<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997.
REGISTRATION NO. 333-21949
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
SAFELITE GLASS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7536 13-3886709
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification No.)
incorporation)
</TABLE>
1105 SCHROCK ROAD, COLUMBUS, OHIO 43229 (614) 842-3000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
GAREN K. STAGLIN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
SAFELITE GLASS CORP.
1105 SCHROCK ROAD
COLUMBUS, OHIO 43229
(614) 842-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
WITH COPY TO:
CHARLES W. ROBINS, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(613) 951-6600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 11, 1997
PROSPECTUS
$100,000,000
SAFELITE LOGO
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF
9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006 FOR EACH $1,000 IN PRINCIPAL
AMOUNT OF OUTSTANDING 9 7/8% SENIOR SUBORDINATED NOTES DUE 2006
Safelite Glass Corp. (the "Company") hereby offers to exchange (the "Exchange
Offer") up to $100,000,000 in aggregate principal amount of its 9 7/8% Series B
Senior Subordinated Notes due 2006 (the "Exchange Notes") for $100,000,000 in
aggregate principal amount of its outstanding 9 7/8% Senior Subordinated Notes
due 2006 (the "Initial Notes"; and together with the Exchange Notes, the
"Notes").
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Initial Notes for which they may be exchanged pursuant to this offer, except
that the Exchange Notes are freely transferable