhere in
this Indenture or in any Note is intended to or shall impair, as between the
Company or the Guarantors and the Holders, the Indenture Obligations of the
Company or the Guarantors, which are absolute and unconditional, to pay to the
Holders the principal of, and premium, if any,
-128-
<PAGE>
and interest on, the Notes as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Company or the Guarantors other than
the holders of Senior Indebtedness, nor shall anything herein or therein prevent
the Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon Default under this Indenture, subject to the rights, if any,
under this Article Fourteen of the holders of such Senior Indebtedness.
The failure to make a payment on account of principal of, or
interest on the Notes by reason of any provision of this Article Fourteen shall
not be construed as preventing the occurrence of an Event of Default under
Section 5.01.
Section 14.09. THE COMPANY, THE GUARANTORS AND HOLDERS MAY NOT IMPAIR
SUBORDINATION.
(a) No right of any holder of Senior Indebtedness of the
Company or any Guarantor to enforce the subordination as provided in this
Article Fourteen shall at any time or in any way be prejudiced or impaired by
any act or failure to act by the Company or such Guarantor, as applicable, or by
any noncompliance by the Company or such Guarantor, as applicable, with the
terms, provisions and covenants of this Indenture or the Notes or any other
agreement regardless of any knowledge thereof with which any such holder may
have or be otherwise charged.
(b) Without in any way limiting Section 14.09(a), the
holders of any Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to any Holders, without incurring any
liabilities to any Holder and without impairing or releasing the subordination
and other benefits provided in this Indenture or the Holders' obligations to the
holders of such Senior Indebtedness, even if any Holder's right of reimbursement
or subrogation or other right or remedy is affected, impaired or extinguished
thereby, do any one or more of the following: (i) amend, renew, exchange,
extend, modify, increase or supplement in any manner such Senior Indebtedness or
any instrument evidencing or guaranteeing or securing such Senior Indebtedness
or any agreement under which such Senior Indebtedness is outstanding (including,
but not limited to, changing the manner, place or terms of payment or changing
or extending the time of payment of, or renewing, exchanging, amending,
increasing or altering, (1) the terms of such Senior Indebtedness, (2) any
security for, or any guarantee of, such Senior Indebtedness, (3) any liability
of any obligor on such Senior Indebtedness (including any guarantor) or any
liability issued in respect of such Senior Indebtedness); (ii) sell, exchange,
release, surrender, realize upon, enforce or otherwise deal with in any manner
and in any order any property pledged, mortgaged or otherwise securing such
Senior Indebtedness or any
-129-
<PAGE>
liability of any obligor thereon, to such holder, or any liability issued in
respect thereof; (iii) settle or compromise any such Senior Indebtedness or any
other liability of any obligor of such Senior Indebtedness to such holder or any
security therefor or any liability issued in respect thereof and apply any sums
by whomsoever paid and however realized to any liability (including, without
limitation, payment of any of the Senior Indebtedness) in any manner or order;
and (iv) fail to take or to record or otherwise perfect, for any reason or for
no reason, any lien or security interest securing such Senior Indebtedness by
whomsoever granted, exercise or delay in or refrain from exercising any right or
remedy against any obligor or any guarantor or any other Person, elect any
remedy and otherwise deal freely with any obligor and any security for such
Senior Indebtedness or any liability of any obligor to the holders of such
Senior Indebtedness or any liability issued in respect of such Senior
Indebtedness.
Section 14.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made, or a notice given, to
holders of Senior Indebtedness, the distribution may be made and the notice
given to their Representative, if any. If any payment or distribution of the
Company's or any Guarantor's assets is required to be made to holders of any
Senior Indebtedness of the Company or such Guarantor, as applicable, pursuant to
this Article Fourteen, the Trustee and the Holders shall be entitled to rely
upon any order or decree of any court of competent jurisdiction, or upon any
certificate of a Representative of such Senior Indebtedness or a custodian, in
ascertaining the holders of such Senior Indebtedness entitled to participate in
any such payment or distribution, the amount to be paid or distributed to
holders of such Senior Indebtedness and all other facts pertinent to such
payment or distribution or to this Article Fourteen.
Section 14.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
The Trustee or Paying Agent may continue to make payments on
the Notes unless prior to any payment date it or the requisite Holders have
given notice of acceleration of the Notes or it has received at least two
Business Days' prior written notice of facts that would cause a payment of
principal of, or premium, if any, or interest on, the Notes to violate this
Article Fourteen. Only the Company, the Guarantors, a Representative of Senior
Indebtedness, or a holder of Senior Indebtedness that has no Representative may
give such notice.
To the extent permitted by the TIA, the Trustee in its
individual or any other capacity may hold Indebtedness of the Company or the
Guarantors (including Senior Indebtedness) with the same rights it would have if
it were not Trustee. Any Agent may do the same with like rights.
-130-
<PAGE>
Section 14.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by its acceptance thereof authorizes and
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article
Fourteen, and appoints the Trustee as such Holder's attorney-in-fact for any and
all such purposes (including, without limitation, the timely filing of a claim
for the unpaid balance of the Note that such Holder holds in the form required
in any bankruptcy, reorganization, insolvency or receivership proceeding and
causing such claim to be approved).
If a proper claim or proof of debt in the form required in
such proceeding is not filed by or on behalf of all Holders prior to 30 days
before the expiration of the time to file such claims or proofs, then the
holders or a representative of any Senior Indebtedness are hereby authorized,
and shall have the right (without any duty), to file an appropriate claim for
and on behalf of the Holders.
Section 14.13. PAYMENT.
A payment on account of or with respect to any Note shall
include, without limitation, any direct or indirect payment of principal,
premium or interest with respect to or in connection with any optional
redemption or purchase provisions, any direct or indirect payment payable by
reason of any other Indebtedness or obligation being subordinated to the Notes,
and any direct or indirect payment or recovery on any claim as a Holder relating
to or arising out of this Indenture or any Note, or the issuance of any Note, or
the transactions contemplated by this Indenture or referred to herein.
Section 14.14. TRUST MONEYS NOT SUBORDINATED; PERMITTED JUNIOR SECURITIES.
Notwithstanding anything contained herein to the contrary, (x)
payments from money or the proceeds of U.S. Government Obligations held in trust
under Article Four by the Trustee for the payment of principal of and interest
on the Notes shall not be subordinated to the prior payment of any Senior
Indebtedness or subject to the restrictions set forth in this Article Fourteen,
and none of the Holders shall be obligated to pay over any such amount to the
Company, any Guarantor, any holder of Senior Indebtedness of the Company or any
Guarantor or any other creditor of the Company or any Guarantor and (y) Holders
of the Notes may receive and retain Permitted Junior Securities, and no such
receipt or retention shall be subordinated to the prior payment of any Senior
Indebtedness or subject to the restrictions described in this Article Fourteen,
and none of the Holders shall be obligated to pay over any such securities to
the Company, any
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<PAGE>
Guarantor, any holders of Senior Indebtedness of the Company or
any Guarantor or any other creditor of the Company or any Guarantor.
[SIGNATURE PAGES FOLLOW]
-132-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.
COMPANY: ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
GUARANTORS: ATRIUM CORPORATION
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW
COMPANY - WEST COAST
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW
COMPANY OF THE NORTHEAST
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
<PAGE>
ATRIUM DOOR AND WINDOW
COMPANY OF NEW YORK
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW
COMPANY OF ARIZONA
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW
COMPANY OF NEW ENGLAND
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
DOOR HOLDINGS, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
R.G. DARBY COMPANY, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
S-134
<PAGE>
R.G. DARBY COMPANY - SOUTH
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
TOTAL TRIM, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
TOTAL TRIM, INC. - SOUTH
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
WING INDUSTRIES HOLDINGS, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
WING INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
S-135
<PAGE>
HEAT, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Treasurer and Secretary
H.I.G. VINYL, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title:
THERMAL INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Treasurer and Secretary
BEST BUILT, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
CHAMPAGNE INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
S-136
<PAGE>
TRUSTEE: STATE STREET BANK AND TRUST
COMPANY
By:
Name: Mark A. Forgetta
Title: Vice President
S-137
<PAGE>
EXHIBIT A-1
[FORM OF SECURITY]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT), OR (B) IT IS NOT A U.S. PERSON WHO IS ACQUIRING
THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR RULE 904 OF
REGULATION S, (2) AGREES THAT IT WILL NOT PRIOR TO THE LATER OF (X) THE DATE
WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k)
UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR
THE LAST DAY ON WHICH ATRIUM COMPANIES, INC. (THE "COMPANY") OR ANY AFFILIATE OF
THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY
AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE
"RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE
THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
<PAGE>
(I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
ATRIUM COMPANIES, INC.
-----------------
10 1/2% Senior Subordinated Notes due 2009, SERIES A
CUSIP No.
----------
No. $
----------
ATRIUM COMPANIES, INC., a corporation incorporated under the
laws of the State of Delaware (herein called the "Company," which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _______________ or registered assigns,
the principal sum of _______________ Dollars on May 1, 2009, at the office or
agency of the Company referred to below, and to pay interest thereon on May 1
and November 1 (each an "Interest Payment Date"), of each year, commencing on
November 1, 1999, accruing from the Issue Date or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 10 1/2% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture referred to
on the reverse hereof, be paid to the Person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on the April 15
and October 15 (each a "Regular Record Date"), whether or not a Business Day, as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, State of New
York, or at such other office or agency of the Company as may be maintained for
such purpose, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
PROVIDED, HOWEVER, that payment of interest may be made at the option of the
Company by check mailed to the address of the Person entitled
<PAGE>
thereto as such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or any
Guarantee described on the reverse side hereof, or be valid or obligatory for
any purpose.
[Remainder of Page Intentionally Left Blank]
A-1-141
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: ATRIUM COMPANIES, INC.
By:
Name:
Title:
By:
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10 1/2% Senior Subordinated Notes due 2009,
Series A, referred to in the within-mentioned Indenture.
Dated: STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
Authorized Signatory
A-1-142
<PAGE>
[REVERSE OF SECURITY]
1. INDENTURE. This Note is one of a duly authorized
issue of Notes of the Company designated as its 10 1/2% Senior Subordinated
Notes due 2009, Series A (herein called the "Initial Notes"). The Notes are
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $175,000,000, which may be issued under an
indenture (herein called the "Indenture") dated as of May 17, 1999, by and among
the Company, each of the guarantors named in the Indenture, as guarantors
(herein called the "Guarantors"), and State Street Bank and Trust Company, as
trustee (herein called the "Trustee," which term includes any successor Trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee, the Guarantors and the Holders of the Notes, and of the terms upon
which the Notes are, and are to be, authenticated and delivered. The Notes
include the Initial Notes, the Private Exchange Securities and the Unrestricted
Notes (including the Exchange Notes referred to below), issued in exchange for
the Initial Notes pursuant to the Registration Rights Agreement. The Initial
Notes, the Private Exchange Securities and the Unrestricted Notes are treated as
a single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings assigned
to them in the Indenture.
The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Note or of the Indenture shall alter or impair the obligation of the Company or
any Guarantor, which is absolute and unconditional, to pay the principal of,
premium, if any, and interest on this Note at the times, place, and rate, and in
the coin or currency, herein prescribed.
2. GUARANTEES. This Note is initially entitled to the
benefits of the certain senior subordinated Guarantees of the Guarantors and may
thereafter be entitled to certain other senior subordinated Guarantees made for
the benefit of the Holders. Reference is hereby made to Article Twelve of the
Indenture and to the Guarantees endorsed on this Note for a statement of the
respective rights, limitations of rights, duties and obligations thereunder of
the Guarantors, the Trustee and the Holders.
3. REGISTRATION RIGHTS. Pursuant to the Registration
Rights Agreement by and among the Company, the Guarantors and the Initial
Purchaser, the Company will
A-1-143
<PAGE>
be obligated to consummate an exchange offer pursuant to which the Holder of
this Note shall have the right to exchange this Note together with the
Guarantees hereof endorsed hereon for 10 1/2% Senior Subordinated Notes due
2009, Series B, of the Company (herein called the "Exchange Notes") and the
Guarantees endorsed thereon, which have been registered under the Securities
Act, in like principal amount and having identical terms as the Notes (other
than as set forth in this paragraph) and the Guarantees endorsed hereon,
respectively. The Holders of Notes shall be entitled to receive certain
liquidated damages in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
4. REDEMPTION.
(a) Except as set forth below, prior to May 1, 2004 the
Notes are not redeemable at the Company's option. The Notes will be redeemable
at the option of the Company, in whole or in part, at any time on or after May
1, 2004, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the date of redemption, if redeemed during the 12-month period beginning on May
1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C> <C>
2004 105.250%
2005 103.500%
2006 101.750%
2007 and thereafter 100.000%
</TABLE>
(b) On or prior to May 1, 2002, the Company may, other
than in any circumstance resulting in a Change of Control, at its option, use
the net proceeds of one or more Equity Offerings (as defined below) following
which there is a Public Market (as defined below) to redeem up to 35% of the
originally issued aggregate principal amount of the Notes, at a redemption price
in cash equal to 110.50% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of redemption; PROVIDED, that at
least 65% of the originally issued aggregate principal amount of Notes is
outstanding following such redemption. Notice of any such redemption must be
given not later than 60 days after the consummation of any such Equity Offering.
As used in the preceding paragraph, an "Equity Offering" means
any public offering registered with the Commission for cash by Atrium Holdings
or Parent (to the extent the net cash proceeds thereof are contributed to the
common equity capital of the Company) or the Company of its Capital Stock (other
than Disqualified Capital Stock).
A "Public Market" exists at any time with respect to the
common stock of Atrium Holdings, Parent or the Company if (a) the common stock
of Atrium Holdings, Parent or the Company, as applicable, is then registered
with the Commission pursuant to
A-1-144
<PAGE>
Section 12(b) or 12(g) of the Exchange Act and traded either on a national
securities exchange or in the National Association of Securities Dealers
Automated Quotation System and (b) at least $50.0 million in gross proceeds from
the sale of common stock of Atrium Holdings, Parent or the Company, as
applicable, by means of an effective registration statement under the Securities
Act has been raised prior to such time.
(c) At any time on or prior to May 1, 2004, the Notes may
be redeemed as a whole and not in part at the option of the Company upon the
occurrence of a Change of Control, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium (as defined below) as of,
and accrued and unpaid interest, if any, to, the date of redemption. Notice of
any such redemption must be given not later than 90 days after the occurrence of
such Change of Control.
As used in the preceding paragraph, "Applicable Premium"
means, with respect to a Note at any redemption date, the greater of (i) 1.0% of
the principal amount of such Note on such redemption date and (ii) the excess of
(A) the present value at such time of (1) the redemption price of such Note on
May 1, 2004 (as described above under paragraph (a)) plus (2) all required
interest payments due on such Note through May 1, 2004, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
principal amount of such Note on such redemption date.
As used in the preceding paragraph, "Treasury Rate" means the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H.15 (519) which has become publicly
available at least two business days prior to the applicable redemption date
(or, if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the period from such
redemption date to May 1, 2004; PROVIDED, HOWEVER, that if the period from such
redemption date to May 1, 2004 is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the period from such
redemption date to May 1, 2004 is less than one year, the weekly average yield
on actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
5. OFFERS TO PURCHASE. Sections 10.11 and 10.16 of the
Indenture provide that upon the occurrence of a Change of Control and following
certain Asset Dispositions, and subject to certain conditions and limitations
contained therein, the Company shall make an offer to purchase all or a portion
of the Notes in accordance with the procedures set forth in the Indenture.
6. DEFAULTS AND REMEDIES. If an Event of Default occurs
and is continuing, the principal of all of the Outstanding Notes, plus all
accrued and unpaid
A-1-145
<PAGE>
interest, if any, to and including the date the Notes are paid, may be declared
due and payable in the manner and with the effect provided in the Indenture.
7. DEFEASANCE. The Indenture contains provisions (which
provisions apply to this Note) for defeasance at any time of (a) the entire
indebtedness of the Company and the Guarantors on this Note and (b) certain
restrictive covenants and related Defaults, in each case upon compliance by the
Company with certain conditions set forth therein.
8. AMENDMENTS AND WAIVERS. The Indenture permits, with
certain exceptions as provided therein, the amendment thereof and the
modification of the rights and obligations of the Company and the rights of the
Holders under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to
waive compliance by the Company with certain provisions of the Indenture and
certain past Defaults under the Indenture and this Note and their consequences.
Any such consent or waiver by or on behalf of the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is
made upon this Note.
9. DENOMINATIONS, TRANSFER AND EXCHANGE. The Notes are
issuable only in registered form without coupons in denominations of $1,000 and
any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, the Notes are exchangeable for a like
aggregate principal amount of Notes of a different authorized denomination, as
requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is registrable on the
Note Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
A-1-146
<PAGE>
10. PERSONS DEEMED OWNERS. Prior to and at the time of
due presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Note is registered as the owner hereof for all purposes, whether
or not this Note shall be overdue, and neither the Company, the Trustee nor any
agent shall be affected by notice to the contrary.
11. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH
GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
Atrium Companies, Inc., 1341 West Mockingbird Lane, Suite 1200W, Dallas, Texas
75247, Attention: Chief Financial Officer.
A-1-147
<PAGE>
ASSIGNMENT FORM
If you, the holder, want to assign this Note, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Note to
(Insert assignee's social security or tax ID number)
(Print or type assignee's name, address and zip code) and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144(k) under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company or any Guarantor was the owner of this Note (or any
Predecessor Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
[CHECK ONE]
(a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act provided by Rule 144A
thereunder.
OR
(b) this Note is being transferred other than in accordance
with (a) above and documents, including a transferor certificate substantially
in the form of EXHIBIT C to the Indenture in the case of a transfer pursuant to
Regulation
A-1-148
<PAGE>
S, are being furnished which comply with the conditions of transfer set forth in
this Note and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any Person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Section 3.17 of the
Indenture shall have been satisfied.
Date: Your signature:
-------------
(Sign exactly as your name appears on the
other side of this Note)
By:
NOTICE: To be executed by an
executive officer
Signature Guarantee:
--------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated: By:
NOTICE: To be executed by an
executive officer
A-1-149
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 10.11 or 10.16 of the Indenture, check the appropriate box:
Section 10.11 Section 10.16
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.11 or 10.16 of the Indenture, state the amount:
$--------------
Date: Your signature:
---------------
(Sign exactly as your name appears on the
other side of this Note)
- ----------------------------------------------------------
By:
NOTICE: To be executed by an
executive officer
Signature Guarantee:
--------------------
A-1-150
<PAGE>
EXHIBIT A-2
[FORM OF SECURITY]
ATRIUM COMPANIES, INC.
-----------------
10 1/2% Senior Subordinated Notes due 2009, SERIES B
CUSIP No.
------------
No. $
-------------
ATRIUM COMPANIES, INC., a corporation incorporated under the
laws of the State of Delaware (herein called the "Company," which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _______________ or registered assigns,
the principal sum of _______________ Dollars on May 1, 2009, at the office or
agency of the Company referred to below, and to pay interest thereon on May 1
and November 1 (each an "Interest Payment Date"), of each year, commencing on
November 1, 1999, accruing from the Issue Date or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 10 1/2% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture referred to
on the reverse hereof, be paid to the Person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on the April 15
and October 15 (each a "Regular Record Date"), whether or not a Business Day, as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will
<PAGE>
be made at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan in The City of New York, State of New York, or at such
other office or agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that
payment of interest may be made at the option of the Company by check mailed to
the address of the Person entitled thereto as such address shall appear on the
Note Register.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or any
Guarantee described on the reverse side hereof, or be valid or obligatory for
any purpose.
[Remainder of Page Intentionally Left Blank]
A-2-152
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
ATRIUM COMPANIES, INC.
By:
Name:
Title:
By:
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 10 1/2% Senior Subordinated Notes due 2009,
Series B, referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
Authorized Signatory
A-2-153
<PAGE>
[REVERSE OF SECURITY]
1. INDENTURE. This Note is one of a duly authorized issue of
Notes of the Company designated as its 10 1/2% Senior Subordinated Notes due
2009 Series B (herein called the "Unrestricted Notes"). The Notes are limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to $175,000,000, which may be issued under an indenture (herein
called the "Indenture") dated as of May 17, 1999, by and among the Company, each
of the Guarantors named in the Indenture, as guarantors (herein called the
"Guarantors"), and State Street Bank and Trust Company, as trustee (herein
called the "Trustee," which term includes any successor Trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee, the
Guarantors and the Holders of the Notes, and of the terms upon which the Notes
are, and are to be, authenticated and delivered. The Notes include the Initial
Notes, the Private Exchange Securities and the Unrestricted Notes (including the
Exchange Notes), issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement. The Initial Notes, the Private Exchange
Securities and the Unrestricted Notes are treated as a single class of
securities under the Indenture.
All capitalized terms used in this Note which are defined in
the Indenture and not otherwise defined herein shall have the meanings assigned
to them in the Indenture.
The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Note or of the Indenture shall alter or impair the obligation of the Company or
any Guarantor, which is absolute and unconditional, to pay the principal of,
premium, if any, and interest on this Note at the times, place, and rate, and in
the coin or currency, herein prescribed.
2. GUARANTEES. This Note is initially entitled to the
benefits of the certain senior subordinated Guarantees of the Guarantors and may
thereafter be entitled to certain other senior subordinated Guarantees made for
the benefit of the Holders. Reference is hereby made to Article Twelve of the
Indenture and to the Guarantees endorsed on this Note for a statement of the
respective rights, limitations of rights, duties and obligations thereunder of
the Guarantors, the Trustee and the Holders.
3. REDEMPTION.
A-2-154
<PAGE>
(a) Except as set forth below, prior to May 1, 2004 the
Notes are not redeemable at the Company's option. The Notes will be redeemable
at the option of the Company, in whole or in part, at any time on or after May
1, 2004, at the redemption prices (expressed as percentages of the principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the date of redemption, if redeemed during the 12-month period beginning on May
1 of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C> <C>
2004 105.250%
2005 103.500%
2006 101.750%
2007 and thereafter 100.000%
</TABLE>
(b) On or prior to May 1, 2002, the Company may, other
than in any circumstance resulting in a Change of Control, at its option, use
the net proceeds of one or more Equity Offerings (as defined below) following
which there is a Public Market (as defined below) to redeem up to 35% of the
originally issued aggregate principal amount of the Notes, at a redemption price
in cash equal to 110.50% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of redemption; PROVIDED, that at
least 65% of the originally issued aggregate principal amount of Notes is
outstanding following such redemption. Notice of any such redemption must be
given not later than 60 days after the consummation of any such Equity Offering.
As used in the preceding paragraph, an "Equity Offering" means
any public offering registered with the Commission for cash by Atrium Holdings
or Parent (to the extent the net cash proceeds thereof are contributed to the
common equity capital of the Company) or the Company of its Capital Stock (other
than Disqualified Capital Stock).
A "Public Market" exists at any time with respect to the
common stock of Atrium Holdings, Parent or the Company if (a) the common stock
of Atrium Holdings, Parent or the Company, as applicable, is then registered
with the Commission pursuant to Section 12(b) or 12(g) of the Exchange Act and
traded either on a national securities exchange or in the National Association
of Securities Dealers Automated Quotation System and (b) at least $50.0 million
in gross proceeds from the sale of common stock of Atrium Holdings, Parent or
the Company, as applicable, by means of an effective registration statement
under the Securities Act has been raised prior to such time.
(c) At any time on or prior to May 1, 2004, the Notes may
be redeemed as a whole and not in part at the option of the Company upon the
occurrence of a Change of Control, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium (as defined below) as of,
and accrued and unpaid interest, if any, to, the date of redemption. Notice of
any such redemption must be given not later than 90
A-2-155
<PAGE>
days after the occurrence of such Change of Control.
As used in the preceding paragraph, "Applicable Premium"
means, with respect to a Note at any redemption date, the greater of (i) 1.0% of
the principal amount of such Note on such redemption date and (ii) the excess of
(A) the present value at such time of (1) the redemption price of such Note on
May 1, 2004 (as described above under paragraph (a)) plus (2) all required
interest payments due on such Note through May 1, 2004, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (B) the
principal amount of such Note on such redemption date.
As used in the preceding paragraph, "Treasury Rate" means the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H.15 (519) which has become publicly
available at least two business days prior to the applicable redemption date
(or, if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the period from such
redemption date to May 1, 2004; PROVIDED, HOWEVER, that if the period from such
redemption date to May 1, 2004 is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the period from such
redemption date to May 1, 2004 is less than one year, the weekly average yield
on actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
4. OFFERS TO PURCHASE. Sections 10.11 and 10.16 of the
Indenture provide that upon the occurrence of a Change of Control and following
certain Asset Dispositions, and subject to certain conditions and limitations
contained therein, the Company shall make an offer to purchase all or a portion
of the Notes in accordance with the procedures set forth in the Indenture.
5. DEFAULTS AND REMEDIES. If an Event of Default occurs
and is continuing, the principal of all of the Outstanding Notes, plus all
accrued and unpaid interest, if any, to and including the date the Notes are
paid, may be declared due and payable in the manner and with the effect provided
in the Indenture.
6. DEFEASANCE. The Indenture contains provisions (which
provisions apply to this Note) for defeasance at any time of (a) the entire
indebtedness of the Company and the Guarantors on this Note and (b) certain
restrictive covenants and related Defaults, in each case upon compliance by the
Company with certain conditions set forth therein.
7. AMENDMENTS AND WAIVERS. The Indenture permits, with
certain
A-2-156
<PAGE>
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the Notes
at the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time Outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past Defaults under the Indenture and this Note and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Note shall be conclusive
and binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
8. DENOMINATIONS, TRANSFER AND EXCHANGE. The Notes are
issuable only in registered form without coupons in denominations of $1,000 and
any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, the Notes are exchangeable for a like
aggregate principal amount of Notes of a different authorized denomination, as
requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is registrable on the
Note Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Notes, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
9. PERSONS DEEMED OWNERS. Prior to and at the time of
due presentment of this Note for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Note is registered as the owner hereof for all purposes, whether
or not this Note shall be overdue, and neither the Company, the Trustee nor any
agent shall be affected by notice to the contrary.
10. GOVERNING LAW. THE INDENTURE, THIS NOTE AND EACH
GUARANTEE SET FORTH BELOW SHALL BE GOVERNED BY, AND
A-2-157
<PAGE>
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of this Indenture. Requests may be made to:
Atrium Companies, Inc., 1341 West Mockingbird Lane, Suite 1200W, Dallas, Texas
75247, Attention: Chief Financial Officer.
A-2-158
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
(Insert assignee's social security or tax ID number)
(Print or type assignee's name, address and zip code) and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date: Your signature:
----------------
(Sign exactly as your name appears on
the other side of this Note)
By:
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-------------------
A-2-159
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 10.11 or 10.16 of the Indenture, check the appropriate box:
Section 10.11 Section 10.16
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 10.11 or 10.16 of this Indenture, state the amount:
$
--------------
Date: Your signature:
-------------- (Sign exactly as your name appears on
the other side of this Note)
By:
NOTICE: To be executed by an
executive officer
Signature Guarantee:
-------------------
A-2-160
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Note) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY.
THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER
OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
- --------------, ----
State Street Bank and Trust
Company
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Mark Forgetta
Re: ATRIUM COMPANIES, INC. (THE "COMPANY")
10 1/2% SENIOR SUBORDINATED NOTES DUE 2009 (THE
"SECURITIES")
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a Person
in the United States;
(2) either (a) at the time the buy offer was originated,
the transferee was outside the United States or we and any Person
acting on our behalf reasonably believed that the transferee was
outside the United States, or (b) the transaction was executed in, on
or through the facilities of a designated offshore securities market
and neither we nor any Person acting on our behalf knows that the
transaction has been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the
United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer
restrictions applicable
<PAGE>
to the Securities;
(6) if the circumstances set forth in Rule 904(c) under
the Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation or
other notice stating that the Securities may be offered and sold during
the restricted period specified in Rule 903(c)(2) or (3), as
applicable, in accordance with the provisions of Regulation S; pursuant
to registration of the Securities under the Securities Act; or pursuant
to an available exemption from the registration requirements under the
Securities Act; and
(7) if the sale is made during a restricted period and
the provisions of Rule 903(c)(3) are applicable thereto, we confirm
that such sale has been made in accordance with such provisions.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
Authorized Signature
C-163
<PAGE>
EXHIBIT D
FORM OF GUARANTEE
For value received, the undersigned hereby fully and
unconditionally guarantees to the Holder of this Note the cash payments in
United States dollars of principal of, premium, if any, and interest on this
Note in the amounts and at the time when due and interest on the overdue
principal, premium, if any, and interest, if any, on this Note, if lawful, and
the payment or performance of all other obligations of the Company under the
Indenture or the Notes, to the Holder of this Note and the Trustee, all in
accordance with and subject to the terms and limitations of this Note, Article
Twelve of the Indenture and this Guarantee. This Guarantee will become effective
in accordance with Article Twelve of the Indenture and its terms shall be
evidenced therein. The validity and enforceability of any Guarantee shall not be
affected by the fact that it is not affixed to any particular Note. Capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the Indenture dated as of May 17, 1999, by and among Atrium Companies, Inc., the
Guarantors named therein (including the undersigned) and State Street Bank and
Trust Company, as Trustee, as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and
to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth in Article Twelve of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates. The obligations of each
Guarantor to the Holders of Notes and to the Trustee pursuant to this Guarantee
and the Indenture are subordinated to Senior Indebtedness of such Guarantor as
defined in the Indenture.
THIS GUARANTEE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW. THE GUARANTOR HEREUNDER AGREES TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE INDENTURE, THE NOTES OR THIS GUARANTEE.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantors have caused
this Guarantee to be duly executed.
Dated:
ATRIUM CORPORATION
By:
Name:
Title:
ATRIUM DOOR AND WINDOW
COMPANY WEST COAST
By:
Name:
Title:
ATRIUM DOOR AND WINDOW
COMPANY OF THE NORTHEAST
By:
Name:
Title:
ATRIUM DOOR AND WINDOW
COMPANY OF NEW YORK
By:
Name:
Title:
ATRIUM DOOR AND WINDOW
COMPANY OF ARIZONA
D-165
<PAGE>
By:
Name:
Title:
ATRIUM DOOR AND WINDOW
COMPANY OF NEW ENGLAND
By:
Name:
Title:
DOOR HOLDINGS, INC.
By:
Name:
Title:
R.G. DARBY COMPANY, INC.
By:
Name:
Title:
R.G. DARBY COMPANY, INC. - SOUTH
By:
Name:
Title:
TOTAL TRIM, INC.
D-166
<PAGE>
By:
Name:
Title:
TOTAL TRIM, INC. - SOUTH
By:
Name:
Title:
WING INDUSTRIES HOLDINGS, INC.
By:
Name:
Title:
WING INDUSTRIES, INC.
By:
Name:
Title:
HEAT, INC.
By:
Name:
Title:
H.I.G. VINYL, INC.
D-167
<PAGE>
By:
Name:
Title:
THERMAL INDUSTRIES, INC.
By:
Name:
Title:
BEST BUILT, INC.
By:
Name:
Title:
CHAMPAGNE INDUSTRIES, INC.
By:
Name:
Title:
D-168
<PAGE>
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
[See attached]
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of May 17, 1999
by and among
ATRIUM COMPANIES, INC.
and
THE GUARANTORS
named herein
and
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and
entered into as of May 17, 1999 by and among ATRIUM COMPANIES, INC., a Delaware
corporation (the "COMPANY"), the persons listed on the signature pages hereto
and any company which later becomes a party hereto in accordance with this
Agreement, as guarantors (collectively, the "GUARANTORS" and, together with the
Company, the "ISSUERS"), and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED (the "INITIAL PURCHASER").
This Agreement is made pursuant to the Purchase Agreement dated as
of May 10, 1999 by and among the Company, the Guarantors and the Initial
Purchaser (the "PURCHASE AGREEMENT"), which provides for, among other things,
the sale by the Company to the Initial Purchaser of an aggregate of $175,000,000
principal amount of the Company's 10 1/2% Senior Subordinated Notes due 2009,
Series A (the "NOTES") and the guarantees thereof by the Guarantors (the
"GUARANTEES" and, together with the Notes, the "SECURITIES"). In order to induce
the Initial Purchaser to enter into the Purchase Agreement, the Issuers have
agreed to provide to the Initial Purchaser and its direct and indirect
transferees the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1.DEFINITIONS. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"ADVICE" shall have the meaning set forth in the last paragraph of
Section 3 hereof.
"APPLICABLE PERIOD" shall have the meaning set forth in Section
3(s) hereof.
"BUSINESS DAY" shall mean a day that is not a Saturday, a Sunday,
or a day on which banking institutions in New York, New York are required to be
closed.
"COMPANY" shall have the meaning set forth in the preamble to this
Agreement and also includes the Company's
<PAGE>
successors and permitted assigns.
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; PROVIDED, HOWEVER, that such depositary
must have an address in the Borough of Manhattan, in The City of New York.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(b) hereof.
"EFFECTIVENESS TARGET DATE" shall have the meaning set forth in
Section 2(e) hereof.
"EVENT DATE" shall have the meaning set forth in Section 2(e)
hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE OFFER" shall mean the exchange offer by the Issuers of
Exchange Securities for Securities pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange
offer registration statement on an appropriate form under the Securities Act,
and all amendments and supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2(a)
hereof.
"EXCHANGE SECURITIES" shall mean the 10 1/2% Senior Subordinated
Notes due 2009, Series B, issued by the Company, and the guarantees thereon of
the Guarantors, issued pursuant to and entitled to the benefits of, the
Indenture (which shall be qualified under the TIA) and registered pursuant to an
effective Registration Statement under the Securities Act, to be offered to
Holders of Securities in exchange for Securities pursuant to the Exchange Offer,
which shall be identical to the Securities
-3-
<PAGE>
(except that (i) interest thereon shall accrue from the last date on which
interest was paid on the Securities or, if no such interest has been paid, from
the Issue Date and (ii) the transfer restrictions thereon shall be eliminated).
"GUARANTORS" shall have the meaning set forth in the preamble to
this Agreement and also includes any Guarantor's successors and permitted
assigns.
"HOLDERS" shall mean the Initial Purchaser, for so long as it owns
any Transfer Restricted Securities, each of its direct and indirect successors,
assigns and transferees who become registered owners of Transfer Restricted
Securities under the Indenture and each Participating Broker-Dealer that holds
Exchange Securities for so long as such Participating Broker-Dealer is required
to deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Securities.
"INDENTURE" shall mean the Indenture relating to the Securities
dated as of May 17, 1999 between the Company, the Guarantors and State Street
Bank and Trust Company as trustee, as the same may be amended from time to time
in accordance with the terms thereof.
"INITIAL PURCHASER" shall have the meaning set forth in the
preamble to this Agreement.
"INSPECTORS" shall have the meaning set forth in Section 3(m)
hereof.
"ISSUE DATE" shall mean the date on which the Securities are
originally issued.
"ISSUERS" shall have the meaning set forth in the preamble to this
Agreement.
"LIQUIDATED DAMAGES" shall have the meaning set forth in Section
2(e) hereof.
"MAJORITY HOLDERS" shall mean, subject to Section 7(k), the
Holders of a majority of the aggregate principal amount of outstanding Transfer
Restricted Securities.
"PARTICIPATING BROKER-DEALER" shall have the meaning
-4-
<PAGE>
set forth in Section 3(s) hereof.
"PERSON" shall mean an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"PRIVATE EXCHANGE" shall have the meaning set forth in Section
2(a) hereof.
"PRIVATE EXCHANGE SECURITIES" shall have the meaning set forth in
Section 2(a) hereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Transfer Restricted Securities covered by a Shelf Registration Statement, and by
all other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the
preamble to this Agreement.
"RECORDS" shall have the meaning set forth in Section 3(m) hereof.
"REGISTRATION EXPENSES" shall mean any and all expenses incident
to performance of or compliance by the Issuers with this Agreement, including
without limitation: (i) all applicable SEC, stock exchange or National
Association of Securities Dealers, Inc. (the "NASD") registration and filing
fees, (ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees and disbursements
of one counsel for any Holder that is an Initial Purchaser in connection with
blue sky qualification of any of the Exchange Securities or Transfer Restricted
Securities) and compliance with the rules of the NASD, (iii) all applicable
expenses incurred by the Issuers in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any Prospectus
and any amendments or supplements thereto, and in preparing or assisting in
preparing any other documents relating to the performance
-5-
<PAGE>
of and compliance with this Agreement, (iv) all rating agency fees, if any, (v)
the fees and disbursements of counsel for the Issuers and of the independent
certified public accountants of the Issuers, including the expenses of any "cold
comfort" letters required by or incident to such performance or compliance with
this Agreement, (vi) the fees and expenses of the Trustee, and any exchange
agent or custodian, (vii) all fees and expenses incurred in connection with the
listing, if any, of any of the Transfer Restricted Securities on any securities
exchange or exchanges, if the Company, in its discretion, elects to make any
such listing, and (viii) any fees and disbursements of any underwriter
customarily required to be paid by the Company or sellers of securities and the
fees and expenses of any special experts retained by the Issuers in connection
with any Registration Statement; but excluding fees of counsel to the Holders
and underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of Transfer Restricted Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement
(including, without limitation, the Exchange Offer Registration Statement and
the Shelf Registration Statement) of the Issuers which covers any of the
Exchange Securities or Transfer Restricted Securities pursuant to the provisions
of this Agreement, and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES" shall have the meaning set forth in the preamble to
this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SHELF REGISTRATION" shall mean a registration effected pursuant
to Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Issuers relating to a "shelf" offering in accordance with Rule
415 of the Securities Act, or any similar rule that may be adopted by
-6-
<PAGE>
the SEC, pursuant to the provisions of Section 2(b) hereof which covers all of
the Transfer Restricted Securities or all of the Private Exchange Securities, as
the case may be, on an appropriate form under the Securities Act, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"TIA" shall have the meaning set forth in Section 3(k) hereof.
"TRANSFER RESTRICTED SECURITIES" shall mean each Security and, if
issued, each Private Exchange Security; PROVIDED, HOWEVER, that each Security or
Private Exchange Security, as the case may be, shall cease to be a Transfer
Restricted Security when (i) with respect to a Security only, such Security has
been exchanged by a person other than a Participating Broker-Dealer for an
Exchange Security in the Exchange Offer, (ii) with respect to a Security only,
following the exchange by a Participating Broker-Dealer in the Exchange Offer of
a Security for an Exchange Security, such Exchange Security is sold to a
purchaser who receives from such Participating Broker-Dealer on or prior to the
date of such sale a copy of the Prospectus contained in the Exchange Offer
Registration Statement, as amended or supplemented, (iii) such Security or
Private Exchange Security, as the case may be, has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) such Security or Private Exchange Security, as the
case may be, is distributed to the public pursuant to Rule 144 under the
Securities Act (or any similar provision then in force, but not Rule 144A under
the Securities Act) or has become eligible for resale without restriction
pursuant to Rule 144(k) under the Securities Act, (v) such Security or Private
Exchange Security, as the case may be, shall have been otherwise transferred by
the holder thereof and a new Security not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
such new Security shall not require registration or qualification under the
Securities Act or any similar state law then in force, or (vi) such Security or
Private Exchange Security, as the case may be, ceases to be outstanding.
-7-
<PAGE>
"TRUSTEE" shall mean the trustee with respect to the Securities
under the Indenture.
2.REGISTRATION UNDER THE SECURITIES ACT.
(a) EXCHANGE OFFER. To the extent not prohibited by any applicable
law or applicable policy of the SEC, the Issuers shall, for the benefit of the
Holders, at the Issuers' cost, (i) cause to be filed with the SEC within 60 days
after the Issue Date an Exchange Offer Registration Statement on an appropriate
form under the Securities Act covering the offer by the Issuers to the Holders
to exchange all of the Transfer Restricted Securities (other than Private
Exchange Securities) for a like principal amount of Exchange Securities, (ii)
use their best efforts to have such Exchange Offer Registration Statement
declared effective under the Securities Act by the SEC not later than the date
which is 180 days after the Issue Date, (iii) use their best efforts to have
such Registration Statement remain effective until the closing of the Exchange
Offer and (iv) use their best efforts to commence the Exchange Offer and, on or
prior to 210 days after the Issue Date, issue Exchange Securities in exchange
for all Securities properly tendered prior thereto in the Exchange Offer. Upon
the effectiveness of the Exchange Offer Registration Statement, the Issuers
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder eligible and electing to exchange Transfer
Restricted Securities (other than Private Exchange Securities) for Exchange
Securities (assuming that such Holder is not an affiliate of the Issuers within
the meaning of Rule 405 under the Securities Act and is not a broker-dealer
tendering Transfer Restricted Securities acquired directly from the Issuers for
its own account, acquires the Exchange Securities in the ordinary course of such
Holder's business and has no arrangements or understandings with any Person to
participate in the Exchange Offer for the purpose of distributing (within the
meaning of the Securities Act) the Exchange Securities) and to transfer such
Exchange Securities from and after their receipt without any limitations or
restrictions on transfer under the Securities Act and under state securities or
blue sky laws.
In connection with the Exchange Offer, the Issuers shall:
(i) mail as promptly as practicable to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate
-8-
<PAGE>
letter of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not
less than 20 Business Days after the date notice thereof is mailed to
the Holders (or longer if required by applicable law) (such period
referred to herein as the "EXCHANGE PERIOD");
(iii) utilize the services of the Depositary for the Exchange Offer;
(iv) permit Holders to withdraw tendered Securities at any time prior
to 5:00 p.m. (Eastern time) on the last Business Day of the Exchange
Period; and
(v) otherwise comply in all material respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer the Initial
Purchaser holds any Securities acquired by it and having the status of an unsold
allotment in the initial distribution, the Issuers upon the request of the
Initial Purchaser shall, to the extent not prohibited by any applicable law or
applicable policy of the SEC, simultaneously with the delivery of the Exchange
Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in
exchange (the "PRIVATE EXCHANGE") for the Securities held by such Initial
Purchaser, a like principal amount of debt securities of the Company, guaranteed
by the Guarantors, that are issued pursuant to, and entitled to the benefits of,
the Indenture and are identical to the Exchange Securities, except that such
securities shall bear appropriate transfer restrictions (the "PRIVATE EXCHANGE
SECURITIES").
The Exchange Securities and the Private Exchange Securities shall
be issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the Exchange
Securities (other than the Private Exchange Securities) shall not be subject to
the transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Securities, the Private Exchange
Securities and the Securities shall vote and consent together on all matters as
one class and that none of the Exchange Securities, the Private Exchange
Securities or the Securities will have the right to vote or consent as a
separate class on any matter. The Private Exchange Securities shall be
-9-
<PAGE>
of the same series as, and the Issuers shall use their best efforts to have the
Private Exchange Securities bear the same CUSIP number as, the Exchange
Securities. The Issuers shall not have any liability hereunder solely as a
result of such Private Exchange Securities not bearing the same CUSIP number as
the Exchange Securities.
The Exchange Offer and the Private Exchange shall not be subject
to any conditions, other than that (i) in the reasonable opinion of counsel to
the Issuers, the Exchange Offer or Private Exchange, as the case may be, does
not violate applicable law or any applicable policy of the SEC, (ii) no action
or proceeding shall have been instituted or threatened in any court or by any
governmental agency which might materially impair the ability of the Issuers to
proceed with the Exchange Offer or the Private Exchange nor shall any material
adverse development have occurred in any such action or proceeding with respect
to the Issuers, (iii) all governmental approvals shall have been obtained, which
approvals the Issuers deem necessary for the consummation of the Exchange Offer
or Private Exchange and (iv) the due tendering of Transfer Restricted Securities
in accordance with the terms of the Exchange Offer. As soon as practicable after
the close of the Exchange Offer and/or the Private Exchange, as the case may be,
the Issuers shall:
(i) accept for exchange all Transfer Restricted Securities or portions
thereof properly tendered and not validly withdrawn pursuant to the
Exchange Offer in accordance with the terms of the Exchange Offer
Registration Statement and the letter of transmittal that is an exhibit
thereto;
(ii) accept for exchange all Securities properly tendered pursuant to
the Private Exchange; and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Transfer Restricted Securities or portions thereof so
accepted for exchange by the Issuers, and issue, and cause the Trustee
under the Indenture to promptly authenticate and deliver to each
Holder, a new Exchange Security or Private Exchange Security, as the
case may be, equal in principal amount to the principal amount of the
Transfer Restricted Securities surrendered by such Holder and accepted
for exchange.
To the extent not prohibited by any law or applicable policy of
the SEC, the Issuers shall use their best efforts to
-10-
<PAGE>
complete the Exchange Offer as provided above, and shall comply with the
applicable requirements of the Securities Act, the Exchange Act and other
applicable laws in connection with the Exchange Offer. Each Holder of Transfer
Restricted Securities (other than Private Exchange Securities) who wishes to
exchange such Transfer Restricted Securities for Exchange Securities in the
Exchange Offer will be required to make certain customary representations in
connection therewith, including representations that such Holder is not an
affiliate of any of the Issuers within the meaning of Rule 405 under the
Securities Act, that it is not a broker-dealer tendering Transfer Restricted
Securities acquired directly from the Company for its own account, that any
Exchange Securities to be received by it will be acquired in the ordinary course
of business and that at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any Person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange
Securities. Each Participating Broker-Dealer will be required to acknowledge
that it will deliver the Prospectus included in the Exchange Offer Registration
Statement in connection with the resale of Exchange Securities to the extent it
is subject to the prospectus delivery requirements of the SEC. The Issuers shall
inform the Initial Purchaser of the names and addresses of the Holders to whom
the Exchange Offer is made, and the Initial Purchaser shall have the right to
contact such Holders and otherwise facilitate the tender of Transfer Restricted
Securities in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply, MUTATIS
MUTANDIS, solely with respect to Transfer Restricted Securities that are Private
Exchange Securities, Exchange Securities held by Participating Broker-Dealers
and Transfer Restricted Securities entitled to a Shelf Registration pursuant to
the first paragraph of Section 2(b) hereof.
(b)SHELF REGISTRATION. In the event that (i) the Issuers are not
permitted to file the Exchange Offer Registration Statement or to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
SEC policy, (ii) the Exchange Offer is not for any other reason consummated
within 210 days after the Issue Date, (iii) any holder of Securities notifies
the Company within 20 Business Days after the commencement of the Exchange Offer
that (a) due to a change in applicable law or SEC policy it is not entitled to
participate in the Exchange Offer, (b) due to a change in applicable law or SEC
policy it may not resell the
-11-
<PAGE>
Exchange Securities to be acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales by
such holder or (c) it is a broker-dealer and owns Securities acquired directly
from the Company or an affiliate of the Company or (iv) the holders of a
majority of the Securities may not resell the Exchange Securities to be acquired
by them in the Exchange Offer to the public without restriction under the
Securities Act and without restriction under applicable blue sky or state
securities laws, then the Issuers shall, at their cost, cause to be filed as
promptly as practicable after such determination or date, as the case may be,
and, in any event, prior to the later of (A) 60 days after the Issue Date or (B)
30 days after such filing obligation arises and use their best efforts to cause
the Shelf Registration Statement to be declared effective by the SEC on or prior
to 60 days from such required filing date; PROVIDED, HOWEVER, that if the
Issuers have not consummated the Exchange Offer within 210 days of the Issue
Date, then the Issuers will file with the SEC on or prior to the 240th day after
the Issue Date a Shelf Registration Statement providing for the sale by the
Holders of all of the Transfer Restricted Securities, and shall use their best
efforts to have such Shelf Registration Statement declared effective by the SEC
as soon as practicable and, in any event, no later than 60 days after such Shelf
Registration Statement was first filed with the SEC. No Holder of Transfer
Restricted Securities may include any of its Transfer Restricted Securities in
any Shelf Registration pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing such information as the Company may, after
conferring with counsel with regard to information relating to Holders that
would be required by the SEC to be included in such Shelf Registration Statement
or Prospectus included therein, reasonably request for inclusion in any Shelf
Registration Statement or Prospectus included therein. Each Holder as to which
any Shelf Registration is being effected agrees to furnish to the Issuers all
information with respect to such Holder necessary to make any information
previously furnished to the Company by such Holder not materially misleading.
The Issuers agree to use their best efforts to keep the Shelf
Registration Statement continuously effective until the second anniversary of
the effective date of the Shelf Registration Statement (subject to extension
pursuant to the last paragraph of Section 3 hereof) (or such shorter period that
will terminate when all of the Transfer Restricted Securities covered by such
Shelf Registration Statement have
-12-
<PAGE>
been sold pursuant thereto or cease to be outstanding or otherwise cease to be
Transfer Restricted Securities) (the "EFFECTIVENESS PERIOD"). The Issuers shall
not permit any securities other than Transfer Restricted Securities to be
included in the Shelf Registration. The Issuers further agree, if necessary, to
supplement or amend the Shelf Registration Statement, if required by the rules,
regulations or instructions applicable to the registration form used by the
Issuers for such Shelf Registration Statement or by the Securities Act or by any
other rules and regulations thereunder for shelf registrations, and the Issuers
agree to furnish to the Holders of Transfer Restricted Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) EXPENSES. The Issuers shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or 2(b) hereof and the
reasonable fees and expenses of one counsel, if any, designated in writing by
the Majority Holders to act as counsel for the Holders of the Transfer
Restricted Securities in connection with a Shelf Registration Statement, in the
case of such counsel, up to a maximum amount of $50,000. Except as provided in
the preceding sentence, each Holder shall pay all expenses of its own counsel,
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Transfer Restricted Securities pursuant
to the Shelf Registration Statement.
(d) EFFECTIVE REGISTRATION STATEMENT. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; PROVIDED, HOWEVER,
that if, after it has been declared effective, the offering of Transfer
Restricted Securities pursuant to an Exchange Offer Registration Statement or
Shelf Registration Statement is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or court,
such Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Transfer Restricted
Securities may legally resume. The Issuers will be deemed not to have used their
best efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if they voluntarily take any action that would
result in any such Registration Statement not being declared effective or in the
-13-
<PAGE>
Holders of Transfer Restricted Securities covered thereby not being able to
exchange or offer and sell such Transfer Restricted Securities during that
period, unless (i) such action is required by applicable law or (ii) in the case
of the Shelf Registration Statement only, such action is taken by the Issuers in
good faith and for valid business reasons (but not including avoidance of the
Issuers' obligations hereunder) including a material corporate transaction, and
the aggregate number of days in which such Shelf Registration Statement is not
effective or usable does not exceed 60 days; PROVIDED, that the Issuers will be
entitled to benefit of this clause (ii) only once during the term of this
Agreement and Liquidated Damages shall not accrue during such 60-day period by
reason of such Shelf Registration Statement not being effective or usable.
(e) LIQUIDATED DAMAGES. In the event that (i) the applicable
Registration Statement is not filed with the SEC on or prior to the date
specified herein for such filing, (ii) the applicable Registration Statement is
not declared effective by the SEC on or prior to the date specified herein for
such effectiveness (the "EFFECTIVENESS TARGET DATE"), (iii) if the Exchange
Offer is required to be consummated hereunder, the Issuers fail to consummate
the Exchange Offer within 30 days of the Effectiveness Target Date with respect
to the Exchange Offer Registration Statement or (iv) subject to clause (ii) of
the last sentence of Section 2(d), the applicable Registration Statement is
filed and declared effective prior to the Effectiveness Target Date but shall
thereafter cease to be effective or usable during the periods specified herein
without being immediately succeeded by an additional Registration Statement
covering the Transfer Restricted Securities which has been filed and declared
effective (each such event referred to in clauses (i) through (iv), a
"REGISTRATION DEFAULT"), then the Issuers shall pay liquidated damages to each
Holder of Transfer Restricted Securities as to which such Registration Default
relates ("LIQUIDATED DAMAGES"), with respect to the first 90-day period (or
portion thereof) while a Registration Default is continuing immediately
following the occurrence of such Registration Default, in an amount equal to
0.25% per annum of the principal amount of the Securities. The amount of
Liquidated Damages will increase by an additional 0.25% per annum of the
principal amount of the Securities for each subsequent 90-day period (or portion
thereof) while a Registration Default is continuing until all Registration
Defaults have been cured, up to an aggregate maximum amount of 1.00% per annum
of the principal amount of the Securities. Liquidated Damages shall be computed
based on the actual number
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<PAGE>
of days elapsed during which any such Registration Defaults exists. Following
the cure of a Registration Default, the accrual of Liquidated Damages with
respect to such Registration Default will cease.
The Issuers shall notify the Trustee within five Business Days
after each and every date on which an event occurs in respect of which
Liquidated Damages are required to be paid (an "EVENT DATE"). Liquidated Damages
shall be paid in arrears by depositing with the Trustee, in trust, for the
benefit of the Holders of Transfer Restricted Securities, on or before the
applicable semiannual interest payment date, immediately available funds in sums
sufficient to pay the Liquidated Damages then due. The Liquidated Damages due
shall be payable in arrears on each interest payment date to the record
Holder of Securities entitled to receive the interest payment to be paid on
such date as set forth in the Indenture. Each obligation to pay Liquidated
Damages shall be deemed to accrue from and including the day following the
applicable Event Date.
(f) SPECIFIC ENFORCEMENT. Without limiting the remedies available
to the Initial Purchaser and the Holders, the Issuers acknowledge that any
failure by the Issuers to comply with their obligations under Section 2(a) and
Section 2(b) hereof may result in material irreparable injury to the Initial
Purchaser or the Holders for which there is no adequate remedy at law, that it
would not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchaser or any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Section 2(a) and Section 2(b) hereof.
3.REGISTRATION PROCEDURES. In connection with the obligations of
the Issuers with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Issuers shall:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof
within the relevant time period specified in Section 2 hereof on the
appropriate form under the Securities Act, which form (i) shall be
selected by the Issuers, (ii) shall, in the case of a Shelf
Registration, be available for the sale of the Transfer Restricted
Securities by the selling Holders thereof and (iii) shall comply as to
form in all material respects with the
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requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith; and use their
best efforts to cause such Registration Statement to become effective
and remain effective in accordance with Section 2 hereof. The Issuers
shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto in respect of which the Holders must
provide information for inclusion therein without the Holders being
afforded an opportunity to review such documentation a reasonable time
prior to the filing of such document or if the Majority Holders or such
Participating Broker-Dealer, as the case may be, their counsel or the
managing underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
Effectiveness Period or the Applicable Period, as the case may be; and
cause each Prospectus to be supplemented by any required prospectus
supplement and as so supplemented to be filed pursuant to Rule 424 (or
any similar provision then in force) under the Securities Act, and
comply in all material respects with the provisions of the Securities
Act, the Exchange Act and the rules and regulations promulgated
thereunder applicable to it with respect to the disposition of all
securities covered by each Registration Statement during the
Effectiveness Period or the Applicable Period, as the case may be, in
accordance with the intended method or methods of distribution by the
selling Holders thereof described in this Agreement (including sales by
any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Transfer Restricted Securities, at least three Business Days prior to
filing, that a Shelf Registration Statement with respect to the
Transfer Restricted Securities is being filed and advising such Holder
that the distribution of Transfer Restricted Securities will be made in
accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Transfer Restricted Securities, without charge, as many copies of each
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request, in order to facilitate
the disposition of the Transfer Restricted Securities; and (iii)
subject to the
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last paragraph of Section 3 hereof, hereby consent to the use of the
Prospectus or any amendment or supplement thereto by each of the
selling Holders of Transfer Restricted Securities in connection with
the offering and sale of the Transfer Restricted Securities covered by
such Prospectus or any amendment or supplement thereto;
(d) in the case of a Shelf Registration, use their best efforts to
register or qualify, as may be required by applicable law, the Transfer
Restricted Securities under all applicable state securities or "blue
sky" laws of such jurisdictions by the time the applicable Registration
Statement is declared effective by the SEC as any Holder of Transfer
Restricted Securities covered by a Registration Statement shall
reasonably request in advance of such date of effectiveness, and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each
such jurisdiction of such Transfer Restricted Securities owned by such
Holder; PROVIDED, HOWEVER, that no Issuer shall be required to (i)
qualify as a foreign corporation or as a broker or dealer in securities
in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (ii) file or subject itself to any general
consent to service of process or (iii) subject itself to taxation in
any such jurisdiction if it is not so subject;
(e) in the case of (1) a Shelf Registration or (2) Participating
Broker-Dealers who have notified the Company that they will be
utilizing the Prospectus contained in the Exchange Offer Registration
Statement as provided in Section 3(s) hereof, notify each Holder of
Transfer Restricted Securities, or such Participating Broker-Dealers,
as the case may be, their counsel, if any, promptly and confirm such
notice in writing (if such notice was not originally given in writing)
(i) when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for
amendments and supplements to a Registration Statement or Prospectus or
for additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if the Issuers receive any notification with respect to
the
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suspension of the qualification of the Transfer Restricted Securities
or the Exchange Securities to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction or the initiation
of any proceeding for such purpose, (v) of the happening of any event
or the failure of any event to occur or the discovery of any facts or
otherwise during the Effectiveness Period or the Applicable Period, as
the case may be, which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or
which causes such Registration Statement or Prospectus to omit to state
a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and
(vi) the Issuers' reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as
practicable;
(g) in the case of a Shelf Registration, furnish to each Holder of
Transfer Restricted Securities, without charge, at least one conformed
copy of each Registration Statement relating to such Shelf Registration
and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Transfer Restricted Securities to facilitate the timely
preparation and delivery of certificates not bearing any restrictive
legends representing Securities covered by such Shelf Registration to
be sold and relating to the subsequent transfer of such Securities; and
cause such Securities to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the
selling Holders may reasonably request at least three Business Days
prior to the closing of any sale of Transfer Restricted Securities;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by
Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or 3(e)(vi) hereof, use
their best efforts to prepare a supplement or post-effective amendment
to a Registration Statement or the related Prospectus or any document
incorporated therein by
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reference or file any other required document so that (subject to
Section 3(a)), as thereafter delivered to the purchasers of the
Transfer Restricted Securities or Exchange Securities to whom a
Prospectus is being delivered by a Participating Broker-Dealer who has
notified the Company that it will be utilizing the Prospectus contained
in the Exchange Offer Registration Statement as provided in Section
3(a) hereof, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and to notify each Holder or Participating
Broker-Dealer, as applicable, to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and each
Holder hereby agrees to suspend use of the Prospectus until the Issuers
have amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) obtain a CUSIP number for all Exchange Securities or Private
Exchange or Securities, as the case may be, not later than the
effective date of a Registration Statement, and provide the Trustee
with certificates for the Exchange Securities or the Private Exchange
Securities, as the case may be, in a form eligible for deposit with the
Depositary;
(k) cause the Indenture or the indenture provided in Section 2(a) to be
qualified under the Trust Indenture Act of 1939, as amended (the
"TIA"), in connection with the registration of the Exchange Securities
or Transfer Restricted Securities, as the case may be, cooperate with
the Trustee or any trustee under such indenture and the Holders to
effect such changes to the Indenture or such indenture as may be
required for the Indenture or such indenture to be so qualified in
accordance with the terms of the TIA and execute, and use their best
efforts to cause the Trustee or any trustee under such indenture to
execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to
enable the Indenture or such indenture to be so qualified in a timely
manner;
(l) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) and take all such other customary
and appropriate actions as are reasonably requested by the Majority
Holders in order to expedite or facilitate the registration or the
disposition
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of such Transfer Restricted Securities, and in such connection, (i)
make such representations and warranties to Holders of such Transfer
Restricted Securities and the underwriters (if any) with respect to the
business of the Issuers and their respective subsidiaries as then
conducted and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in
each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when requested by
the Majority Holders; (ii) obtain opinions of counsel to the Issuers in
form and substance reasonably satisfactory to the managing underwriters
(if any) and the Holders of a majority in principal amount of the
Transfer Restricted Securities covered by such Registration Statement,
addressed to each selling Holder and the managing underwriters covering
the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such
Holders and underwriters; (iii) obtain "cold comfort" letters and
updates thereof from the independent certified public accountants of
the Issuers (and, if necessary, any other independent certified public
accountants of any subsidiary of the Issuers or of any business
acquired by any of the Issuers for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to the Issuers and the selling Holders of
Transfer Restricted Securities and the underwriters (if any), such
letters to be in customary form (meeting the requirement of Statement
of Accounting Standards No. 72 ("SAS 72") and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested
by such selling Holders and underwriters; provided, however, that it
shall be a condition of the Issuers' obligation to provide such letter
that the addressees thereto (other than the Issuers) shall make the
representations required by SAS 72 and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures substantially identical to those set forth in
Section 4 hereof (or such other provisions and procedures acceptable to
the Issuers and the Holders of a majority in aggregate principal amount
of Transfer Restricted Securities covered by such Registration
Statement and the managing underwriters) with respect to all parties to
be indemnified pursuant to said Section (including, without limitation,
such selling Holders and such underwriters).
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The above shall be done at each closing in respect of the sale of
Transfer Restricted Securities, or as and to the extent required
thereunder;
(m) if (1) a Shelf Registration is filed pursuant to Section 2(b) or
(2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2(a) is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Securities during the Applicable Period, make available for
inspection by each selling Holder of Transfer Restricted Securities and
each such person who would be an "underwriter" as a result of either
(i) the sale by such person of Securities covered by such Shelf
Registration Statement or (ii) the sale during the Applicable Period by
a Participating Broker-Dealer of Exchange Securities (provided that a
Participating Broker-Dealer shall not be deemed to be an underwriter
solely as a result of it being required to deliver a prospectus in
connection with any resale of Exchange Securities) and any attorney,
accountant or other agent retained by any such person (collectively,
the "INSPECTORS"), at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Issuers and their respective
subsidiaries (collectively, the "RECORDS") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of
the Issuers and their respective subsidiaries to supply all information
in each case reasonably requested by any such Inspector in connection
with such Registration Statement. Records which the Issuers determine,
in good faith, to be confidential and any Records which they notify the
Inspectors are confidential shall not be disclosed by the Inspectors to
any other Person unless (i) the disclosure of such Records is necessary
to avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the disclosure of such Records is
necessary in connection with the Inspectors' assertion of any claims or
actions or with their establishment of any defense in an action then
pending before a court of competent jurisdiction, (iii) the release of
such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iv) the information in such Records
has been made generally available to the public. Each such Holder and
each such Participating Broker-Dealer will be required to agree that
information
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obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Issuers unless and until such is
made generally available to the public. Each selling Holder of such
Transfer Restricted Securities and each such Participating
Broker-Dealer will be required to further agree that it will, upon
learning that disclosure of such Records is necessary under (i) or (ii)
above, give notice to the Issuers and allow the Issuers at their
expense to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(n) use their best efforts to comply with all applicable rules and
regulations of the SEC and make generally available to its
securityholders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder (or any
similar rule promulgated under the Securities Act) no later than 45
days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Transfer Restricted Securities
are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of a Registration Statement, which
statements shall cover said 12-month periods;
(o) upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Issuers addressed to the Trustee
for the benefit of all Holders of Transfer Restricted Securities
participating in the Exchange Offer or the Private Exchange, as the
case may be, and which includes an opinion that (i) the Issuers have
duly authorized, executed and delivered the Exchange Securities and
Private Exchange Securities, and (ii) each of the Exchange
Securities or the Private Exchange Securities, as the case may be,
constitute a legal, valid and binding obligation of the Issuers,
enforceable against the Issuers in accordance with its respective
terms (in each case, with customary exceptions);
(p) if an Exchange Offer or a Private Exchange is to be consummated,
upon proper delivery of the Transfer Restricted Securities by Holders
to the Issuers (or to such other Person as directed by the Issuers) in
exchange
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for the Exchange Securities or the Private Exchange Securities, as the
case may be, the Issuers shall mark, or cause to be marked, on such
Transfer Restricted Securities and on the books of the Trustee, the
Note Registrar (as defined in the Indenture) and, if necessary, the
Depositary, delivered by such Holders that such Transfer Restricted
Securities are being canceled in exchange for the Exchange Securities
or the Private Exchange Securities, as the case may be; but in no event
shall such Transfer Restricted Securities be marked as paid or
otherwise satisfied solely as a result of being exchanged for Exchange
Securities or Private Exchange Securities in the Exchange Offer or the
Private Exchange, as the case may be;
(q) cooperate with each seller of Transfer Restricted Securities
covered by any Registration Statement participating in the
disposition of such Transfer Restricted Securities and one counsel
acting on behalf of all such sellers in connection with the filings,
if any, required to be made with the NASD;
(r) use their best efforts to take all other steps necessary to effect
the registration of the Transfer Restricted Securities covered by a
Registration Statement contemplated hereby; and
(s)(A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," which section shall be reasonably acceptable to
the Initial Purchaser, and which shall contain a summary statement of
the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer (a
"PARTICIPATING BROKER-DEALER") that holds Transfer Restricted
Securities acquired for its own account as a result of market-making
activities or other trading activities and that will be the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Securities to be received by such broker-dealer in the Exchange Offer,
whether such positions or policies have been publicly disseminated by
the staff of the SEC or such positions or policies, in the reasonable
judgment of the Initial Purchaser, represent the prevailing views of
the staff of the SEC, including a statement that any such Participating
Broker-Dealer who receives Exchange Securities for Transfer Restricted
Securities pursuant to the Exchange Offer may be deemed a statutory
underwriter
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and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange
Securities, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Issuers the notice referred to in Section 3(e),
without charge, as many copies of each Prospectus included in the
Exchange Offer Registration Statement, and any amendment or supplement
thereto, as such Participating Broker-Dealer may reasonably request,
(iii) hereby consent to the use of the Prospectus forming part of the
Exchange Offer Registration Statement or any amendment or supplement
thereto, by any Person subject to the prospectus delivery requirements
of the SEC, including all Participating Broker-Dealers, in connection
with the sale or transfer of the Exchange Securities covered by the
Prospectus or any amendment or supplement thereto, (iv) use their best
efforts to keep the Exchange Offer Registration Statement effective and
to amend and supplement the Prospectus contained therein in order to
permit such Prospectus to be lawfully delivered by all Persons subject
to the prospectus delivery requirements of the Securities Act for such
period of time as such Persons must comply with such requirements in
order to resell the Exchange Securities; PROVIDED, HOWEVER, that such
period shall not be required to exceed 180 days (or such longer period
if extended pursuant to the last sentence of Section 3 hereof) (the
"APPLICABLE PERIOD"), and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Transfer
Restricted Securities acquired for its own account as a result of
market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of Exchange Securities received
in respect of such Transfer Restricted Securities pursuant to the
Exchange Offer";
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus
in connection with the exchange of Transfer Restricted Securities, such
broker-dealer will not be deemed to admit that it is an underwriter
within the meaning of the Securities Act; and
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(B) in the case of any Exchange Offer Registration Statement, the
Issuers agree to deliver, upon request, to the Trustee and to
Participating Broker-Dealers upon consummation of the Exchange Offer
(i) an opinion of counsel substantially in the form attached hereto as
EXHIBIT A, and (ii) an officers' certificate containing certifications
substantially similar to those set forth in Section 5(c) of the
Purchase Agreement and such additional certifications as are
customarily delivered in a public offering of debt securities.
The Issuers may require each seller of Transfer Restricted
Securities as to which any registration is being effected to furnish to the
Issuers such information regarding such seller and the proposed distribution of
such Transfer Restricted Securities as the Issuers may from time to time
reasonably request in writing. The Issuers may exclude from such registration
the Transfer Restricted Securities of any seller who fails to furnish such
information within a reasonable time (not to exceed 15 Business Days) after
receiving such request and shall be under no obligation to compensate any such
seller for any lost income, interest or other opportunity forgone, or any
liability incurred, as a result of the Issuers' decision to exclude such seller.
In the case of (1) a Shelf Registration Statement or (2)
Participating Broker-Dealers who have notified the Issuers that they will be
utilizing the Prospectus contained in the Exchange Offer Registration Statement
as provided in Section 3(s) hereof that are seeking to sell Exchange Securities
and are required to deliver Prospectuses, each Holder agrees that, upon receipt
of any notice from the Issuers of the happening of any event of the kind
described in Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or 3(e)(vi) hereof,
such Holder or Participating Broker-Dealer, as the case may be, will forthwith
discontinue disposition of Transfer Restricted Securities or Exchange
Securities, as the case may be, pursuant to a Registration Statement until such
Holder's or Participating Broker-Dealer's, as the case may be, receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 3(i)
hereof or until it is advised in writing (the "ADVICE") by the Company that the
use of the applicable Prospectus may be resumed, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense) all
copies in such Holder's or Participating Broker-Dealer's, as the case may be,
possession, other than permanent file copies then in such Holder's or
Participating Broker-Dealer's, as the case may be, possession, of the Prospectus
covering such Transfer Restricted
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Securities or Exchange Securities, as the case may be, current at the time of
receipt of such notice. If the Issuers shall give any such notice to suspend the
disposition of Transfer Restricted Securities or Exchange Securities, as the
case may be, pursuant to a Registration Statement, the Issuers shall use their
best efforts to file and have declared effective (if an amendment) as soon as
practicable an amendment or supplement to the Registration Statement and, in the
case of an amendment, have such amendment declared effective as soon as
practicable and shall extend the period during which such Registration Statement
shall be maintained effective pursuant to this Agreement by the number of days
in the period from and including the date of the giving of such notice to and
including the date when the Issuers shall have made available to the Holders or
Participating Broker-Dealers, as the case may be, (x) copies of the supplemented
or amended Prospectus necessary to resume such dispositions or (y) the Advice.
4.INDEMNIFICATION AND CONTRIBUTION. (a) Each of the Issuers,
jointly and severally, shall indemnify and hold harmless the Initial Purchaser,
each Holder, each Participating Broker-Dealer, each underwriter who participates
in an offering of Transfer Restricted Securities, their respective affiliates,
and each Person, if any, who controls any of such parties within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment or supplement thereto),
covering Transfer Restricted Securities or Exchange Securities,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any
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governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission; PROVIDED that (subject to
Section 4(d) below) any such settlement is effected with the prior
written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred (including
reasonable fees and disbursements of one counsel (in addition to any
local counsel) chosen as provided in Section 4(c) below) reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any court or
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) of this Section
4(a);
PROVIDED, HOWEVER, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of the Initial Purchaser, such Holder, such Participating Broker-Dealer or any
underwriter with respect to such Initial Purchaser, Holder, Participating
Broker-Dealer or underwriter, as the case may be, expressly for use in the
Registration Statement (or any amendment or supplement thereto) or any
Prospectus (or any amendment or supplement thereto) or (ii) contained in any
preliminary prospectus if the Initial Purchaser, such Holder, such Participating
Broker-Dealer or such underwriter failed to send or deliver a copy of the final
Prospectus (in the form it was first provided to such parties for confirmation
of sales or as amended or supplemented pursuant to Section 3(i) prior to such
confirmation of sales) to the Person asserting such losses, claims, damages or
liabilities on or prior to the delivery of written confirmation of any sale of
securities covered thereby to such Person in any case where such delivery is
required by the Securities Act and the Issuers shall have previously furnished
copies thereof to such Initial Purchaser, such Holder, such Participating
Broker-Dealer or such underwriter, as the case may be, in accordance with this
Agreement, at or prior to the written confirmation of the sale of such
Securities to such Person and the untrue statement contained in or the omission
from the preliminary Prospectus or the final Prospectus was corrected in the
final
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Prospectus (in the form it was first provided to such parties for confirmation
of sales or as amended or supplemented pursuant to Section 3(i) prior to such
confirmation of sales).
(b) Each Holder agrees, severally and not jointly, to indemnify
and hold harmless the Issuers, the Initial Purchaser, each underwriter who
participates in an offering of Transfer Restricted Securities and the other
selling Holders and each of their respective directors and each Person, if any,
who controls any of the Issuers, the Initial Purchaser, any underwriter or any
other selling Holder within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, against any and all loss, liability, claim, damage and
expense whatsoever described in the indemnity contained in Section 4(a) hereof,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment or supplement thereto) or any Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Issuers by or on behalf of such selling Holder with respect to
such Holder expressly for use in the Registration Statement (or any supplement
thereto), or any such Prospectus (or any amendment thereto); PROVIDED, HOWEVER,
that, in the case of the Shelf Registration Statement, no such Holder shall be
liable for any claims hereunder in excess of the amount of net proceeds received
by such Holder from the sale of Transfer Restricted Securities pursuant to the
Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 4(a) above, counsel to all the
indemnified parties shall be selected by the Initial Purchaser, and, in the case
of parties indemnified pursuant to Section 4(b) above, counsel to all the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses
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<PAGE>
of more than one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution is
sought under this Section 4 (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes a full and unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel, then such indemnifying party agrees that it shall be liable
for any settlement of the nature contemplated by Section 4(a)(ii) effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Issuers (jointly and
severally) and the Holders, as applicable, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity agreement incurred by the Issuers and the Holders; PROVIDED,
HOWEVER, that 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 that was not guilty of such fraudulent
misrepresentation. As between the Issuers and the Holders, such parties shall
contribute to such aggregate losses, liabilities, claims, damages and expenses
of the nature
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<PAGE>
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect the relative fault of the Issuers, on the one hand, and
the Holders of Transfer Restricted Securities, the Participating Broker-Dealer
or Initial Purchaser, as the case may be, on the other hand, in connection with
the statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Issuers, on the one hand, and the
Holders of Transfer Restricted Securities, the Participating Broker-Dealer or
the Initial Purchaser, as the case may be, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers, or by the Holder
of Transfer Restricted Securities, the Participating Broker-Dealer or the
Initial Purchaser, as the case may be, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Issuers and the Holders of the Transfer Restricted Securities
and the Initial Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 4.
For purposes of this Section 4, each affiliate of any Person, if
any, who controls a Holder of Transfer Restricted Securities, the Initial
Purchaser or a Participating Broker-Dealer within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such other Person, and each director of each of the Issuers,
each affiliate of each of the Issuers, each executive officer of each of the
Issuers who signed the Registration Statement, and each Person, if any, who
controls any of the Issuers within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as each of the Issuers.
5.PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Transfer Restricted Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and
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<PAGE>
executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements. The Issuers shall be under no obligation to
compensate any Holder for lost income, interest or other opportunity foregone,
or other liability incurred, as a result of the Issuers' decision to exclude
such Holder from any underwritten registration if such Holder has not complied
with the provisions of this Section 5 in all material respects following 15
Business Days' written notice of non-compliance and the Issuers' decision to
exclude such Holder.
6. SELECTION OF UNDERWRITERS. The Holders of Transfer Restricted
Securities covered by the Shelf Registration Statement who desire to do so may
sell the securities covered by such Shelf Registration in an underwritten
offering. In any such underwritten offering, the underwriter or underwriters and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of the Transfer Restricted
Securities covered by the Shelf Registration Statement; PROVIDED, HOWEVER, that
such underwriters and managers must be reasonably satisfactory to the Company.
7. MISCELLANEOUS.
(a) REPORTING REQUIREMENT. So long as any of the Transfer
Restricted Securities are outstanding, the Issuers will comply with the
provisions of Section 10.10 of the Indenture.
(b) NO INCONSISTENT AGREEMENTS. The rights granted to the Holders
hereunder do not, and will not for the term of this Agreement in any way
conflict with and are not, and will not during the term of this Agreement be
inconsistent with the rights granted to the holders of the Issuers' other issued
and outstanding securities under any other agreements entered into by the
Issuers.
(c) AMENDMENTS AND WAIVERS. Except as provided in Section 7(l),
the provisions of this Agreement, including provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with
the prior written consent of the Issuers and the Majority Holders; PROVIDED,
HOWEVER, that no amendment, modification, or supplement or waiver or consent
to the departure with respect to the provisions of Section 4 hereof shall be
effective as
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<PAGE>
against any Holder of Transfer Restricted Securities or any of the Issuers
unless consented to in writing by such Holder of Transfer Restricted Securities
or the Issuers, as the case may be.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, facsimile, or any courier guaranteeing overnight delivery (i)
if to a Holder, at the most current address given by such Holder to the Issuers
by means of a notice given in accordance with the provisions of this Section
7(d), which address initially is, with respect to the Initial Purchaser, the
address set forth in the Purchase Agreement; and (ii) if to the Issuers,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 7(d).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt is confirmed, if sent by facsimile; and on the next Business Day,
if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Company and the Initial Purchaser, including, without limitation and without the
need for an express assignment, subsequent Holders. If any transferee of any
Holder shall acquire Transfer Restricted Securities, in any manner, whether by
operation of law or otherwise, such Transfer Restricted Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Transfer Restricted Securities, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof.
(f) THIRD PARTY BENEFICIARY. Each Holder shall be a third party
beneficiary of the agreements made hereunder
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<PAGE>
between the Issuers, on the one hand, and the Initial Purchaser, on the other
hand, and shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. All specified times of
day refer to New York City time.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) SECURITIES HELD BY ANY OF THE ISSUERS OR ANY OF THEIR
RESPECTIVE AFFILIATES. Whenever the consent or approval of Holders of a
specified percentage of Transfer Restricted Securities is required hereunder,
Transfer Restricted Securities held by any of the Issuers or any of their
respective affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
(l) GUARANTORS. So long as any Transfer Restricted Securities
remain outstanding, the Company shall cause each of its subsidiaries that
becomes a guarantor of the Securities under the Indenture to execute and deliver
a counterpart to this Agreement which subjects such subsidiary to the provisions
of this Agreement as a guarantor (all such subsidiaries, the "GUARANTORS"). Each
of the Guarantors agrees to join the Company in all of its undertakings
hereunder to effect the Exchange Offer for the Exchange Securities (which will
be
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<PAGE>
guaranteed by each of the Guarantors with terms identical to such Guarantors'
guaranty of the Securities) and the filing of any Shelf Registration Statement
required hereunder (including, without limitation, the undertakings in Sections
3 and 4 hereof).
[Signature Pages Follow]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
GUARANTORS:
ATRIUM CORPORATION
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW
COMPANY - WEST COAST
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY
OF THE NORTHEAST
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
S-35
<PAGE>
ATRIUM DOOR AND WINDOW COMPANY
OF NEW YORK
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY
OF ARIZONA
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY
OF NEW ENGLAND
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
DOOR HOLDINGS, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
R.G. DARBY COMPANY, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
S-36
<PAGE>
R.G. DARBY COMPANY - SOUTH
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
TOTAL TRIM, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
TOTAL TRIM, INC. - SOUTH
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
WING INDUSTRIES HOLDINGS, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
WING INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
S-37
<PAGE>
HEAT, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Treasurer and Secretary
H.I.G. VINYL, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title:
THERMAL INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Treasurer and Secretary
BEST BUILT, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
CHAMPAGNE INDUSTRIES, INC.
By: /s/ Jeff L. Hull
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
S-38
<PAGE>
Confirmed and accepted as of
the date first above
written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Scott P. Gutterman
------------------------------------------
Name: Scott P. Gutterman
Title: Vice President
S-39
<PAGE>
Schedule A
FORM OF OPINION OF COUNSEL
1. Each of the Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto and
other financial and statistical information and supplemental schedules included
or referred to therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Securities Act and the applicable rules
and regulations promulgated under the Securities Act.
2. We have participated in conferences with officers and other
representatives of the Issuers, your representatives and representatives of the
independent accountants for the Issuers at which conferences the contents of the
Exchange Offer Registration Statement and related matters were discussed.
Although such counsel has not verified and does not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the statements
contained therein, on the basis of the foregoing participation (relying as to
materiality to a large extent upon representations and opinions of officers and
other representatives of the Issuers), no facts have come to such counsel's
attention that lead such counsel to believe that the Exchange Offer Registration
Statement (other than the financial statements, notes and schedules thereto or
other financial information contained or referred to therein and the Form T-1,
as to which such counsel need express no belief), at the time the Exchange Offer
Registration Statement became effective and at the time of the consummation of
the Exchange Offer, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, or that the Prospectus (other than
the financial statements, notes and schedules thereto or other financial
information contained or referred to therein, as to which such counsel need
express no belief) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein, in the
light of the circumstances under which they were made, not misleading.
<PAGE>
Exhibit 10.8
AMENDMENT AND CONSENT NO. 1
AMENDMENT AND CONSENT NO. 1 (this "AMENDMENT"), dated as of
May 5, 1999, to that certain Credit Agreement, dated as of October 2, 1998 (as
amended to the date hereof, the "CREDIT AGREEMENT"; capitalized terms used
herein and not defined shall have the meaning set forth in the Credit
Agreement), among ATRIUM COMPANIES, INC., a Delaware corporation ("BORROWER"), D
and W HOLDINGS, INC., as Parent, the Guarantors party thereto, the Lenders party
thereto (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 (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, pursuant to Section 12.04 of the Credit Agreement,
each of the Obligors and each of the undersigned Lenders hereby agree to amend
certain provisions of the Credit Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION ONE AMENDMENTS. (a) Section 1.01 is amended (i) by
adding the following definitions, each in the appropriate alphabetical order of
the existing defined terms:
"CHAMPAGNE" shall mean Champagne Industries, Inc., a Colorado
corporation.
"CHAMPAGNE ACQUISITION" shall mean the acquisition of all of
the outstanding capital stock of Champagne by Borrower for a purchase price not
to exceed $4.2 million (including an "earn-out" not to exceed $500,000 and
including amounts required to repay in full all outstanding Indebtedness of
Champagne and its Subsidiaries other than capital lease obligations not
exceeding $200,000) pursuant to the Champagne Acquisition Agreement.
"CHAMPAGNE ACQUISITION AGREEMENT" shall mean the definitive
documentation to be executed by Borrower and the sellers party thereto relating
to the Champagne Acquisition.
"HEAT" shall mean Heat, Inc., a Delaware corporation.
"HEAT ACQUISITION" shall mean the acquisition of all of the
outstanding capital stock of Heat and H.I.G. Vinyl, Inc., a Delaware
corporation ("VINYL"), by Borrower for a purchase price not to exceed
$85.0 million (including amounts required to repay in full all
outstanding Indebtedness of Heat and Vinyl and their respective
Subsidiaries other than capital lease obli-
<PAGE>
-2-
gations not exceeding $375,000 and other Indebtedness not exceeding
$325,000 which shall reduce the purchase price), PLUS the aggregate
amount of cash and cash equivalents held by Heat on the date of
consummation of the Heat Acquisition, PLUS or MINUS the aggregate
amount of any working capital adjustments, pursuant to the Heat
Acquisition Agreement.
"HEAT ACQUISITION AGREEMENT" means the Stock Purchase
Agreement, dated as of April 20, 1999, by and between Heat, the sellers
party thereto, H.I.G. Vinyl, Inc. and Borrower relating to the Heat
Acquisition.
"NEW NOTES" shall mean the Senior Subordinated Notes due 2009
to be issued by Borrower pursuant to the New Notes Indenture, in an
aggregate principal amount of $175.0 million, guaranteed by each of the
Guarantors (other than Atrium Holdings) on a senior subordinated basis,
including the senior subordinated notes issued pursuant to a registered
exchange offer therefor, which notes shall in any event (i) have
covenants, events of default, redemption and repurchase provisions and
modification provisions in the aggregate which in the reasonable
judgment of the Lead Arranger are not materially less favorable to
Borrower and the Lenders than the covenants, events of default,
redemption and repurchase provisions and modification provisions in the
draft Description of Notes attached hereto as EXHIBIT A, (ii) be
unsecured, and (iii) contain such terms with respect to subordination
to the Obligations that are not in the aggregate, in the reasonable
judgment of the Lead Arranger, materially more onerous to the Lenders
than the subordination terms in the draft Description of Notes attached
hereto as EXHIBIT A.
"NEW NOTES INDENTURE" means the Indenture pursuant to which
the New Notes are to be issued, dated as of the New Notes Issue Date,
by and among Borrower, each of the guarantors party thereto from time
to time and a trustee reasonably acceptable to the Lead Arranger.
"NEW NOTES ISSUE DATE" shall mean the date of original
issuance of the New Notes, which shall be no later than the date of
consummation of the Heat Acquisition and the Champagne Acquisition.
; (ii) by deleting the entire text of part (c) of the definition of "Change of
Control" and replacing it with the following:
"(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), the New Notes Indenture 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."
; (iii) by adding the following to the end of the definition of "Consolidated
EBITDA":
<PAGE>
-3-
"Prior to the first anniversary of the New Notes Issue Date,
Consolidated EBITDA shall be calculated on a pro forma basis
as if the Champagne Acquisition and the Heat Acquisition had
occurred on the first day of the relevant Measurement Period
(including giving effect to $2.250 million of pro forma
expense and cost reductions relating to the Champagne
Acquisition and the Heat Acquisition; PROVIDED, HOWEVER, that
the amount of such expense and cost reductions shall be (i)
$1.689 million if the Measurement Period ends on September 30,
1999, (ii) $1.126 million if the Measurement Period ends on
December 31, 1999, (iii) $0.563 million if the Measurement
Period ends on March 31, 2000, and (iv) $0 if the Measurement
Period ends on June 30, 2000. For any Measurement Period that
includes the fiscal quarter ending March 31, 1999, severance
payments made during such fiscal quarter in an amount not to
exceed $1.8 million shall be added back to Consolidated EBITDA
to the extent deducted in the calculation thereof (other than
for purposes of the definition of "Excess Cash Flow")"
; and (iv) by deleting the definition of "Permitted Acquisitions" and replacing
it with the following:
"PERMITTED ACQUISITIONS" shall mean any acquisition effected
in compliance with Section 9.06(i), (m) or (o)."
(b) Section 2.03 is amended by deleting clause (iii) of the
proviso to the first sentence in such Section 2.03 and replacing it with the
following:
"(iii) the outstanding aggregate amount of all Letter of
Credit Liabilities exceed $7.5 million,"
(c) Section 3.02 is amended by deleting clauses (i) and (ii)
of Section 3.02(a) and replacing them with the following:
"(i) during such periods as such Loan is an ABR Loan, (a) the
Alternate Base Rate (as in effect from time to time), PLUS (b) the
Applicable Margin, PLUS (c) on and after the New Notes Issue Date, (A)
in the case of the Revolving Credit Loans, 0.250% until the Reset Date,
and (B) in the case of the Term Loans, 0.125%, until the first date
that the Total Leverage Ratio shall be equal to or less than 4.0:1.0 on
and after the New Notes Issue Date (as specified in an Interest Rate
Certificate required by Section 9.01(e) and an Officers' Certificate
demonstrating such computation of the Total Leverage Ratio); and
(ii) during such periods as such Loan is a LIBOR Loan, for
each Interest Period relating thereto, (a) the LIBOR Rate for such Loan
for such Interest Period, PLUS (b) the Applicable Margin, PLUS (c) on
and after the New Notes Issue Date, (A) in the case of the Revolving
Credit Loans, 0.250% until the Reset Date, and (B) in the case of the
Term Loans, 0.125% until the first date that the Total Leverage Ratio
shall be equal to or less than 4.0:1.0 on and after the New Notes Issue
Date (as specified in an Interest Rate Certificate required by Section
9.01(e) and an Officers' Certificate demonstrating such computation of
the Total Leverage Ratio)."
<PAGE>
-4-
(d) Section 8.03 is amended by deleting the entire text
thereof (including the referenced Schedule 8.03) and replacing it with the
following:
"Section 8.03 LITIGATION. 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 either (i) would be required to
be described in a prospectus pursuant to the Securities Act (assuming
the existence of a registered sale of securities) or (ii) has a
reasonable likelihood of being adversely determined and, 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 (without giving effect to
clause (a) of the definition of Material Adverse Effect)."
(e) Section 9.01 is amended by deleting the entire text of
9.01(b) and replacing it with the following:
"(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 statements of
operations, cash flows and stockholders' equity of Borrower and its
Consolidated Subsidiaries for such year and the related consolidated
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 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 (ii) the corresponding budget or plan for such period,
and, in the case of the foregoing consolidated financial statements,
accompanied by an opinion, without material qualification, thereon of
independent certified public accountants of recognized national
standing, which opinion 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 as at the end of, and for, such fiscal year in accordance
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;"
(f) Section 9.06 is amended by (i) deleting the entire text of
Section 9.06(i)(xi) and replacing it with the following:
"(i) the Acquisition Consideration for such Acquisition,
together with the aggregate amount of the Acquisition
Consideration for all Acquisitions (other than Acquisitions
made pursuant to Sections 9.06(m) and 9.06(o) below) effected
pursuant to
<PAGE>
-5-
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."
and (ii) by deleting the "and" at the end of Section 9.06(m), deleting the "."
at the end of Section 9.06(n) and replacing it with "; and" and by adding the
following immediately after Section 9.06(n):
"(o) the Champagne Acquisition and the Heat Acquisition."
(g) Section 9.08 is amended by deleting the "and" at the end
of Section 9.08(k), deleting the "." at the end of Section 9.08(l) and replacing
it with "; and" and by adding the following immediately after Section 9.06(l):
"(m) the New Notes (less all repayments and prepayments
thereof) and any Permitted Refinancings thereof."
(h) Section 9.10 is amended by (i) deleting Section
9.10(c)(ii) and replacing it with the following:
"(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); PROVIDED,
HOWEVER, that the aggregate cash consideration paid, or
distributions made, pursuant to this clause (c)(ii) shall not
exceed $5.0 million in the aggregate since the Closing Date,
PLUS, in each case, the proceeds of any Excluded Equity
Issuance consummated substantially contemporaneously with such
purchase or redemption; and"
and (ii) deleting the "and" at the end of Section 9.10(c)(ii), deleting the "."
at the end of 9.10(d), replacing it with"; and" and by adding the following
immediately after Section 9.10(d):
"(e) so long as no Default has occurred and is continuing or
would arise therefrom, Borrower may make Dividend Payments to
Atrium Holdings on the New Notes Issue Date or within two
Business Days thereafter with a portion of the net proceeds
from the offering of the New Notes in an amount not to exceed
$20.0 million (plus accretion to the date of repayment of the
Investor Debt Securities) if the proceeds of such Dividend
Payment are contemporaneously used by Atrium Holdings to repay
Investor Debt Securities in the same amount and such Investor
Debt Securities are canceled."
(i) Sections 9.11(a), (b), (c) and (d) are amended by deleting
the entire text thereof and replacing it with the following:
<PAGE>
-6-
"(a) MAXIMUM TOTAL LEVERAGE RATIO. The Total Leverage Ratio
shall not, as of any Test Date during any period set forth in
the table below, exceed the ratio set forth opposite such
period in the table below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
New Notes Issue Date - 9/30/99 5.50
10/01/99 - 6/30/00 5.25
7/1/00 - 12/31/00 5.00
1/1/01 - 6/30/01 4.75
7/1/01 - 12/31/01 4.50
1/1/02 - 6/30/02 4.25
7/1/02 - 12/31/02 4.00
1/1/03 - 6/30/03 3.75
7/1/03 - 12/31/03 3.50
1/1/04 - 6/30/04 3.25
7/1/04 - 12/31/04 3.00
1/1/05 - 6/30/05 2.75
7/1/05 and thereafter 2.50
</TABLE>
(b) MINIMUM INTEREST COVERAGE RATIO. The Interest Coverage
Ratio shall not, as of any Test Date during any period set
forth in the table below, be less than the ratio set forth
opposite such period in the table below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
New Notes Issue Date - 9/30/99 1.75
10/1/99 - 3/31/00 1.90
4/1/00 - 9/30/00 2.00
10/1/00 - 12/31/00 2.20
1/1/01 - 6/30/01 2.35
7/1/01 -12/31/01 2.50
1/1/02 - 6/30/02 2.60
7/1/02 - 12/31/02 2.75
1/1/03 - 6/30/03 2.85
7/1/03 - 12/31/03 3.00
1/1/04 - 6/30/04 3.10
7/1/04 - 12/31/04 3.25
1/1/05 - 6/30/05 3.35
7/1/05 - 12/31/05 3.50
1/1/06 - 6/30/06 3.60
</TABLE>
<PAGE>
-7-
(c) MINIMUM FIXED CHARGE COVERAGE RATIO. The Fixed Charge
Coverage Ratio shall not, as of any Test Date during any
period set forth in the table below, be less than the ratio
set forth opposite such period in the table below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
New Notes Issue Date - 9/30/99 1.25
10/1/99 - 6/30/00 1.40
7/1/00 - 12/31/00 1.50
1/1/01 - 6/30/01 1.65
7/1/01 - 12/31/01 1.75
1/1/02 - 6/30/02 1.80
7/1/02 - 12/31/02 2.00
1/1/03 - 6/30/03 2.10
7/1/03 - 12/31/03 2.25
1/1/04 - 6/30/04 2.30
7/1/04 - 12/31/04 2.50
1/1/05 - 6/30/05 2.60
7/1/05 - 12/31/05 2.75
1/1/06 - 6/30/06 2.85
</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) $10.0 million
in the aggregate for the fiscal year ended December 31, 1999, (c) $11.0
million in the aggregate for the fiscal year ended December 31, 2000,
and (d) $12.0 million in the aggregate for the fiscal year ended
December 31, 2001 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."
(j) Section 9.15 is amended by deleting the "or" at the end of
Section 9.15(f) and by adding the following immediately after Section 9.15(g)
but before the second proviso of Section 9.15:
"or (h) the repayment of the Investor Debt Securities (as in
effect on the date hereof) to the extent otherwise permitted
by the terms of this Agreement."
(k) Section 9.17 is amended by adding the words ",the New
Notes Indenture," to the third line of the second sentence under such Section
after the words ", the Management Agreement".
<PAGE>
-8-
(l) Section 9.19 is amended by deleting the "and" at the end
of Section 9.19(iii), replacing it with a ",", deleting the "." at the end of
Section 9.19(iv), and by adding the following immediately after the end thereof:
"and (v) any such encumbrances or restrictions existing under
or by reason of the New Notes Indenture as in effect on the
New Notes Issue Date and any Permitted Refinancing thereof so
long as such restriction in such Permitted Refinancing is not
substantially more disadvantageous to the Lenders or Borrower
than the New Notes Indenture in effect on the New Notes Issue
Date."
(m) Section 9.21 is amended by adding the following
immediately at the end thereof:
"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 New Notes
Indenture as in effect on the New Notes Issue 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 New Notes Indenture or any
other Indebtedness or other obligation of the Borrower and its
Subsidiaries"; and
(n) Section 9.25 is amended by (i) adding the words ", any New
Notes" after the words ", any Existing Notes" in the third line of Section
9.25(a), (ii) deleting the "and" at the end of Section 9.25(a)(4) and replacing
it with a ",", deleting the "or" at the end of Section 9.25(a)(5) and by adding
the following immediately after Section 9.25(a)(5):
"(6) any Restricted Debt Payment of the Existing Notes in an
amount not to exceed $29.1 million (plus accrued interest to
the date of payment and a repurchase premium not to exceed
$2.2 million) with a portion of the net proceeds from the
offering of the New Notes, so long as such Restricted Debt
Payment is effected within five Business Days of the receipt
of such net proceeds, and any Restricted Debt Payment of the
Investor Debt Securities in an amount not to exceed $20.0
million (plus accretion to the date of payment) with a portion
of the net proceeds from the offering of the New Notes, so
long as such Restricted Debt Payment is effected within five
Business Days of the receipt of such net proceeds; or";
and (iii) adding the words "or the New Notes Indenture or the New Notes" after
the words "and the Existing Notes" in the second line of Section 9.25(b).
SECTION TWO CONSENTS. (a) Subject to the entering into of
definitive documentation by one or more of the Revolving Credit Lenders or one
or more Persons who will become Revolving Credit Lenders and the Obligors by
June 30, 1999 pursuant to which such Revolving Credit Lenders agree to increase
their, or provide new, Revolving Credit Commitments (the "ADDITIONAL REVOLVING
CREDIT DOCUMENTATION"), the Majority Lenders consent to increasing the aggregate
amount of the Revolving Credit Commitments by an amount not to exceed $20.0
million and authorize the Lead
<PAGE>
-9-
Arranger and the Administrative Agent to, on behalf of all the Creditors,
execute and deliver the Additional Revolving Credit Documentation to change the
definition of "Revolving Credit Commitment" to reflect such increased aggregate
Revolving Credit Commitment and to increase the Revolving Credit Commitment of
any Revolving Credit Lender on ANNEX A to the Credit Agreement and/or to add any
new Revolving Credit Lender to ANNEX A to the Credit Agreement and to make such
other conforming and clarifying changes as is necessary to give effect to the
foregoing (such Additional Revolving Credit Documentation to be in form and
substance reasonably satisfactory to the Lead Arranger); PROVIDED, HOWEVER, that
on the date of any Additional Revolving Credit Documentation and immediately
after its effectiveness, Borrower shall repay all Revolving Credit Loans then
outstanding, Reimbursement Obligations resulting from any then drawn Letters of
Credit and Swing Loans then outstanding (including all costs under Section
5.05(a)(4), if any) (which repayment may be made from drawings under the
Revolving Credit Commitments after such effectiveness) and shall pay all accrued
and unpaid fees under Section 2.05(a); PROVIDED, FURTHER, HOWEVER, that if no
Additional Revolving Credit Documentation shall have become effective by June
30, 1999 or if the amounts provided in the preceding proviso are not repaid or
paid, as applicable, the consent and authorization provided in this Section 2(a)
by the Majority Lenders shall be deemed withdrawn and shall have no effect on
the Credit Documents.
(b) Notwithstanding the proviso to Section 9.25(b) of the
Credit Agreement or anything else in the Credit Documents to the contrary, the
Majority Lenders consent to any amendment, supplement or other modification of
the Investor Debt Securities and the Investor Debt Securities Indenture to the
extent that the Lead Arranger determines in its reasonable judgment at the time
of such amendment, supplement or other modification that the terms and
provisions of the Investor Debt Securities and the Investor Debt Securities
Indenture, as so amended, supplemented or otherwise modified, is not in the
aggregate materially less favorable to Atrium Holdings and the Lenders than the
terms and provisions of the New Notes and the New Notes Indenture (as in effect
on the New Notes Issue Date).
(c) Pursuant to Section 9.17 of the Credit Agreement, the
Majority Lenders and the Lead Arranger consent to an amendment to the Management
Agreement to be entered into on the New Notes Issue Date, provided that such
amendment is in form and substance reasonably satisfactory to the Lead Arranger.
(d) Pursuant to Section 9.27 of the Credit Agreement, the
Majority Lenders and the Lead Arranger consent to an amendment to the Tax
Sharing Agreement to be entered into on the New Notes Issue Date, provided that
such amendment is in form and substance reasonably satisfactory to the Lead
Arranger.
(e) The Majority Lenders consent to the supplement to the
Schedules to the Credit Agreement reflecting additions related to the Heat
Acquisition and the Champagne Acquisition in the form attached hereto as EXHIBIT
B.
<PAGE>
-10-
(f) Notwithstanding anything to the contrary in the Credit
Agreement, any voluntary prepayment of Loans with the proceeds of the New Notes
may be applied among the Classes of Loans at the discretion of Borrower.
SECTION THREE CONDITIONS TO EFFECTIVENESS. This Amendment
shall become effective as of the date (the "EFFECTIVE DATE") when, and only
when, (a) Borrower shall have issued or shall simultaneously issue the New Notes
pursuant to an offering in which Merrill Lynch, Pierce, Fenner & Smith
Incorporated acts as sole and exclusive underwriter, initial purchaser or agent,
in an aggregate principal amount of $175.0 million pursuant to the New Notes
Indenture and having an interest rate reasonably satisfactory to the Lead
Arranger, and containing terms and conditions satisfying the definition of New
Notes and otherwise reasonably satisfactory to the Lead Arranger, and Borrower
shall have repaid, or simultaneously with the issuance of the New Notes will
repay, in full all outstanding Existing Notes, (b) the Heat Acquisition shall
have been or shall simultaneously be consummated in accordance with the terms
hereof and the terms of the Heat Acquisition Agreement (without the waiver or
amendment of any material condition unless consented to by the Lead Arranger)
and (c) the Administrative Agent shall have received (i) counterparts of this
Amendment executed by each Obligor and the Majority Lenders or, as to any of the
Lenders, advice satisfactory to the Administrative Agent that such Lender has
executed this Amendment, (ii) all reasonable costs and expenses of the Agents in
connection with the preparation, execution and delivery of this Amendment and
the other instruments and documents to be delivered hereunder, if any
(including, without limitation, the reasonable fees and expenses of Cahill
Gordon & Reindel), (iii) all agreements, guarantees, documents and certificates
as the Lead Arranger or the Administrative Agent may have reasonably requested,
and all other actions shall have been taken as the Lead Arranger or the
Administrative Agent may have reasonably requested, as required by Section 9.12
and 9.20 of the Credit Agreement in connection with Heat, Vinyl and each of
their respective Subsidiaries becoming Qualified Subsidiaries and parties to the
Security Agreement, and (iv) an Officers' Certificate from Borrower stating that
each of the conditions in this Section Three have been satisfied; PROVIDED,
HOWEVER, that if the Effective Date shall not have occurred by June 30, 1999,
this Amendment shall be deemed to have not been adopted by the Majority Lenders
and shall have no effect on the Credit Documents; PROVIDED, FURTHER, HOWEVER,
that if the Champagne Acquisition shall not have been consummated in accordance
with the terms hereof and the Champagne Acquisition Agreement within 30 days
after the Effective Date, all amendments relating thereto in Section One shall
be deemed to have not been adopted by the Majority Lenders and shall have no
effect on the Credit Documents. The effectiveness of this Amendment (other than
Sections Six, Seven and Eight hereof) is conditioned upon the accuracy of the
representations and warranties set forth in Section Four hereof.
SECTION FOUR REPRESENTATIONS AND WARRANTIES; COVENANTS. In
order to induce the Lenders and the Agents to enter into this Amendment, each
Obligor represents and warrants to each of the Lenders and the Agents that after
giving effect to this Amendment, and both before and after giving effect to the
Heat Acquisition and the Champagne Acquisition and the issuance of the New
Notes, (a) no Default or Event of Default has occurred and is continuing; and
(b) all of the representations and warranties in the Credit Agreement, are true
and complete in all material respects on and as of the
<PAGE>
-11-
date hereof as if made on the date hereof (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).
In addition, with respect to each Mortgaged Real Property set
forth on SCHEDULE 4 hereto, the Obligors shall deliver 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 of the Credit Agreement in respect of Mortgaged Real
Property, on or prior to 30 days after the New Notes Issue Date.
SECTION FIVE REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT
AND THE NOTES. On and after the Effective Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Credit Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment. The Credit
Agreement, the Notes and each of the other Credit Documents, as specifically
amended by this Amendment, are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed. Without limiting the
generality of the foregoing, the Security Documents and all of the Collateral
described therein do and shall continue to secure the payment of all Obligations
of the Obligors under the Credit Documents, in each case as amended by this
Amendment. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or any Agent under any of the Credit Documents,
nor constitute a waiver of any provision of any of the Credit Documents. Each
Guarantor ratifies and confirms its Guarantee as in full force and effect after
giving effect to the amendments and waivers herein set forth and to any prior
amendment or waiver to the Credit Agreement.
SECTION SIX COSTS, EXPENSES AND TAXES. Borrower agrees to pay
all reasonable costs and expenses of the Agents in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered hereunder, if any (including, without limitation,
the reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with
the terms of Section 12.03 of the Credit Agreement. In addition, Borrower shall
pay or reimburse any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Amendment and the
other instruments and documents to be delivered hereunder, if any, and agrees to
save each Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION SEVEN EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
<PAGE>
-12-
SECTION EIGHT GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW).
[Signature Pages Follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWER:
ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
GUARANTORS:
ATRIUM CORPORATION
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY -
WEST COAST
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY
OF THE NORTHEAST
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY
OF NEW YORK
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
<PAGE>
S-2
ATRIUM DOOR AND WINDOW COMPANY
OF ARIZONA
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM DOOR AND WINDOW COMPANY
OF NEW ENGLAND
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
DOOR HOLDINGS, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
R.G. DARBY COMPANY, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
<PAGE>
S-3
TOTAL TRIM, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
WING INDUSTRIES HOLDINGS, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
WING INDUSTRIES, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
R.G. DARBY COMPANY - SOUTH
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
TOTAL TRIM, INC. - SOUTH
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Assistant
Secretary
<PAGE>
S-4
PARENT:
D AND W HOLDINGS, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer, Secretary and
Director
AGENTS:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED, as Lead
Arranger, Syndication Agent and
Documentation Agent
By: /s/ Howard B. Sysler
--------------------------------------
Name: Howard B. Sysler
Title: Vice President
BANKBOSTON, N.A., as Administrative
Agent, Issuing Lender and as a Lender
By: /s/ Marie C. Duprey
--------------------------------------
Name: Marie C. Duprey
Title: Vice President
LENDERS:
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Howard B. Sysler
--------------------------------------
Name: Howard B. Sysler
Title: Vice President
<PAGE>
S-5
BHF BANK AKTIENGESELLSCHAFT
By: /s/ Steven Alexander
--------------------------------------
Name: Steven Alexander
Title: Assistant Treasurer
BALANCED HIGH-YIELD FUND II LTD.
By: BHF Bank Aktiengesellschaft, acting
through its New York Branch, as
Attorney-in fact
By: /s/ Steven Alexander
--------------------------------------
Name: Steven Alexander
Title: Assistant Treasurer
GREATER BAY CORPORATE FINANCE, A
DIVISION OF CUPERTINO NATIONAL
BANK & TRUST
By: /s/ Dan McCartney
--------------------------------------
Name: Dan McCartney
Title: Vice President
HELLER FINANCIAL, INC.
By: /s/ Scott Zienke
--------------------------------------
Name: Scott Zienke
Title: Assistant Vice President
BANK ONE, TEXAS, N.A.
By: /s/ Chris W. Holder
--------------------------------------
Name: Chris W. Holder
Title: Vice President
<PAGE>
S-6
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Thomas Li
--------------------------------------
Name: Thomas Li
Title: Managing Director
MASS MUTUAL HIGH YIELD PARTNERS II,
LLC
By: /s/ Thomas Li
--------------------------------------
Name: Thomas Li
Title: Managing Director
KZH RIVERSIDE LLC
By: /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH ING-2 LLC
By: /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
FLOATING RATE PORTFOLIO
By: INVESCO SENIOR SECURED
Management, as Attorney-in-Fact
By: /s/ Joseph Rizando
--------------------------------------
Name: Joseph Rizando
Title: Authorized Signatory
<PAGE>
S-7
MEDICAL LIABILITY MUTUAL
INSURANCE COMPANY
By: /s/ Joseph Rizando
--------------------------------------
Name: Joseph Rizando
Title: Authorized Signatory
KZH CYPRESSTREE-1 LLC
By: /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
CYPRESSTREE SENIOR FLOATING RATE
FUND
By: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.,
as Portfolio Manager
By:
--------------------------------------
Name:
Title:
<PAGE>
S-8
NORTH AMERICAN SENIOR FLOATING
RATE FUND
By: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY INC., as
Portfolio Manager
By: /s/ Catherine C. McDermott
--------------------------------------
Name: Catherine C. McDermott
Title: Principal
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By: /s/ Peter Geoste
--------------------------------------
Name: Peter Geoste
Title: Authorized Signatory
CERES FINANCE LTD.
By:
--------------------------------------
Name:
Title:
AERIES FINANCE LTD.
By: /s/ Andrew Ian Wignall
--------------------------------------
Name: Andrew Ian Wignall
Title: Director
<PAGE>
S-9
STRATA FUNDING LTD.
By:
--------------------------------------
Name:
Title:
PILGRIM AMERICA HIGH INCOME
INVESTMENTS LTD.
By: /s/ Jeffrey A. Bakalar
--------------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
ML CLO XII PILGRIM AMERICA
(CAYMAN) LTD.
By: PILGRIM AMERICA INVESTMENTS
INC., as its Investments Manager
By: /s/ Jeffrey A. Bakalar
--------------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
ML CLO XV PILGRIM AMERICA
(CAYMAN) LTD.
By: PILGRIM AMERICA INVESTMENTS
INC., as its Investments Manager
By: /s/ Jeffrey A. Bakalar
--------------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
<PAGE>
S-10
AIM FLOATING RATE FUND
By:
--------------------------------------
Name:
Title:
KZH III LLC
By: /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
KZH IV LLC
By: /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
OASIS COLLATERALIZATION AIGH
INCOME PORTFOLIO 1 LTD
By: /s/ Andrew Ian Wignall
--------------------------------------
Name: Andrew Ian Wignall
Title: Director
<PAGE>
S-11
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/
--------------------------------------
Name:
Title:
CYPRESSTREE INVESTMENT FUND, LLC
By: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.,
its Managing Member
By: /s/ Catherine C. McDermott
--------------------------------------
Name: Catherine C. McDermott
Title: Principal
CYPRESSTREE INSTITUTIONAL FUND,
LLC
By: CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.,
its Managing Member
By: /s/ Catherine C. McDermott
--------------------------------------
Name: Catherine C. McDermott
Title: Principal
<PAGE>
Exhibit 10.9
AMENDMENT NO. 2
AMENDMENT NO. 2 (this "AMENDMENT"), dated as of June 11, 1999,
to that certain Credit Agreement, dated as of October 2, 1998 (as amended to the
date hereof, the "CREDIT AGREEMENT"; capitalized terms used herein and not
defined shall have the meaning set forth in the Credit Agreement), among ATRIUM
COMPANIES, INC., a Delaware corporation ("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 (collectively in such capacities, the "LEAD ARRANGER"),
BANKBOSTON, N.A., as Administrative Agent (the "ADMINISTRATIVE AGENT") and
Merrill Lynch Capital Corporation, BankBoston, N.A., BHF-Bank Aktiengesellschaft
and Bank One, Texas, N.A. (the "ADDITIONAL REVOLVING CREDIT LENDERS").
W I T N E S S E T H :
WHEREAS, Section 12.04 of the Credit Agreement permits
amendment of the Credit Agreement with the consent of the Obligors and the
Lenders party to the Credit Agreement (the "LENDERS");
WHEREAS, pursuant to Section 2(a) of Amendment and Consent No.
1 to the Credit Agreement ("AMENDMENT AND CONSENT NO. 1") dated as of May 5,
1999 among each of the Obligors, each of the Lenders, the Lead Arranger and the
Administrative Agent, the Lenders have unanimously consented to an increase in
the aggregate amount of the Revolving Credit Commitments by an amount not to
exceed $20.0 million;
WHEREAS, pursuant to Section 2(a) of Amendment and Consent No.
1, the Lenders have unanimously authorized the Lead Arranger and the
Administrative Agent to execute, on behalf of all the Lenders, the Additional
Revolving Credit Documentation (as defined in Amendment and Consent No. 1);
WHEREAS, the Additional Revolving Credit Lenders hereby agree
to increase their respective Revolving Credit Commitments as set forth herein;
and
WHEREAS, the Lead Arranger and the Administrative Agent hereby
agree, on behalf of all the Lenders, to amend certain provisions of the Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION ONE AMENDMENTS. (a) Section 1.01 is amended by
deleting the last sentence of the definition of "Revolving Credit Commitment"
and replacing it with the following: "The initial aggregate principal amount of
the Revolving Credit Commitments is $40.0 million."
<PAGE>
-2-
(b) Annex A is amended by deleting the column under the
heading "Revolving Credit Commitments" and replacing it with the following set
forth opposite the Persons listed below:
<TABLE>
<CAPTION>
Revolving Credit
Legal Name Commitments
- ---------------------------------- ----------------
<S> <C>
Merrill Lynch Capital Corporation $7,000,000
BankBoston, N.A. 8,000,000
BHF-Bank Aktiengesellschaft 7,500,000
Greater Bay Corporate Finance, A Division of
Cupertino National Bank and Trust 3,000,000
Indosuez Capital Funding IV L.P. 4,000,000
Heller Financial, Inc. 4,000,000
Bank One, Texas NA 6,500,000
-----------
Total: $40,000,000
</TABLE>
SECTION TWO ADDITIONAL COMMITMENTS. Each Additional Revolving
Credit Lender severally agrees, subject to the terms and conditions of the
Credit Agreement, to increase its Revolving Credit Commitment to the amount set
forth opposite such Additional Revolving Credit Lender's name on Annex A to the
Credit Agreement, as amended by Section 1(b) hereof. At the request of any
Additional Revolving Credit Lender, such Additional Revolving Credit Lender may
exchange its promissory note of Borrower for a new promissory note of Borrower
reflecting its new Revolving Credit Commitment, pursuant to Section 2.08(a)(i)
of the Credit Agreement, and Borrower agrees to execute and deliver such new
promissory note.
SECTION THREE CONDITIONS TO EFFECTIVENESS. This Amendment
shall become effective as of the date (the "EFFECTIVE DATE") when, and only
when, the Administrative Agent shall have received counterparts of this
Amendment executed by each Obligor and each of the Lead Arranger, the
Administrative Agent and each of the Additional Revolving Credit Lenders or, as
to any of the Lead Arranger, the Administrative Agent and the Additional
Revolving Credit Lenders, advice satisfactory to the Administrative Agent that
such person has executed this Amendment. The effectiveness of this Amendment
(other than Sections Six, Seven and Eight hereof) is conditioned upon the
accuracy of the representations and warranties set forth in Section Four hereof.
Notwithstanding the foregoing, if Borrower shall not have complied with the last
sentence of Section Four hereof in the time period provided, this Amendment No.
2 shall be deemed not effective and shall have no effect on the Credit
Documents.
SECTION FOUR REPRESENTATIONS AND WARRANTIES; COVENANTS. In
order to induce the Lenders and the Agents to enter into this Amendment, each
Obligor represents and warrants to each of the Lenders and the Agents that after
giving effect to this Amendment, and both before and after giving effect to
transactions contemplated by this Amendment, (a) no Default or Event of Default
has occurred and is continuing; and (b) all of the representations and
warranties in the Credit Agreement are true and complete in all material
respects on and as of the date hereof as if made on the date hereof (or, if any
such representation or warranty is expressly stated to have been made as of a
specific date,
<PAGE>
-3-
as of such specific date). On the Effective Date, Borrower shall repay all
Revolving Credit Loans then outstanding, Reimbursement Obligations resulting
from any then drawn Letters of Credit and Swing Loans then outstanding
(including all costs under Section 5.05(a)(4) of the Credit Agreement, if any)
(which repayment may be made from drawings under the Revolving Credit
Commitments after such effectiveness) and shall pay all accrued and unpaid fees
under Section 2.05(a) of the Credit Agreement.
SECTION FIVE REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT
AND THE NOTES. On and after the Effective Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Credit Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment. The Credit
Agreement, the Notes and each of the other Credit Documents, as specifically
amended by this Amendment, are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed. Without limiting the
generality of the foregoing, the Security Documents and all of the Collateral
described therein do and shall continue to secure the payment of all Obligations
of the Obligors under the Credit Documents, in each case as amended by this
Amendment. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or any Agent under any of the Credit Documents,
nor constitute a waiver of any provision of any of the Credit Documents. Each
Guarantor ratifies and confirms its Guarantee as in full force and effect after
giving effect to the amendments and waivers herein set forth and to any prior
amendment or waiver to the Credit Agreement.
SECTION SIX COSTS, EXPENSES AND TAXES. Borrower agrees to pay
all reasonable costs and expenses of the Agents in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered hereunder, if any (including, without limitation,
the reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with
the terms of Section 12.03 of the Credit Agreement. In addition, Borrower shall
pay or reimburse any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Amendment and the
other instruments and documents to be delivered hereunder, if any, and agrees to
save each Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION SEVEN EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION EIGHT GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
<PAGE>
-4-
STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO
CONFLICTS OF LAW).
[Signature Pages Follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWER:
ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
GUARANTORS:
ATRIUM CORPORATION
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY -
WEST COAST
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY
OF THE NORTHEAST
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-2
ATRIUM DOOR AND WINDOW COMPANY
OF NEW YORK
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY
OF ARIZONA
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
ATRIUM DOOR AND WINDOW COMPANY
OF NEW ENGLAND
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
DOOR HOLDINGS, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
R.G. DARBY COMPANY, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-3
TOTAL TRIM, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
WING INDUSTRIES HOLDINGS, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
WING INDUSTRIES, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
R.G. DARBY COMPANY - SOUTH
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
TOTAL TRIM, INC. - South
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
HEAT, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-4
H.I.G. VINYL, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
CHAMPAGNE INDUSTRIES, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
THERMAL INDUSTRIES, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
BEST BUILT, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
PARENT:
D AND W HOLDINGS, INC.
By: /s/ Jeff L. Hull
----------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
<PAGE>
S-5
AGENTS:
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED, as Lead
Arranger, Syndication Agent and
Documentation Agent
By: /s/ Howard B. Sysler
----------------------------------
Name: Howard B. Sysler
Title: Vice President
BANKBOSTON, N.A.,
as Administrative Agent, Issuing
Lender and as a Lender
By: /s/ Marie L. Duprey
----------------------------------
Name: Marie L. Duprey
Title: Vice President
ADDITIONAL REVOLVING CREDIT LENDERS:
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ Howard B. Sysler
----------------------------------
Name: Howard B. Sysler
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Marie C. Duprey
----------------------------------
Name: Marie C. Duprey
Title: Vice President
<PAGE>
S-6
BHF BANK AKTIENGESELLSCHAFT
By:
----------------------------------
Name:
Title:
BANK ONE, TEXAS, N.A.
By: /s/ Chris W. Holder
----------------------------------
Name: Chris W. Holder
Title: Vice President
<PAGE>
Exhibit 10.11
AMENDED AND RESTATED MANAGEMENT AGREEMENT
AMENDED AND RESTATED MANAGEMENT AGREEMENT
(this "Agreement"), dated as of May , 1999, by and among (i) Ardshiel, Inc., a
Delaware corporation ("Ardshiel"), (ii) D and W Holdings, Inc., a Delaware
corporation ("Holdings"), (iii) Atrium Corporation, a Delaware corporation
("Atrium"), and (iv) Atrium Companies, Inc., a Delaware corporation ("ACI" and,
together with Holdings and Atrium, the "Companies").
RECITALS:
WHEREAS, the parties wish to amend and restate the Management
Agreement dated as of October 2, 1998; and
WHEREAS, the parties wish to provide for management advisory
services and, as and when any of the Companies requires, investment advisory
services to be rendered by Ardshiel to Holdings and its subsidiaries.
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:
1. SERVICES. Each of the Companies hereby engages Ardshiel to
provide to it and its subsidiaries advice with respect to business strategy,
operations and budgeting and financial controls.
2. ANNUAL MANAGEMENT FEE. Ardshiel hereby accepts the engagement
described in Section 1 hereof. For the above management advisory services, the
Companies shall pay Ardshiel a fee (the "Management Fee") of $1.9 million
dollars per annum, payable monthly in arrears.
3. RIGHT OF FIRST REFUSAL. Before entering into any transaction
that involves engaging a financial advisor to perform services in connection
with the sale or purchase of a business or entity or any financing, the
Companies and their subsidiaries shall, unless engaging Ardshiel to perform such
services would result in a conflict of interest or would otherwise be adverse to
the interests of Holdings or any of its subsidiaries in the reasonable exercise
of the business judgment of Holdings' Board of Directors, offer to Ardshiel the
opportunity to perform such services and Ardshiel shall have five (5) business
days within which to accept the Companies' offer. Ardshiel shall charge any of
the Companies or any of their subsidiaries (as applicable) a fee for such
services (a "Closing Fee"), payable only upon the consummation of such sale or
purchase, which fee shall not be greater than 2% of the total purchase or sale
price for
<PAGE>
such business or entity, provided that Ardshiel will not include in the Closing
Fee any charges for services that are included in the annual fee set forth in
Section 2 hereof. The consent of GE Investment Private Placement Partners II, a
Limited Partnership ("GEIPPPII") shall be required prior to the payment by any
of the Companies or any of their subsidiaries of any Closing Fee where any of
the Companies or any of their respective subsidiaries is paying similar fees to
other entities for similar services described in this Agreement. GEIPPPII shall
be a third party beneficiary of the agreement made in the preceding sentence.
4. TERM. The term of Ardshiel's engagement hereunder and the right
of first refusal stated in Section 3 hereof shall commence as of October 2, 1998
and shall continue thereafter for a period of ten (10) years through and
including October 2, 2008; provided, that the right of first refusal stated in
Section 3 hereof shall terminate upon Ardshiel and its affiliates ceasing to be
affiliates of all the Companies; provided, further, that, unless Ardshiel and
its affiliates maintain control of the majority of the Board of Directors of
Holdings under the Stockholders Agreement among the Company and certain of its
stockholders dated as of October 2, 1998, the right to receive the Management
Fee shall terminate; provided, further, that the 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). This Agreement shall terminate upon (i) the
sale (including by way of sale of all of the capital stock or a merger) by
Holdings of Atrium and its subsidiaries in their entirety or all or
substantially all of the assets of Atrium and its subsidiaries, (ii) the
termination of 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 the terms thereof)
pursuant to Section 6.14(b) thereof, or (iii) Ardshiel and all its affiliates
ceasing to be direct or indirect stockholders of all the Companies. This
Agreement shall be automatically renewed for additional one-year periods unless
either party gives the other written notice to the contrary at least thirty (30)
days before the end of the term or any extended term of this Agreement. The
Management Fee shall be prorated in connection with any termination or
expiration of this Agreement. Closing Fees shall be payable to Ardshiel for any
transactions for which Ardshiel is engaged that are commenced during the term of
this Agreement, notwithstanding that any such transactions may close after the
termination or expiration of this Agreement.
5. REIMBURSEMENT FOR EXPENSES. The Companies and their
subsidiaries shall reimburse Ardshiel for its reasonable out-of-pocket expenses,
including, but not limited to, reasonable fees and expenses of counsel (the
"Management Expenses"), incurred during the period of its engagement under this
Agreement with respect to any services rendered or to be rendered by Ardshiel
- 2 -
<PAGE>
pursuant to Section 1 hereof. The Management Expenses shall be paid by the
Companies and their subsidiaries when billed by Ardshiel and shall be in
addition to the Management Fee. In addition, the Companies and their
subsidiaries shall reimburse Ardshiel for its reasonable out-of-pocket expenses,
including, but not limited to, reasonable fees and expenses of counsel (the
"Transaction Expenses"), incurred during the period of its engagement under this
Agreement with respect to any services rendered or to be rendered by Ardshiel
pursuant to Section 3 hereof. The Transaction Expenses shall be paid by the
Companies and their subsidiaries when billed by Ardshiel and shall be in
addition to any Closing Fees.
6. INDEMNITY. Each of the Companies agrees to, and shall cause its
subsidiaries to, indemnify and hold harmless Ardshiel and its affiliates and
their respective officers, directors, employees, stockholders, representatives
and agents from and against any claims, damages, losses, liabilities, costs and
expenses, including, without limitation, any settlement costs and reasonable
legal expenses incurred in connection with investigating or defending any
actions or threatened actions ("Losses") related to or arising out of this
engagement or Ardshiel's connection therewith; provided, however, that none of
the Companies nor any of its subsidiaries shall be responsible for any Losses to
the extent that such Losses result primarily from actions taken or omitted to be
taken by Ardshiel or such other indemnified person due to Ardshiel's or such
other indemnified person's gross negligence or willful misconduct or that such
Losses arise primarily out of or are based primarily upon any material untrue
statement or omission made (i) in any document or writing in reliance upon and
in conformity with written information furnished to any of the Companies or any
of its subsidiaries by Ardshiel or such other indemnified person for use in such
document or writing, or (ii) in any document created by Ardshiel in connection
with the engagement and used by Ardshiel without the prior approval of Holdings
or any of its subsidiaries.
If any action or proceeding (including any governmental
investigation) shall be brought or asserted against either Ardshiel or any other
indemnified person in respect of which indemnity shall be sought from any of the
Companies or any of their subsidiaries, Ardshiel or any such other indemnified
person, as the case may be, shall promptly notify the Company or subsidiary from
which indemnification is sought in writing, and such Company and/or subsidiary
shall assume the defense thereof, employ counsel reasonably satisfactory to
Ardshiel and pay all fees and disbursements of such counsel and all other
expenses related to such action or proceeding. Ardshiel or any such other
indemnified person shall have the right to employ separate counsel in any such
action or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of Ardshiel or such other
indemnified person and not at the expense of any of the Companies or any of
their subsidiaries unless (i) such Company or subsidiary has agreed to pay such
fees and expenses, (ii)
- 3 -
<PAGE>
such Company or subsidiary shall have failed promptly to assume the defense of
such action or proceeding or employ counsel satisfactory to Ardshiel in any such
action or proceeding, or (iii) Ardshiel's counsel shall determine that there is
or could reasonably be expected to be a conflict of interest by reason of having
common counsel in any action or proceeding, in which case, if Ardshiel or such
other indemnified person notifies such Company or subsidiary in writing that it
elects to employ separate counsel at the expense of such Company or subsidiary,
such Company or subsidiary shall not have the right to assume the defense of
such action or proceeding on behalf of Ardshiel or any such other indemnified
person, it being understood, however, that none of the Companies nor any of
their subsidiaries shall, in connection with any one such action or proceeding
or separate but substantially similar or related actions or proceedings in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for Ardshiel or
any such other indemnified person, which firms shall be designated in writing by
Ardshiel. None of the Companies nor any of their subsidiaries shall be liable
for any settlement of any such action or proceeding effected without the written
consent of such Company or subsidiary of the Company from which indemnification
is sought, which consent shall not be reasonably withheld, but if such action or
proceeding is settled with the written consent of any of the Companies or any
subsidiary from which indemnification is sought or if there is a judgment for
the plaintiff in any such action or proceeding, such Company and such
subsidiaries agree to indemnify and hold harmless Ardshiel and any such other
indemnified person from and against any Losses (to the extent stated above) by
reason of such settlement or judgment.
If for any reason the indemnification provided for herein is
unavailable to any indemnified party under the first paragraph of this Section 6
in respect of any Losses referred to therein or if such indemnification shall be
insufficient to hold such indemnified party harmless from all such Losses, then
the Companies and their subsidiaries, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such Losses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Companies and their subsidiaries on the
one hand and Ardshiel on the other hand or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of the Companies and their subsidiaries on the one
hand and of Ardshiel on the other as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the Losses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of this Section 6, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. This Section 6 shall survive the termination or
expiration of this Agreement.
- 4 -
<PAGE>
7. CLOSING FEE. The Companies shall pay to Ardshiel (i) a closing
fee of $1.275 million upon the closing of the acquisition of Heat, Inc., a
Delaware corporation (the "Heat Acquisition"), (ii) a closing fee of $52,500
upon the closing of the acquisition of Champagne Industries, Inc. (the
"Champagne Acquisition"), and (iii) all out-of-pocket fees and expenses incurred
by Ardshiel and its affiliates in connection with the Heat Acquisition, the
Champagne Acquisition and the related transactions.
8. NON-DISCLOSURE. Except (a) as may be necessary to enforce any
rights hereunder or relating hereto or (b) for delivery of this Agreement to the
arrangers, agents and lenders party to that certain Credit Agreement (the
"Credit Agreement") dated October 2, 1998 by and among Holdings, ACI, certain
lenders party thereto, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith, as lead arranger, syndication agent and documentation agent, and
BankBoston, N.A., as administrative agent, the advice provided under this
Agreements shall not be disclosed to any party (other than officers, directors,
employees, stockholders, representatives and agents of the Companies on a
need-to-know basis), except with the express written consent of Ardshiel (which
consent shall not be unreasonably withheld), unless required by law or legal
process.
9. NO INCONSISTENT AGREEMENTS; ASSIGNMENT. Ardshiel shall not
provide or enter into any agreement to provide advisory services to the
Companies other than consistent with the terms hereof. Neither this Agreement
nor any rights, interests or obligations hereunder may be assigned by any party
without the prior written consent of all other parties hereto; provided that
Ardshiel may assign its rights, interests and obligations hereunder to any of
its affiliates who are reasonably capable of performing Ardshiel's duties
hereunder.
10. SUBORDINATION. Anything in this Agreement to the contrary
notwithstanding, any amount hereunder that the Companies are not permitted to
pay on a current cash basis to Ardshiel pursuant to the terms of the Credit
Agreement (the "Accruing Portion") shall accrue hereunder on a subordinated
basis to all Obligations (as defined in the Credit Agreement) under the Credit
Agreement, including, without limitation, under Atrium's guarantee of the
Obligations under the Credit Agreement, (such Obligations and other indebtedness
and obligations in connection with any renewal, refunding, restructuring or
refinancing thereof, including interest thereon accruing after the commencement
of any proceedings referred to in clause (i) below, whether or not such interest
is an allowed claim in such proceeding, being hereinafter collectively referred
to as "SENIOR INDEBTEDNESS"). The payment of such subordinated
- 5 -
<PAGE>
amounts shall be subject to the following provisions:
(a) In the event of any insolvency or bankruptcy proceedings, and
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to it or to its creditors, as such, or to its
property, and in the event of any proceedings for voluntary liquidation,
dissolution or other windings up of ACI or Atrium, whether or not involving
insolvency or bankruptcy, then (x) the holders of Senior Indebtedness shall be
paid in full in cash in respect of all amounts constituting Senior Indebtedness
before Ardshiel is entitled to receive (whether directly or indirectly), or make
any demands for, the Accruing Portion and (y) until the holders of Senior
Indebtedness are paid in full in cash in respect of all amounts constituting
Senior Indebtedness, any Accruing Portion to which Ardshiel would otherwise be
entitled (other than debt securities of Atrium and ACI that are subordinated, to
at lease the same extent as payments under this Agreement, to the payment of all
Senior Indebtedness then outstanding (such securities being hereinafter referred
to as "RESTRUCTURED DEBT SECURITIES")) shall be made to the holders of Senior
Indebtedness.
(b) If any payment or distribution of any character, whether in
cash, securities or other property (other than Restructured Debt Securities),
under this Agreement shall (despite these subordination provisions) be received
by Ardshiel in violation of clause (i) before all Senior Indebtedness shall have
been paid in full in cash, such payment or distribution shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness (or their representatives), ratably according to the
respective aggregate amounts remaining unpaid thereon, to the extent necessary
to pay all Senior Indebtedness in full in cash.
To the full extent permitted by law, no present or future holder
or Senior Indebtedness shall be prejudiced in its right to enforce the
subordination provisions of this Agreement by any act or failure to act on the
part of Atrium or ACI or by any act or failure to act on the part of such holder
or any trustee or agent for such holder. Ardshiel, Atrium and ACI hereby agree
that the foregoing subordination provisions of this Agreement are for the
benefit of the Creditors (as such term is defined in the Credit Agreement) and
the Administrative Agent (as defined in the Credit Agreement) may, on behalf of
the Creditors, proceed to enforce the subordination provisions herein.
Nothing contained in the subordination provisions set forth above
is intended to or will impair, as among the Atrium, ACI and Ardshiel, the
obligations of Atrium and ACI, which are absolute and unconditional, to pay to
Ardshiel all payments due under this Agreement as and when due and payable in
accordance with its terms, or is intended to or will affect the relative rights
of Ardshiel and other creditors of
- 6 -
<PAGE>
Atrium and ACI other than the holders of Senior Indebtedness.
11. MISCELLANEOUS.
(a) 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.
(b) TERMINATION OF MANAGEMENT AGREEMENTS WITH CERTAIN SUBSIDIARIES
OF THE COMPANIES; ENTIRE AGREEMENT; AMENDMENT; WAIVER. The parties hereto
acknowledge and agree that the Management and Investment Banking Agreements
entered into by and between (i) Ardshiel and Wing Industries Holdings, Inc. and
(ii) Ardshiel and Door Holdings, Inc. are hereby terminated and of no further
force and effect.
This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, supersedes all prior and
contemporaneous agreements and understandings, if any, 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 the parties hereto and
may not be discharged except by such written instrument or by performance. No
waiver of any term or provision of this Agreement shall be effective unless in
writing signed by the parties hereto and such waiver shall not be effective as
to any other provision of this Agreement.
(c) 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 successors and permitted assigns.
(d) 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.
(e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall be deemed one and the same
instrument.
(f) HEADINGS. The descriptive headings of the several
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<PAGE>
sections of this Agreement are inserted for convenience only and do not
constitute part of this Agreement.
(g) THIRD-PARTY BENEFICIARY. Except as otherwise expressly set
forth herein, no individual or entity shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
(h) 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 the 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.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
ARDSHIEL, INC.
By: /s/ DENNIS McCORMICK
------------------------------------------
Name: Dennis McCormick
Title: Senior Managing Partner
D AND W HOLDINGS, INC.
By: /s/ JEFF L. HULL
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer, Secretary
ATRIUM CORPORATION
By: /s/ JEFF L. HULL
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
ATRIUM COMPANIES, INC.
By: /s/ JEFF L. HULL
------------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
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<PAGE>
Exhibit 10.19
AMENDMENT NO. 1
TO THE D AND W HOLDINGS, INC.
1998 STOCK OPTION PLAN
To record the adoption of this Amendment No. 1 (this
"Amendment") to the D and W Holdings, Inc. 1998 Stock Option Plan (the "1998
Plan"), D and W Holdings, Inc., a Delaware corporation (the "Company") has
caused an authorized officer to execute this Amendment as of the 17th day of
May, 1999. Capitalized terms used and not defined herein shall have the
respective meanings ascribed to them in the 1998 Plan.
R E C I T A L S:
WHEREAS, the Company has amended the 1998 Plan, effective
May 17, 1999, to permit an increase in the maximum aggregate number of shares of
Common Stock, par value $.01 per share, of the Company in respect of which
options may be granted for all purposes under the 1998 Plan;
WHEREAS, all of the stockholders of the Company have
approved such amendment to the 1998 Plan; and
WHEREAS, the Board of Directors of the Company deems it
advisable to amend the 1998 Plan to conform with such amendments to the 1998
Plan.
NOW, THEREFORE, the Board of Directors of the Company
hereby amends the 1998 Plan as follows:
The first sentence of Section 3 shall be deleted in its
entirety and replaced with the following:
SUBJECT TO THE ADJUSTMENTS PROVIDED IN SECTION 10, THE
MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK, PAR
VALUE $0.01 PER SHARE, OF THE COMPANY ("COMMON STOCK") IN
RESPECT OF WHICH OPTIONS MAY BE GRANTED FOR ALL PURPOSES
UNDER THE PLAN SHALL BE 14,991,142 SHARES.
All other provisions of the 1998 Plan shall remain in full
force and effect as in effect on the date of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this
Amendment to be duly executed as of the date first above written.
D AND W HOLDINGS, INC.
By: /s/ Jeff L. Hull
----------------------------------
Jeff Hull, Executive Vice
President, Chief Financial
Officer, Treasurer and Secretary
<PAGE>
Exhibit 10.21
AMENDMENT NO. 1
TO THE D AND W HOLDINGS, INC.
REPLACEMENT STOCK OPTION PLAN
To record the adoption of this Amendment No. 1 (this
"Amendment") to the D and W Holdings, Inc. Replacement Stock Option Plan (the
"Replacement Plan"), D and W Holdings, Inc., a Delaware corporation (the
"Company") has caused an authorized officer to execute this Amendment as of the
17th day of May, 1999. Capitalized terms used and not defined herein shall have
the respective meanings ascribed to them in the Replacement Plan.
R E C I T A L S:
WHEREAS, the Company has amended the Replacement Plan,
effective May 17, 1999, to permit an increase in the maximum aggregate number of
shares of Common Stock, par value $.01 per share, of the Company in respect of
which options may be granted for all purposes under the Replacement Plan;
WHEREAS, all of the stockholders of the Company have
approved such amendment to the Replacement Plan; and
WHEREAS, the Board of Directors of the Company deems it
advisable to amend the Replacement Plan to conform with such amendments to the
Replacement Plan.
NOW, THEREFORE, the Board of Directors of the Company
hereby amends the Replacement Plan as follows:
The first sentence of Section 4 shall be deleted in its
entirety and replaced with the following:
AT NO TIME SHALL THE NUMBER OF SHARES OF STOCK THEN
OUTSTANDING WHICH ARE ATTRIBUTABLE TO THE EXERCISE OF
OPTIONS GRANTED UNDER THE PLAN, PLUS THE NUMBER OF SHARES
THEN ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS GRANTED
UNDER THE PLAN, EXCEED 2,575,000 SHARES, SUBJECT, HOWEVER,
TO THE PROVISIONS OF SECTION 17 OF THE PLAN.
All other provisions of the Replacement Plan shall remain
in full force and effect as in effect on the date of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this
Amendment to be duly executed as of the date first above written.
D AND W HOLDINGS, INC.
By: /s/ Jeff L. Hull
---------------------------------------
Jeff Hull, Executive Vice
President, Chief Financial
Officer, Treasurer and Secretary
<PAGE>
Exhibit 10.26
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into
as of this 20th day of April, 1999 by and among ATRIUM COMPANIES, INC., a
Delaware corporation ("Buyer"), H.I.G. VINYL, INC., a Cayman Island corporation,
as the Shareholder Representative ("H.I.G. Cayman") and BANK ONE, TEXAS, N.A.,
as escrow agent (the "Escrow Agent").
RECITALS:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of
April 20, 1999 (the "Stock Purchase Agreement"), by and among Buyer, Heat, Inc.,
a Delaware corporation (the "Company"), the Persons listed on Schedule A hereto
(collectively, the "Shareholders"), the Persons listed on Schedule B attached
hereto (collectively, the "Optionholders"), H.I.G. Cayman, H.I.G. Investment
Fund, L.P., a Cayman Island limited partnership and H.I.G. Capital Management,
Inc., a Delaware corporation, a copy of which is attached hereto as Annex A,
Buyer has agreed to purchase from the Shareholders, the Optionholders and H.I.G.
Cayman, and the Shareholders, the Optionholders and H.I.G. Cayman have agreed to
sell and transfer to Buyer, all of the shares of capital stock of the Company
(the "Shares") owned by the Shareholders, all of the options to acquire Shares
owned by the Optionholders and all of the shares (the "Vinyl Shares") of H.I.G.
Vinyl, Inc., a Delaware corporation and a Shareholder (collectively, the
"Acquisition"), on the terms and conditions set forth in the Stock Purchase
Agreement; and
WHEREAS, pursuant to Article X of the Stock Purchase Agreement,
each of the Shareholders, the Optionholders and H.I.G. Cayman has appointed
H.I.G. Cayman as the Shareholder Representative to act on his or its behalf, and
on its own behalf, in connection with the Acquisition and this Agreement; and
WHEREAS, as an inducement for Buyer to enter into the Stock
Purchase Agreement and as a condition precedent to the consummation of the
Acquisition, Buyer has required that the Deposit and $5,000,000 be deposited
into escrow accounts, subject to the terms and conditions set forth herein; and
WHEREAS, the Shareholders, the Optionholders and H.I.G. Cayman
have determined that it is in their best interests for H.I.G. Cayman, as the
Shareholder Representative, to enter into this Agreement and to establish the
escrow arrangement required by Buyer on the terms and conditions set forth
herein; and
<PAGE>
WHEREAS, Buyer, H.I.G. Cayman and the Escrow Agent desire to set
forth the terms and conditions pursuant to which the Deposit Fund (defined
below) and the Escrow Fund (defined below), will be held by the Escrow Agent and
disbursed to Buyer and/or H.I.G. Cayman, as the Shareholder Representative, as
the case may be.
NOW, THEREFORE, in consideration of the mutual premises,
agreements and covenants set forth herein and in the Stock Purchase Agreement,
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 1
DEFINITIONS
All capitalized terms not otherwise defined herein and defined in
the Stock Purchase Agreement shall have the meanings attributed to them in the
Stock Purchase Agreement.
ARTICLE 2
TERM OF THE AGREEMENT
The term of this Agreement shall commence on the date of this
Agreement and shall continue in effect until the distribution in full of the
Escrow Fund pursuant to the terms and conditions set forth herein (the "Term").
ARTICLE 3
ESTABLISHMENT OF THE DEPOSIT FUND
AND THE ESCROW FUND
3.01 DELIVERY OF THE DEPOSIT FUND AND THE ESCROW FUND; RECEIPT BY
ESCROW AGENT.
(a) Contemporaneous with the execution of the Stock Purchase
Agreement, Buyer shall, in accordance with Section 1.02 of the Stock Purchase
Agreement, deliver to the Escrow Agent cash, which represents the Deposit, in
the aggregate amount of two million five hundred thousand dollars ($2,500,000)
(the "Deposit Fund"), which shall be deposited in a segregated interest-bearing
account (the "Deposit Account"). The Deposit Fund shall be invested and
reinvested as provided in Section 3.02 below. Any interest that accrues on any
portion of the Deposit Fund during the Term shall not be considered part of the
Deposit Fund, but shall be deposited by the Escrow Agent in a segregated
interest-bearing account (the "Deposit Interest Account") in the name of Buyer,
which account shall be under the sole control and dominion of Buyer, except as
set forth in Section 6.02 hereof.
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<PAGE>
(b) On the Closing Date, Buyer shall, in accordance with Section
1.05 of the Stock Purchase Agreement, deliver to the Escrow Agent cash in the
aggregate amount of five million dollars ($5,000,000) (the "Escrow Fund"), which
shall be deposited in a segregated interest-bearing account (the "Escrow
Account") The Escrow Fund shall be invested and reinvested as provided in
Section 3.02 below. Any interest that accrues on any portion of the Escrow Fund
during the Term shall not be considered part of the Escrow Fund, but shall be
deposited by the Escrow Agent in a segregated interest-bearing account (the
"Escrow Interest Account") in the name of H.I.G. Cayman, as the Shareholder
Representative, which account shall be under the sole control and dominion of
H.I.G. Cayman, as the Shareholder Representative, except as set forth in Section
6.02 hereof.
(c) The Escrow Agent agrees to hold and dispose of the Deposit
Fund and the Escrow Fund in accordance with the terms and conditions of this
Agreement. The parties hereto acknowledge and agree that the Deposit Fund and
the Escrow Fund may not be insured by the Federal Deposit Insurance Corporation.
The Deposit Account and the Escrow Account shall be under the sole control and
dominion of the Escrow Agent and subject to the terms of this Agreement, and
shall require an authorized signature of the Escrow Agent in order to make
withdrawals therefrom.
3.02 INVESTMENT OF THE DEPOSIT FUND AND THE ESCROW FUND.
(a) The Deposit Fund shall be invested, at the written direction
of Buyer, and the Escrow Fund shall be invested, at the written direction of
H.I.G. Cayman, as the Shareholder Representative, in any of the following
(collectively, the "Permitted Investments"): (i) United States Treasury Bills
maturing within ninety-one (91) days of the date of purchase; (ii) demand
deposit accounts, money market deposit accounts and certificates of deposit with
a term not greater than ninety (90) days with a depository having a reported
capital and surplus of not less than fifty million ($50,000,000); (iii)
commercial paper which is rated on the date of purchase in one of the two
highest rating categories by both Standard & Poor's Ratings Group and Moody's
Investors Service, Inc. (together, the "Rating Agencies") and matures not more
than ninety (90) days from the date of purchase; and (iv) investment agreements,
guaranteed investment contracts, repurchase agreements and similar investment
instruments, the issuer or guarantor of which is rated in one of the two highest
rating categories by both of the Rating Agencies or which investment instruments
are collateralized by Permitted Investments rated on the date of purchase in one
of the two highest rating categories by both of the Rating Agencies, which
instruments have a term not greater than ninety (90) days. In the absence of any
direction for investing the Deposit Fund and/or the Escrow Fund, the Escrow
Agent shall invest the Deposit Fund and the Escrow Fund in One Group Treasury
Only Money Market Fund.
(b) The Escrow Agent shall have no liability for any loss
incurred as a result of investments made or liquidated by it in accordance with
the provisions of this Agreement.
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<PAGE>
ARTICLE 4
DISTRIBUTION OF THE DEPOSIT FUND
AND THE ESCROW FUND
4.01 DISTRIBUTION OF THE DEPOSIT FUND AND THE ESCROW FUND.
(a) Unless otherwise set forth herein and subject to the terms
and conditions of this Agreement, the Deposit Fund shall be distributed to
either H.I.G. Cayman, as the Shareholder Representative, or Buyer, as the case
may be, in accordance with the terms of the Stock Purchase Agreement (i) in the
manner set forth in a joint written notice given to the Escrow Agent and signed
by both H.I.G. Cayman and Buyer, or (ii) upon delivery to the Escrow Agent of a
final, non-appealable judgment of a court of competent jurisdiction in
Pittsburgh, Pennsylvania, accompanied by a written opinion of counsel for the
presenting party reasonably satisfactory to the Escrow Agent to the effect that
such judgment is a final, non-appealable judgment of such court of competent
jurisdiction.
(b) Unless otherwise set forth herein and subject to the terms
and conditions of this Agreement, the Escrow Fund minus (i) any Pending Claims
Amount (defined below) and (ii) any amounts previously distributed to Buyer
pursuant to the terms of this Agreement shall, if such amount is positive, be
distributed to H.I.G. Cayman, as the Shareholder Representative, on May 15, 2000
(the "Distribution Date") in the manner set forth in a written notice given to
the Escrow Agent by H.I.G. Cayman prior to the Distribution Date. The
Distribution Date may be extended in accordance with Section 4.02(b) hereof.
4.02 INDEMNIFICATION CLAIMS MADE AGAINST THE ESCROW FUND.
(a) Subject to the terms and conditions set forth in the Stock
Purchase Agreement, at any time following the Closing Date and prior to the
Distribution Date, Buyer may deliver written notice (a "Notice of Claim") to the
Escrow Agent and to H.I.G. Cayman, as the Shareholder Representative, to the
effect that Buyer is entitled to indemnification by the Shareholders, the
Optionholders and H.I.G. Cayman pursuant to the Stock Purchase Agreement and is
entitled to receive payment therefor out of the Escrow Fund, and such Notice of
Claim shall constitute the assertion of a claim by Buyer against the Escrow
Fund. Each Notice of Claim shall be given in good faith and shall set forth in
reasonable detail the nature and estimated amount of the claims, damages,
losses, liabilities, Taxes, regulatory actions, injuries to Persons, property or
natural resources, fines, penalties, costs and expenses (including, without
limitation, settlement costs, any reasonable legal, accounting or other expenses
incurred in connection with investigating or defending any actions or threatened
actions and court costs) (collectively, "Losses") giving rise to a right of
indemnification. Upon receipt by the Escrow Agent of any Notice of Claim, the
Escrow Agent shall retain in the Escrow Fund an amount equal to the Losses
claimed by Buyer until such time as there
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<PAGE>
has been a determination of such Losses in accordance with the terms and
provisions of the Stock Purchase Agreement (a "Pending Claims Amount").
(b) The Shareholders, the Optionholders, H.I.G. Cayman and Buyer
shall follow the procedures and be subject to the limitations set forth in
Article IX of the Stock Purchase Agreement, in connection with any claim for
indemnification. Any actions taken by Buyer or the Shareholders, the
Optionholders and H.I.G. Cayman, as the case may be, pursuant to the provisions
of Article IX of the Stock Purchase Agreement, shall extend the Distribution
Date solely with respect to the Pending Claims Amount until such time as there
has been a determination of such Losses in accordance with the terms and
provisions of the Stock Purchase Agreement. The parties hereto shall promptly
notify the Escrow Agent in writing of any event that would extend the
Distribution Date.
(c) Within two (2) business days after the receipt of any notice
of final determination in favor of Buyer with respect to the Shareholders, the
Optionholders' and H.I.G. Cayman's indemnification obligations (which notice
shall be accompanied by a copy of any document, agreement, award or order,
judgment or decree evidencing such final determination) or upon written
instructions from H.I.G. Cayman, as the Shareholder Representative, the Escrow
Agent shall deliver to Buyer from the Escrow Fund, free and clear of any
interest of the Shareholders, the Optionholders and H.I.G. Cayman, an amount
equal to the amount of such Losses as finally determined in accordance with
Article IX of the Stock Purchase Agreement or as set forth in any written
instructions from H.I.G. Cayman, as the Shareholder Representative, as the case
may be. In the event that such final determination is in favor of the
Shareholders, the Optionholders and H.I.G. Cayman and the Distribution Date has
occurred, the Escrow Agent shall deliver to H.I.G. Cayman, as the Shareholder
Representative, in the manner set forth in a notice given to the Escrow Agent by
H.I.G. Cayman prior to such delivery, that amount of the Pending Claims Amount
relating to such final determination, if any, in excess of any other remaining
Pending Claims Amounts.
4.03 PROVISIONS OF THE STOCK PURCHASE AGREEMENT. Nothing in this
Agreement shall derogate from, or modify in any respect any of the terms and
provisions of the Stock Purchase Agreement, including, without limitation,
Article IX thereof with respect to indemnification. Nothing in this Agreement
shall prevent Buyer from exercising its rights to receive indemnification from
the Shareholders, the Optionholders, H.I.G. Cayman, HIG Fund and/or H.I.G.
Management pursuant to the Stock Purchase Agreement for amounts in excess of the
Escrow Fund.
ARTICLE 5
SETTLEMENT OF DISPUTES
5.01 SETTLEMENT OF DISPUTES. Other than with respect to matters
governed by the Stock Purchase Agreement, which shall be governed by the terms
and provisions
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<PAGE>
thereof, any dispute that may arise under this Agreement with respect to (a) the
facts upon which the Escrow Agent's determinations are based, (b) the duties of
the Escrow Agent hereunder, and (c) any other questions arising under this
Agreement, including, without limitation, the basis of a claim for payment from
the Deposit Fund, or reimbursement or payment from the Escrow Fund, shall be
finally determined by (i) mutual agreement of Buyer and H.I.G. Cayman, as the
Shareholder Representative (evidenced by appropriate instructions in writing to
the Escrow Agent signed by Buyer and H.I.G. Cayman, as the Shareholder
Representative), within thirty (30) days after such dispute arises, or (ii) a
court of competent jurisdiction in Pittsburgh, Pennsylvania; provided, however,
that the foregoing shall not be construed to preclude Buyer and H.I.G. Cayman,
as the Shareholder Representative, from resolving any dispute arising hereunder
by mutual agreement in accordance with clause (i) above at any time; provided
further, that if the Escrow Agent has deposited the amount remaining in the
Deposit Fund or the Escrow Fund with a court pursuant to Section 6.08 hereof,
the dispute shall be determined by such court. The Escrow Agent shall be under
no duty to institute or defend any proceeding relating to any such dispute and
none of the costs and expenses of any such proceeding shall be borne by the
Escrow Agent. Pending the resolution of any dispute as provided in this Article
V, the Escrow Agent is authorized and directed to retain in its possession the
portion of the Deposit Fund or the Escrow Fund that is the subject of or
involved in the dispute.
5.02 ATTORNEYS' FEES AND EXPENSES. In the event action is brought
to enforce the provisions of this Agreement pursuant to this Article V, the
non-prevailing parties shall be required to pay the reasonable attorneys' fees
and expenses of the prevailing parties, except that if in the opinion of the
court deciding such action there is no prevailing party, each party shall pay
its own attorneys' fees and expenses.
ARTICLE 6
PROVISIONS CONCERNING THE ESCROW AGENT
6.01 AMENDMENTS AND MODIFICATIONS. Subject to the provisions of
Section 7.06 hereof, the Escrow Agent shall not in any way be bound or affected
by any amendment, modification or cancellation of this Agreement which increases
or alters the obligations of the Escrow Agent under or pursuant to this
Agreement, unless the same shall have been agreed to in writing by the Escrow
Agent.
6.02 COMPENSATION. The Escrow Agent shall be entitled to the fees
set forth on Schedule C attached hereto and to reimbursement for all reasonable
out-of-pocket expenses (including the reasonable fees and expenses of counsel)
incurred in connection with the performance of its services hereunder. Each of
Buyer, on the one hand, and the Shareholders, the Optionholders and H.I.G.
Cayman, on the other hand, shall bear one-half of any liability for fees owed to
and reimbursement of expenses incurred by the Escrow Agent pursuant to this
Section 6.02. Upon receipt by Buyer and H.I.G. Cayman, as the Shareholder
Representative, of the Escrow Agent's written notice itemizing such fees and
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<PAGE>
out-of-pocket expenses, the Escrow Agent shall be entitled to the payment
thereof within thirty (30) days after such written notice is given.
Notwithstanding anything to the contrary contained herein, the Escrow Agent
shall be entitled to retain from any disbursements requested hereunder any
outstanding fees and/or expenses due from the party to whom such funds are to be
disbursed. The Escrow Agent is hereby granted a first lien on the portion of the
Deposit Fund, the Escrow Fund, the Deposit Interest Account and the Escrow
Interest Account otherwise payable to a party for all indebtedness that may
become owing to the Escrow Agent by such party pursuant to this Escrow
Agreement. In the event that such fees or expenses are not paid to the Escrow
Agent within thirty (30) days of written notice, the Escrow Agent may charge
such fee against that portion of the Deposit Fund, the Escrow Fund, the Deposit
Interest Account and the Escrow Interest Account, if any, determined to be due
to the party from whom such fees and expenses are owed; provided that all
amounts owing by Buyer hereunder shall first be charged against the Deposit
Interest Account, and all amounts owing by H.I.G. Cayman, as the Shareholder
Representative, hereunder shall first be charged against the Escrow Interest
Account.
6.03 DUTIES OF THE ESCROW AGENT. This Agreement sets forth the
duties and obligations of the Escrow Agent with respect to any and all matters
pertinent to its acting as such hereunder. The Escrow Agent shall not have
duties or responsibilities under this Agreement other than those specifically
set forth herein and shall act only in accordance with the provisions hereof.
Without limiting the generality of the foregoing, the Escrow Agent shall not
have any duty or responsibility (i) to enforce or cause to be enforced any of
the terms and conditions contained in the Stock Purchase Agreement, or (ii) to
verify the accuracy or sufficiency of any notice or other document received by
it in connection with this Agreement. The Escrow Agent shall be entitled to rely
upon any instructions or directions to it in writing under this Agreement signed
by the proper party or parties and shall be entitled to treat as genuine any
instruction or document delivered to the Escrow Agent hereunder and reasonably
believed by the Escrow Agent to be genuine and to have been presented by the
proper party or parties, without being required to determine the authenticity or
correctness of any fact stated therein, or the authority or authorization of the
person or persons making and/or delivering the same.
6.04 LIABILITY OF THE ESCROW AGENT. Neither the Escrow Agent nor
any of its officers, directors, employees, shareholders, representatives or
agents shall be liable to Buyer, the Shareholders, the Optionholders or H.I.G.
Cayman, or any other person or entity for or in respect of any Losses resulting
from or arising out of any act or failure to act by it in connection with this
Agreement, other than for any Loss which shall be finally adjudicated to be the
result of gross negligence or willful misconduct on the part of the Escrow Agent
or any such officers, directors, employees, shareholders, representatives or
agents. The Escrow Agent shall not be liable or responsible because of the loss
of any monies arising as a result of investments made in accordance with this
Agreement or through the insolvency or the act of default or omission of any
depository in which such monies shall have been deposited.
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<PAGE>
6.05 INDEMNITY OF THE ESCROW AGENT. Buyer, other than with
respect to the matters described in Section 7.13 hereof, the Shareholders, the
Optionholders and H.I.G. Cayman hereby agree, severally but not jointly, to
protect, defend, indemnify and hold harmless the Escrow Agent against any and
all costs, losses, damages, liabilities, claims, expenses (including the
reasonable fees and expenses of counsel) and claims incurred by it without gross
negligence or willful misconduct on the indemnified party's part arising out of
or in connection with its entering into this Escrow Agreement and the carrying
out of its duties hereunder, including the reasonable costs and expenses of
defending itself against any claim of liability relating to this Escrow
Agreement.
6.06 RESIGNATION OF THE ESCROW AGENT. At any time that the Escrow
Agent so chooses, the Escrow Agent may resign from its duties hereunder by
giving not less than thirty (30) days' prior written notice to Buyer and H.I.G.
Cayman, as the Shareholder Representative, and shall designate, by mutual
consent, a successor escrow agent; provided, that notwithstanding any
resignation date set forth in the Escrow Agent's notice, such resignation shall
not take effect until receipt by the Escrow Agent of an instrument duly executed
by a successor escrow agent evidencing its appointment as Escrow Agent hereunder
and acceptance of this Agreement. If no successor escrow agent is appointed
within such thirty (30) day period, the Escrow Agent may deposit the amount
remaining in the Deposit Fund and the Escrow Fund with a court of competent
jurisdiction as provided in Section 6.08 hereof, whereupon the Escrow Agent
shall be discharged of all duties and obligations hereunder.
6.07 REMOVAL OF ESCROW AGENT. The Escrow Agent may be removed at
any time by mutual agreement of Buyer and H.I.G. Cayman, as the Shareholder
Representative, by giving not less than thirty (30) days' prior written notice
to the Escrow Agent. Prior to the expiration of such thirty (30) day period,
Buyer and H.I.G. Cayman, as the Shareholder Representative, shall designate, by
mutual consent, a successor escrow agent. If no successor escrow agent is
appointed within such thirty (30) day period, the Escrow Agent may deposit the
amount remaining in the Deposit Fund and the Escrow Fund with a court of
competent jurisdiction as provided in Section 6.08 hereof, whereupon the Escrow
Agent shall be discharged of all duties and obligations hereunder.
6.08 DEPOSIT WITH COURT. Notwithstanding anything herein to the
contrary, in the event of any disagreement between any of the parties to this
Agreement, or between them and any other person, resulting in adverse claims or
demands being made against the Deposit Fund or the Escrow Fund, or in the event
the Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent may be discharged of its duties and obligations
hereunder upon its deposit, at any time after ten (10) days' written notice to
Buyer and H.I.G. Cayman, as the Shareholder Representative, of the amount
remaining in the Deposit Fund or the Escrow Fund with a court of competent
jurisdiction in Pittsburgh, Pennsylvania. The parties hereto hereby submit to
the personal jurisdiction of any such
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<PAGE>
court, waive any and all right to contest the jurisdiction of such court, and
consent to service of process by hand delivery or mail delivery thereof to their
respective addresses set forth in Section 7.01 hereof.
6.09 ABILITY TO CONSULT COUNSEL. The Escrow Agent may confer with
legal counsel in the event of any dispute or question as to the construction of
any of the provisions hereof, or its duties hereunder, and it shall incur no
liability and it shall be fully protected in acting in accordance with the
opinions of such counsel.
ARTICLE 7
MISCELLANEOUS
7.01 NOTICES. All notices, requests and other communications
which are required or permitted hereunder shall be sufficient if given in
writing and shall be deemed effective when delivered personally, delivered by
registered or certified mail, postage prepaid, five (5) business days after
being sent by regular mail with postage prepaid or sent by facsimile
transmission (with a copy simultaneously sent by registered or certified mail,
postage prepaid), as follows (or to such other address as shall be set forth in
a notice given in the same manner):
NOTICES TO BUYER:
Atrium Companies, Inc.
1341 W. Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Attn: Jeff L. Hull
Facsimile Number: (214) 630-5001
and
Atrium Companies, Inc.
c/o Ardshiel, Inc.
230 Park Avenue
New York, NY 10169
Attn: Daniel T. Morley
James G. Turner
Facsimile Number: (212) 972-1809
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
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New York, NY 10022-4697
Attn: Joel M. Simon
Marie Censoplano
Facsimile Number: (212) 319-4090
NOTICES TO THE SHAREHOLDERS, THE OPTIONHOLDERS AND H.I.G. CAYMAN:
H.I.G. Vinyl , Inc.
c/o H.I.G. Capital Management, Inc.
1001 Brickell Bay Drive, Suite 2310
Miami, Florida 33131
Attn: Anthony A. Tamer
Brian D. Schwartz
Facsimile Number: (305) 379-2013
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: James L. Learner
E. Paul Quinn
Facsimile Number: (312) 861-2200
NOTICES TO THE ESCROW AGENT:
Bank One, Texas, N.A.
8111 Preston Road
2nd Floor
Dallas, Texas 75225
Facsimile: (214) 360-3980
Attn: Corporate Trust Department
A copy of any notice or other communication given or made to or by the Escrow
Agent pursuant to this Agreement shall in addition be given or made to each of
the other parties hereto.
7.02 COUNTERPARTS. This Agreement may be executed in several
counterparts each of which is an original and all of which, taken together,
shall constitute a single instrument.
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<PAGE>
7.03 CONTENTS OF AGREEMENT: PARTIES IN INTEREST, ETC. This
Agreement and the Stock Purchase Agreement and the documents referred to therein
set forth the entire understanding of the parties. Any previous agreements or
understandings between the parties regarding the subject matter hereof are
merged into and superseded by this Agreement. All representations, warranties,
covenants, terms, conditions and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
legal representatives, successors and permitted assigns of the parties hereto.
Neither this Agreement nor any rights, interest or obligations hereunder may be
assigned by any party without the prior written consent of all other parties
hereto.
7.04 GOVERNING LAW; VENUE. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York without regard to
the principles of conflict of laws. The parties hereto agree to submit to the
personal and exclusive jurisdiction of the state and federal courts serving
Pittsburgh, Pennsylvania with respect to the enforcement or interpretation of
this Agreement or the parties' obligations hereunder. Each party hereto
irrevocably consents to the service of any and all process in any action or
proceeding by the mailing of copies of such process by registered or certified
mail to such party at the address specified in Section 7.01 hereof. Nothing in
this section shall affect the right of any party hereto to serve legal process
in any other manner permitted by law. 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.
7.05 SECTION HEADINGS. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
7.06 MODIFICATION AND WAIVER. Any of the terms or conditions of
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or amended
at any time by Buyer, H.I.G. Cayman, as the Shareholder Representative, and the
Escrow Agent. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by Buyer and H.I.G. Cayman, as the
Shareholder Representative and, in the case of Article VI only, the Escrow
Agent. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof nor shall such waiver
constitute a continuing waiver.
7.07 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
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<PAGE>
7.08 THIRD PARTY BENEFICIARIES. Except as otherwise expressly set
forth herein, no individual or entity shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
7.09 TERMINATION.
(a) This Agreement may, by written notice given prior to or at
the Closing, be terminated:
(1) By any of the parties hereto if the Stock Purchase
Agreement is terminated pursuant to its terms; or
(2) By mutual written consent of Buyer and H.I.G. Cayman,
as the Shareholder Representative.
(b) The Escrow Agent's rights to indemnity and to receive payment
of its fees and expenses shall survive any termination of this Escrow Agreement.
7.10 SECURITIES STATEMENTS. Pursuant to the regulations of the
Office of the Comptroller of the Currency, 12 C.F.R. 12.5(a), Buyer and H.I.G.
Cayman, as the Shareholder Representative, have the right to receive, at no
additional cost and within five (5) business days of the transaction, a written
notification disclosing certain information relating to securities purchase and
sale transactions in the Deposit Account and in the Escrow Account. The Escrow
Agent has the option of furnishing to Buyer and H.I.G. Cayman, as the
Shareholder Representative, either (i) a copy of the broker-dealer confirmation
relating to the transaction, or (ii) a written notification disclosing the
Escrow Agent's name, the account name, the Escrow Agent's capacity in the
transaction, the date of execution (and, upon the Buyer's and H.I.G. Cayman's
written request, the time of execution) of the transaction, the identity, price
and number of shares involved, the remuneration to the broker-dealer and its
identity, the total remuneration to be received by the Escrow Agent, and, if no
broker-dealer was involved, the identity of the person from whom the security
was purchased or to whom it was sold.
In lieu of the foregoing time and form of notification, Buyer and
H.I.G. Cayman, as the Shareholder Representative, agree that the Escrow Agent's
periodic statements, transmitted pursuant to the terms of this Escrow Agreement,
will suffice.
7.11 FORM 1099. The Escrow Agent shall provide any Form 1099
required to be provided in respect of the Deposit Interest Account to Buyer, and
in respect of the Escrow Interest Account to the Shareholders, the Optionholders
and H.I.G. Cayman.
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<PAGE>
7.12 AUTHORIZED SIGNATORIES. The following persons are authorized
to direct the Escrow Agent regarding any transactions to this Escrow Agreement
including, but not limited to, investment and/or disbursement of the funds and
securities held hereunder.
/s/ Dan Morley /s/ Brian Schwartz
--------------------------- ------------------------------
on behalf of Buyer on behalf of the Shareholder
Representative
/s/ Roger Knight
---------------------------
on behalf of Buyer
7.13 TAX LIABILITIES. The Shareholders, the Optionholders and
H.I.G. Cayman warrant to the Escrow Agent that there are no federal, state or
local tax liabilities or filing requirements whatsoever concerning the Escrow
Agent's actions contemplated hereunder and warrant and represent to the Escrow
Agent that the Escrow Agent has no duty to withhold or file any report or any
tax liability under any federal or state income tax, local or state property
tax, local or state sales or use taxes, or any other tax by any taxing
authority. The Shareholders, the Optionholders and H.I.G. Cayman hereto agree to
indemnify the Escrow Agent fully from any tax liability, penalties or interest
incurred by the Escrow Agent arising hereunder and agree to pay in full any such
tax liability together with penalty and interest, if any, that is ultimately
assessed against the Escrow Agent for any reason as a result of its action or
inaction (other than for its gross negligence or willful misconduct) hereunder
(except for the Escrow Agent's individual income tax liability).
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and the year first above written.
ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
Treasurer and Secretary
THE SHAREHOLDERS NAMED ON SCHEDULE A
HERETO, THE OPTIONHOLDERS NAMED ON
SCHEDULE B HERETO AND H.I.G. VINYL, INC. (A
CAYMAN ISLAND CORPORATION)
BY: H.I.G. VINYL, INC. (a Cayman Island
corporation), as the Shareholder Representative
By: /s/ Brian Schwartz
--------------------------------------
Name: Brian Schwartz
Title:
BANK ONE, TEXAS, N.A., as Escrow Agent
By: /s/ Amy C. Perkins
--------------------------------------
Name: Amy C. Perkins
Title: Assistant Vice President
<PAGE>
SCHEDULE A
THE SHAREHOLDERS
H.I.G. Vinyl, Inc. (a Delaware corporation)
David Rascoe
Todd Rascoe
Brian Warren
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<PAGE>
SCHEDULE B
THE OPTIONHOLDERS
Emmett Barnes IV
Kent W. Davis
Jay I. Deems
Evan Kaffenes
Steven L. Malis
Duane Petitclerc
Gary Petitclerc
Arthur J. Poland
David Rascoe
Todd Rascoe
Dennis Siegel
Siri Strom
Brian Warren
Hartmut U. Zaun
NationsCredit Commercial Corporation
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<PAGE>
SCHEDULE C
ESCROW AGENT FEES
See attached.
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<PAGE>
ANNEX A
STOCK PURCHASE AGREEMENT
See attached.
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<PAGE>
Exhibit 10.27
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered
into as of this 17th day of May, 1999 by and among ATRIUM COMPANIES, INC., a
Delaware corporation ("Buyer"), those individuals listed on Schedule A hereto
(collectively, the "Selling Stockholders") and BANK ONE, TEXAS, N.A., as escrow
agent (the "Escrow Agent").
RECITALS:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of
May 10, 1999 (the "Stock Purchase Agreement"), by and among Buyer, Champagne
Industries, Inc., a Colorado corporation (the "Company"), and the Selling
Stockholders, a copy of which is attached hereto as Annex A, Buyer has agreed to
purchase from the Selling Stockholders, and the Selling Stockholders have agreed
to sell and transfer to Buyer, all of the shares of capital stock of the Company
owned by the Selling Stockholders (the "Acquisition"), on the terms and
conditions set forth in the Stock Purchase Agreement; and
WHEREAS, as an inducement for Buyer to enter into the Stock
Purchase Agreement and as a condition precedent to the consummation of the
Acquisition, Buyer has required that $250,000 be deposited into escrow account,
subject to the terms and conditions set forth herein; and
WHEREAS, the Selling Stockholders have determined that it is
in their best interests to enter into this Agreement and to establish the escrow
arrangement required by Buyer on the terms and conditions set forth herein; and
WHEREAS, Buyer, the Selling Stockholders and the Escrow Agent
desire to set forth the terms and conditions pursuant to which the Escrow Fund
(defined below) and the Payment Fund (defined below) will be held by the Escrow
Agent and disbursed to Buyer and/or the Selling Stockholders, as the case may
be.
NOW, THEREFORE, in consideration of the mutual premises,
agreements and covenants set forth herein and in the Stock Purchase Agreement,
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 1
DEFINITIONS
All capitalized terms not otherwise defined herein and defined
in the Stock Purchase Agreement shall have the meanings attributed to them in
the Stock Purchase Agreement.
ARTICLE 2
TERM OF THE AGREEMENT
<PAGE>
The term of this Agreement shall commence on the date of this
Agreement and shall continue in effect until the distribution in full of the
Escrow Fund and the Payment Fund pursuant to the terms and conditions set forth
herein (the "Term").
ARTICLE 3
ESTABLISHMENT OF THE ESCROW FUND
AND THE PAYMENT FUND
3.01 DELIVERY OF ESCROW FUND AND PAYMENT FUND; RECEIPT BY
ESCROW AGENT. On the Closing Date, Buyer shall, in accordance with Section 2(a)
of the Stock Purchase Agreement, deliver to the Escrow Agent (i) cash in an
aggregate amount of $250,000 (the "Escrow Fund"), which shall be deposited in a
segregated account (the "Escrow Account"), and (ii) cash in an aggregate amount
equal to $3,382,780 (the "Payment Fund"), which shall be deposited in a
segregated non-interest-bearing account (the "Payment Account"). The Escrow Fund
shall be invested and reinvested as provided in Section 3.02 below. Any interest
that accrues on any portion of the Escrow Fund during the Term shall be
considered part of the Escrow Fund. The Escrow Agent agrees to hold and dispose
of the Escrow Fund and the Payment Fund in accordance with the terms and
conditions of this Agreement. The parties hereto acknowledge and agree that the
Escrow Fund and the Payment Fund may not be insured by the Federal Deposit
Insurance Corporation. The Escrow Account and the Payment Account shall be under
the sole control and dominion of the Escrow Agent and subject to the terms of
this Agreement, and shall require an authorized signature of the Escrow Agent in
order to make withdrawals therefrom.
3.02 INVESTMENT OF THE ESCROW FUND.
(a) The Escrow Fund shall be invested, at the written
direction of the Selling Stockholders, in any of the following (collectively,
the "Permitted Investments"): (i) United States Treasury Bills maturing within
ninety-one (91) days of the date of purchase; (ii) demand deposit accounts,
money market deposit accounts and certificates of deposit with a term not
greater than ninety (90) days with a depository having a reported capital and
surplus of not less than $50,000,000; (iii) commercial paper which is rated on
the date of purchase in one of the two highest rating categories by both
Standard & Poor's Ratings Group and Moody's Investors Service, Inc. (together,
the "Rating Agencies") and matures not more than ninety (90) days from the date
of purchase; and (iv) investment agreements, guaranteed investment contracts,
repurchase agreements and similar investment instruments, the issuer or
guarantor of which is rated in one of the two highest rating categories by both
of the Rating Agencies or which investment instruments are collateralized by
Permitted Investments rated on the date of purchase in one of the two highest
rating categories by both of the Rating Agencies, which instruments have a term
not greater than ninety (90) days. In the absence of any direction for investing
the Escrow Fund, the Escrow Agent shall invest the Escrow Fund in One Group
Treasury Only Money Market Fund.
(b) The Escrow Agent shall have no liability for any loss
incurred as a result of investments made or liquidated by it in accordance with
the provisions of this Agreement.
2
<PAGE>
ARTICLE 4
DISTRIBUTION OF THE ESCROW FUND
AND THE PAYMENT FUND
4.01 DISTRIBUTION OF THE ESCROW FUND AND THE PAYMENT FUND.
(a) Unless otherwise set forth herein and subject to the terms
and conditions of this Agreement, the Escrow Fund minus (i) any Pending Claims
Amount (defined below) and (ii) any amounts previously distributed to Buyer
pursuant to the terms of this Agreement shall, if such amount is positive, be
distributed to the Selling Stockholders on May 17, 2001 (the "Distribution
Date") in the manner set forth in a notice given to the Escrow Agent by the
Selling Stockholders prior to the Distribution Date. The Distribution Date may
be extended in accordance with Section 4.02(b) hereof.
(b) Subject to the terms and conditions hereof, the Payment
Fund shall be distributed on the Closing Date in the manner set forth on
Schedule B hereto, unless otherwise indicated on Schedule B.
4.02 INDEMNIFICATION CLAIMS MADE AGAINST THE ESCROW FUND.
(a) Subject to the terms and conditions set forth in the Stock
Purchase Agreement, at any time following the Closing Date and prior to the
Distribution Date, Buyer may deliver written notice (a "Notice of Claim") to the
Escrow Agent and to the Selling Stockholders to the effect that Buyer is
entitled to indemnification by the Selling Stockholders pursuant to the Stock
Purchase Agreement and is entitled to receive payment therefor out of the Escrow
Fund, and such Notice of Claim shall constitute the assertion of a claim by
Buyer against the Escrow Fund. Each Notice of Claim shall be given in good faith
and shall set forth in reasonable detail the nature and estimated amount of the
claims, damages, losses, liabilities, Taxes, costs and expenses (including,
without limitation, settlement costs, any reasonable legal, accounting or other
expenses incurred in connection with investigating or defending any actions or
Threatened actions and court costs) and causes of action (collectively,
"Losses") giving rise to a right of indemnification. Upon receipt by the Escrow
Agent of any Notice of Claim, the Escrow Agent shall retain in the Escrow Fund
an amount equal to the Losses claimed by Buyer until such time as there has been
a determination of such Losses in accordance with the terms and provisions of
the Stock Purchase Agreement (a "Pending Claims Amount").
(b) The Selling Stockholders and Buyer shall follow the
procedures and be subject to the limitations set forth in Section 14 of the
Stock Purchase Agreement, in connection with any claim for indemnification. Any
actions taken by Buyer or the Selling Stockholders, as the case may be, pursuant
to the provisions of Section 14 of the Stock Purchase Agreement, shall extend
the Distribution Date solely with respect to the Pending Claims Amount until
such time as there has been a determination of such Losses in accordance with
the terms and provisions of the Stock Purchase Agreement. The parties hereto
shall promptly notify the Escrow Agent in writing of any event that would extend
the Distribution Date.
(c) Within two (2) business days after the receipt of any
notice of final determination in favor of Buyer with respect to the Selling
Stockholders' indemnification
3
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obligations (which notice shall be accompanied by a copy of any document,
agreement, award or order, judgment or decree evidencing such final
determination) or upon written instructions from the Selling Stockholders, the
Escrow Agent shall deliver to Buyer from the Escrow Fund, free and clear of any
interest of the Selling Stockholders, an amount equal to the amount of such
Losses as finally determined in accordance with Section 14 of the Stock Purchase
Agreement or as set forth in any written instructions from the Selling
Stockholders, as the case may be. In the event that such final determination is
in favor of the Selling Stockholders and the Distribution Date has occurred, the
Escrow Agent shall deliver to the Selling Stockholders, in the manner set forth
in a notice given to the Escrow Agent by the Selling Stockholders prior to such
delivery, that amount of the Pending Claims Amount relating to such final
determination, if any, in excess of any other remaining Pending Claims Amounts.
4.03 PROVISIONS OF THE STOCK PURCHASE AGREEMENT. Nothing in
this Agreement shall derogate from, or modify in any respect any of the terms
and provisions of the Stock Purchase Agreement, including, without limitation,
Section 14 thereof with respect to indemnification. Nothing in this Agreement
shall prevent Buyer from exercising its rights to receive indemnification from
the Selling Stockholders pursuant to the Stock Purchase Agreement for amounts in
excess of the Escrow Fund.
ARTICLE 5
SETTLEMENT OF DISPUTES
5.01 SETTLEMENT OF DISPUTES. Other than with respect to
matters governed by the Stock Purchase Agreement, which shall be governed by the
terms and provisions thereof, any dispute that may arise under this Agreement
with respect to (a) the facts upon which the Escrow Agent's determinations are
based, (b) the duties of the Escrow Agent hereunder, and (c) any other questions
arising under this Agreement, including, without limitation, the basis of a
claim for reimbursement or payment from the Escrow Fund, shall be finally
determined by (i) mutual agreement of Buyer and the Selling Stockholders
(evidenced by appropriate instructions in writing to the Escrow Agent signed by
Buyer and the Selling Stockholders) within thirty (30) days after such dispute
arises, or (ii) a court of competent jurisdiction in Denver, Colorado; provided,
however, that the foregoing shall not be construed to preclude Buyer and the
Selling Stockholders from resolving any dispute arising hereunder by mutual
agreement in accordance with clause (i) above at any time; provided further,
that if the Escrow Agent has deposited the amount remaining in the Escrow Fund
with a court pursuant to Section 6.08 hereof, the dispute shall be determined by
such court. The Escrow Agent shall be under no duty to institute or defend any
proceeding relating to any such dispute and none of the costs and expenses of
any such proceeding shall be borne by the Escrow Agent. Pending the resolution
of any dispute as provided in this Article V, the Escrow Agent is authorized and
directed to retain in its possession the portion of the Escrow Fund that is the
subject of or involved in the dispute.
5.02 ATTORNEYS' FEES AND EXPENSES. In the event action is
brought to enforce the provisions of this Agreement pursuant to this Article V,
the non-prevailing parties shall be required to pay the reasonable attorneys'
fees and expenses of the prevailing parties, except that if in the opinion of
the court deciding such action there is no prevailing party, each party shall
pay its own attorneys' fees and expenses.
4
<PAGE>
ARTICLE 6
PROVISIONS CONCERNING THE ESCROW AGENT
6.01 AMENDMENTS AND MODIFICATIONS. Subject to the provisions
of Section 7.06 hereof, the Escrow Agent shall not in any way be bound or
affected by any amendment, modification or cancellation of this Agreement which
increases or alters the obligations of the Escrow Agent under or pursuant to
this Agreement, unless the same shall have been agreed to in writing by the
Escrow Agent.
6.02 COMPENSATION. The Escrow Agent shall be entitled to the
fees set forth on Schedule C attached hereto and to reimbursement for all
reasonable out-of-pocket expenses (including the reasonable fees and expenses of
counsel) incurred in connection with the performance of its services hereunder.
Each of Buyer, on the one hand, and the Selling Stockholders, on the other hand,
shall bear one-half of any liability for fees owed to and reimbursement of
expenses incurred by the Escrow Agent pursuant to this Section 6.02; provided,
that Buyer shall bear the cost of the initial set up fee of the Escrow Fund.
Upon receipt by Buyer and the Selling Stockholders of the Escrow Agent's written
notice itemizing such fees and out-of-pocket expenses, the Escrow Agent shall be
entitled to the payment thereof within thirty (30) days after such written
notice is given. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall be entitled to retain from any disbursements requested
hereunder any outstanding fees and/or expenses due from the party to whom such
funds are to be disbursed. The Escrow Agent is hereby granted a first lien on
the portion of the Escrow Fund otherwise payable to a party for all indebtedness
that may become owing to the Escrow Agent by such party pursuant to this Escrow
Agreement. In the event that such fees or expenses are not paid to the Escrow
Agent within thirty (30) days of written notice, the Escrow Agent may charge
such fee against that portion of the Escrow Fund, if any, determined to be due
to the party from whom such fees and expenses are owed.
6.03 DUTIES OF THE ESCROW AGENT. This Agreement sets forth the
duties and obligations of the Escrow Agent with respect to any and all matters
pertinent to its acting as such hereunder. The Escrow Agent shall not have
duties or responsibilities under this Agreement other than those specifically
set forth herein and shall act only in accordance with the provisions hereof.
Without limiting the generality of the foregoing, the Escrow Agent shall not
have any duty or responsibility (i) to enforce or cause to be enforced any of
the terms and conditions contained in the Stock Purchase Agreement, or (ii) to
verify the accuracy or sufficiency of any notice or other document received by
it in connection with this Agreement. The Escrow Agent shall be entitled to rely
upon any instructions or directions to it in writing under this Agreement signed
by the proper party or parties and shall be entitled to treat as genuine any
instruction or document delivered to the Escrow Agent hereunder and reasonably
believed by the Escrow Agent to be genuine and to have been presented by the
proper party or parties, without being required to determine the authenticity or
correctness of any fact stated therein, or the authority or authorization of the
person or persons making and/or delivering the same.
6.04 LIABILITY OF THE ESCROW AGENT. Neither the Escrow Agent
nor any of its officers, directors, employees, shareholders, representatives or
agents shall be liable to Buyer, the Selling Stockholders or any other person or
entity for or in respect of any Losses resulting from or arising out of any act
or failure to act by it in connection with this
5
<PAGE>
Agreement, other than for any Loss which shall be finally adjudicated to be the
result of gross negligence or willful misconduct on the part of the Escrow Agent
or any such officers, directors, employees, shareholders, representatives or
agents. The Escrow Agent shall not be liable or responsible because of the loss
of any monies arising as a result of investments made in accordance with this
Agreement or through the insolvency or the act of default or omission of any
depository in which such monies shall have been deposited.
6.05 INDEMNITY OF THE ESCROW AGENT. The Buyer and the Selling
Stockholders hereby agree, severally but not jointly, to protect, defend,
indemnify and hold harmless the Escrow Agent against any and all costs, losses,
damages, liabilities, claims, expenses (including the reasonable fees and
expenses of counsel) and claims incurred by it without gross negligence or
willful misconduct on the indemnified party's part arising out of or in
connection with its entering into this Escrow Agreement and the carrying out of
its duties hereunder, including the reasonable costs and expenses of defending
itself against any claim of liability relating to this Escrow Agreement.
6.06 RESIGNATION OF THE ESCROW AGENT. At any time that the
Escrow Agent so chooses, the Escrow Agent may resign from its duties hereunder
by giving not less than thirty (30) days' prior written notice to Buyer and the
Selling Stockholders and shall designate, by mutual consent, a successor escrow
agent; provided, that notwithstanding any resignation date set forth in the
Escrow Agent's notice, such resignation shall not take effect until receipt by
the Escrow Agent of an instrument duly executed by a successor escrow agent
evidencing its appointment as Escrow Agent hereunder and acceptance of this
Agreement. If no successor escrow agent is appointed within such thirty (30) day
period, the Escrow Agent may deposit the amount remaining in the Escrow Fund
with a court of competent jurisdiction as provided in Section 6.08 hereof,
whereupon the Escrow Agent shall be discharged of all duties and obligations
hereunder.
6.07 REMOVAL OF ESCROW AGENT. The Escrow Agent may be removed
at any time by mutual agreement of Buyer and the Selling Stockholders by giving
not less than thirty (30) days' prior written notice to the Escrow Agent. Prior
to the expiration of such thirty (30) day period, Buyer and the Selling
Stockholders shall designate, by mutual consent, a successor escrow agent. If no
successor escrow agent is appointed within such thirty (30) day period, the
Escrow Agent may deposit the amount remaining in the Escrow Fund with a court of
competent jurisdiction as provided in Section 6.08 hereof, whereupon the Escrow
Agent shall be discharged of all duties and obligations hereunder.
6.08 DEPOSIT WITH COURT. Notwithstanding anything herein to
the contrary, in the event of any disagreement between any of the parties to
this Agreement, or between them and any other person, resulting in adverse
claims or demands being made against the Escrow Fund, or in the event the Escrow
Agent in good faith is in doubt as to what action it should take hereunder, the
Escrow Agent may be discharged of its duties and obligations hereunder upon its
deposit, at any time after ten (10) days' written notice to Buyer and the
Selling Stockholders, of the amount remaining in the Escrow Fund with a court of
competent jurisdiction in Denver, Colorado. The parties hereto hereby submit to
the personal jurisdiction of any such court, waive any and all right to contest
the jurisdiction of such court, and consent to service of process by hand
delivery or mail delivery thereof to their respective addresses set forth in
Section 7.01 hereof.
6
<PAGE>
6.09 ABILITY TO CONSULT COUNSEL. The Escrow Agent may confer
with legal counsel in the event of any dispute or question as to the
construction of any of the provisions hereof, or its duties hereunder, and it
shall incur no liability and it shall be fully protected in acting in accordance
with the opinions of such counsel.
ARTICLE 7
MISCELLANEOUS
7.01 NOTICES. All notices, requests and other communications
which are required or permitted hereunder shall be sufficient if given in
writing and shall be deemed effective when delivered personally, delivered by
registered or certified mail, postage prepaid, five (5) business days after
being sent by regular mail with postage prepaid or sent by facsimile
transmission (with a copy simultaneously sent by registered or certified mail,
postage prepaid), as follows (or to such other address as shall be set forth in
a notice given in the same manner):
If to Buyer to: Atrium Companies, Inc.
1341 W. Mockingbird Lane
Suite 1200W
Dallas, Texas 75247
Facsimile: (214) 630-5058
Attn: Jeff L. Hull
and
Atrium Companies, Inc.
c/o Ardshiel, Inc.
230 Park Avenue
Suite 2527
New York, New York 10169
Facsimile: (212) 972-1809
Attn: Daniel T. Morley
James G. Turner
Copies to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, New York 10022
Facsimile: (212) 319-4090
Attn: Joel M. Simon
Marie Censoplano
7
<PAGE>
If to the Selling
Stockholders
to: Donald Sloane
5380 East Sanford Circle
Englewood, Colorado 80110
David Hillard
17555 East Prentice Circle
Aurora, Colorado 80015-2460
Copies to: Minor & Brown PC
650 South Cherry Street
Suite 1100
Denver, Colorado 80246-1813
Facsimile: (303) 320-6330
Attn: Laura Breaker
If to the Escrow
Agent to: Bank One, Texas, N.A.
8111 Preston Road
2nd Floor
Dallas, Texas 75225
Facsimile: (214) 360-3980
Attn: Corporate Trust Department
A copy of any notice or other communication given or made to or by the Escrow
Agent pursuant to this Agreement shall in addition be given or made to each of
the other parties hereto.
7.02 COUNTERPARTS. This Agreement may be executed in several
counterparts each of which is an original and all of which, taken together,
shall constitute a single instrument.
7.03 CONTENTS OF AGREEMENT: PARTIES IN INTEREST, ETC. This
Agreement and the Stock Purchase Agreement set forth the entire understanding of
the parties. Any previous agreements or understandings between the parties
regarding the subject matter hereof are merged into and superseded by this
Agreement. All representations, warranties, covenants, terms, conditions and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. Neither this Agreement nor any
rights, interest or obligations hereunder may be assigned by any party without
the prior written consent of all other parties hereto.
7.04 NEW YORK LAW TO GOVERN; VENUE. This Agreement shall be
construed and enforced in accordance with the laws of the State of New York
without regard to the principles of conflict of laws. The parties hereto agree
to submit to the personal and exclusive jurisdiction of the state and federal
courts serving Denver, Colorado with respect to the enforcement or
interpretation of this Agreement or the parties' obligations hereunder. Each
party hereto irrevocably consents to the service of any and all process in any
action or proceeding by the mailing of copies of such process by registered or
certified mail to such party at the address specified in Section 7.01 hereof.
8
<PAGE>
Nothing in this section shall affect the right of any party hereto to serve
legal process in any other manner permitted by law. 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.
7.05 SECTION HEADINGS. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict any of the terms or provisions hereof.
7.06 MODIFICATION AND WAIVER. Any of the terms or conditions
of this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof, and this Agreement may be modified or amended
at any time by Buyer, the Selling Stockholders and the Escrow Agent. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by Buyer and the Selling Stockholder and, in the case of
Article VI only, the Escrow Agent. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof nor shall such waiver constitute a continuing waiver.
7.07 INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this
Agreement.
7.08 THIRD PARTY BENEFICIARIES. Except as otherwise expressly
set forth herein, no individual or entity shall be a third-party beneficiary of
the representations, warranties, covenants and agreements made by any party
hereto.
7.09 TERMINATION.
(a) This Agreement may, by written notice given prior to or at
the Closing, be terminated:
(1) By any of the parties hereto if the Stock
Purchase Agreement is terminated pursuant to
its terms; or
(2) By mutual written consent of Buyer and the
Selling Stockholders.
(b) The Escrow Agent's rights to indemnity and to receive
payment of its fees and expenses shall survive any termination of this Escrow
Agreement.
7.10 SECURITIES STATEMENTS. Pursuant to the regulations of the
Office of the Comptroller of the Currency, 12 C.F.R. 12.5(a), Buyer and the
Selling Stockholders have the right to receive, at no additional cost and within
five (5) business days of the transaction, a written notification disclosing
certain information relating to securities purchase and sale transactions in the
Escrow Account. The Escrow Agent has the option
9
<PAGE>
of furnishing to Buyer and the Selling Stockholders either (i) a copy of the
broker-dealer confirmation relating to the transaction, or (ii) a written
notification disclosing the Escrow Agent's name, the account name, the Escrow
Agent's capacity in the transaction, the date of execution (and, upon the
Buyer's and the Selling Stockholders' written request, the time of execution) of
the transaction, the identity, price and number of shares involved, the
remuneration to the broker-dealer and its identity, the total remuneration to be
received by the Escrow Agent, and, if no broker-dealer was involved, the
identity of the person from whom the security was purchased or to whom it was
sold.
In lieu of the foregoing time and form of notification, Buyer
and the Selling Stockholders agree that the Escrow Agent's periodic statements,
transmitted pursuant to the terms of this Escrow Agreement, will suffice.
7.11 FORM 1099. The Escrow Agent shall provide any Form 1099
required to be provided in respect of each of the Escrow Fund to the Selling
Stockholders.
7.12 AUTHORIZED SIGNATORIES. The following persons are
authorized to direct the Escrow Agent regarding any transactions to this Escrow
Agreement including, but not limited to, investment and/or disbursement of the
funds and securities held hereunder. In the case of the Selling Stockholders,
authorization of both individuals is required.
/s/ Jeff L. Hull /s/ Donald Sloane
--------------------------- ------------------------------
Jeff L. Hull, on Donald Sloane
behalf of Buyer
/s/ James G. Turner /s/ David Hilliard
--------------------------- ------------------------------
James G. Turner, on David Hilliard
behalf of Buyer
7.13 TAX LIABILITIES. Buyer and the Selling Stockholders,
severally and not jointly, warrant to the Escrow Agent that there are no
federal, state or local tax liabilities or, except as set forth in Section 7.11,
filing requirements whatsoever concerning the Escrow Agent's actions
contemplated hereunder and, severally and not jointly, warrant and represent to
the Escrow Agent that the Escrow Agent has no duty to withhold or file any
report or any tax liability under any federal or state income tax, local or
state property tax, local or state sales or use taxes, or any other tax by any
taxing authority. Buyer and the Selling Stockholders, severally and not jointly,
hereto agree to indemnify the Escrow Agent fully from any tax liability,
penalties or interest incurred by the Escrow Agent arising hereunder and agree
to pay in full any such tax liability together with penalty and interest, if
any, that is ultimately assessed against the Escrow Agent for any reason as a
result of its action or inaction (other than for its gross negligence or willful
misconduct) hereunder (except for the Escrow Agent's individual income tax
liability).
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and the year first above written.
ATRIUM COMPANIES, INC.
By: /s/ Jeff L. Hull
--------------------------------------
Name: Jeff L. Hull
Title: Executive Vice President
Chief Financial Officer
DONALD SLOANE
/s/ Donald Sloane
------------------------------------------
DAVID HILLIARD
/s/ David Hilliard
------------------------------------------
BANK ONE, TEXAS, N.A.,
as Escrow Agent
By: /s/ Amy Perkins
--------------------------------------
Name:
Title:
11
<PAGE>
SCHEDULE A
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Name Percentage of the Company Stock Sold
---- ------------------------------------
<S> <C>
Donald Sloane 86.67%
David Hilliard 13.33%
</TABLE>
<PAGE>
SCHEDULE B
PAYMENTS TO BE MADE ON THE CLOSING DATE
<TABLE>
<CAPTION>
S.S.#/Tax Payment Payment Amount as
Payee I.D.# Purpose Method Instructions of 5/17/99
<S> <C> <C> <C> <C> <C>
Atrium Companies Income Tax Estimate Wire Transfer Bank Boston $169,916
Bonus $10,000 Steve Dobler ABA-011000390
Apply to: Atrium Companies, Inc.
Acct. No. 26980085
Donald Sloane ###-##-#### Purchase Price for Stock Wire Transfer Citywide Bank $2,231,051.93
ABA-107001070
Apply to: Donald A. Sloane
Hyla R. Sloane
Acct. No. 300343548
David Hilliard ###-##-#### Purchase Price for Stock Wire Transfer Citywide Bank $343,139.75
ABA-107001070
Apply to: David Hilliard
Acct. No. 317324
AT&T Leasing Hyster Lease Payoff Wire Transfer AT&T Leasing Services $7,238.02
Services US Bank ABA 123000220
Account # 153600103169
Attn: Rebecca Mock
Apply to: Champagne Industries, Inc.
Acct. No. 402-0006067-003
Citywide Bank Loan Payoff Wire Transfer Citywide Banks $507,455.47
ABA-107001070
Attn: Kathy Stanek
Apply to: Champagne Industries, Inc.
Loan No. 10101075
Loan No. 10101067
Graybar Financial Lease Payoff Certified Funds Graybar Financial $21,301.38
P.O. Box 73258 (no per
Chicago, IL 60673-7258 diem)
Apply to: Champagne Industries, Inc.
Lease No. 5000429
US Bancorp Mikron Lease Payoff Wire Transfer U.S. Bank $73,344.15
ABA Routing No. 123-000-220 (This amount
Attn: 10613 does not
Apply to: U.S. Bancorp Leasing include
& Financial $11,291.44
Acct. No. 153600018292 which
Atrium will
pay.)
Minor & Brown, P.C. Attorney Fees Payoff Wire Transfer Bank One $29,333.30
Routing No. 102001017
Acct. Name: Minor & Brown, P.C.
Operating Account
Acct. No. 1200386298 -------------
Total $3,382,780.00
</TABLE>
<PAGE>
SCHEDULE C
ESCROW AGENT FEES
<PAGE>
ANNEX A
STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT 12.1
SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED YEAR ENDED
OCTOBER 25, DECEMBER 31, DECEMBER 31,
1995 1996 1996 1997
1994 --------- ------------- --------------- ---------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense............................ $ 909 $ 1,039 $ 540 $ 374 $ 3,456
Pro forma interest adjustment............... -- -- -- -- --
Implicit Interest in Rent................... 207 299 230 57 396
------ --------- ------ ----- ------
Total Fixed Charges......................... 1,116 1,338 770 431 3,852
Earnings:
Earnings before provision for income
taxes..................................... 179 491 1,789 532 1,391
Earnings before provision for income taxes,
after pro forma interest adjustment....... -- -- -- -- --
Fixed Charges............................... 1,116 1,338 770 431 3,852
------ --------- ------ ----- ------
Earnings, as defined........................ $ 1,295 $ 1,829 $ 2,559 $ 963 $ 5,243
Ratio of Earnings to fixed charges............ 1.16x 1.37x 3.32x 2.23x 1.36x
Deficiency of Earnings........................ N/A N/A N/A N/A N/A
<CAPTION>
PRO FORMA FOR PRO FORMA
DECEMBER 31, DECEMBER 31, PERIOD ENDED ENDED MARCH
1998 1998 MARCH 31, 1999 31, 1999
------------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Fixed Charges:
Interest Expense............................ $ 11,765 $ 11,765 $ 4,346 $ 4,346
Pro forma interest adjustment............... -- (2,163) -- (541)
Implicit Interest in Rent................... 954 954 598 598
------------- ------------- ------ -----------
Total Fixed Charges......................... 12,719 10,556 4,944 4,403
Earnings:
Earnings before provision for income
taxes..................................... (2,329) (2,329) 1,018 1,018
Earnings before provision for income taxes,
after pro forma interest adjustment....... -- 2,163 -- 541
Fixed Charges............................... 12,719 10,556 4,944 4,403
------------- ------------- ------ -----------
Earnings, as defined........................ $ 10,390 $ 10,390 5,962 $ 5,962
Ratio of Earnings to fixed charges............ N/A N/A 1.21x 1.35x
Deficiency of Earnings........................ $ 2,329 $ 166 N/A N/A
</TABLE>
<PAGE>
Exhibit 21.1
Subsidiaries of Atrium Companies, Inc.
Atrium Door and Window Company-West Coast, a Texas corporation
Atrium Door and Window Company of the Northeast, a Connecticut corporation
Atrium Door and Window Company of New York, a Connecticut corporation
Atrium Door and Window Company of Arizona, a Delaware corporation
Atrium Door and Window Company of New England, Inc., a Connecticut corporation
Door Holdings, Inc., a Delaware corporation
R.G. Darby Company, Inc., an Alabama corporation
R. G. Darby Company-South, a Delaware corporation
Total Trim, Inc., an Alabama corporation
Total Trim, Inc.-South, a Delaware corporation
Wing Industries Holdings, Inc., a Delaware corporation
Wing Industries, Inc., a Texas corporation
Heat, Inc., a Delaware corporation
H.I.G. Vinyl, Inc., a Delaware corporation
Champagne Industries, Inc., a Colorado corporation
Thermal Industries, Inc., a Delaware corporation
Best Built, Inc., a Delaware corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
our reports dated April 4, 1999 (except for Note 18 which is as of May 17,
1999), June 25, 1999, September 24, 1998, and July 9, 1999, relating to the
financial statements and financial statement schedules of Atrium Companies, Inc.
and subsidiaries, Atrium Companies, Inc. and subsidiaries (previous registrant),
R.G. Darby Company, Inc. and Total Trim, Inc. and Heat, Inc., respectively,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Dallas, Texas
July 14, 1999
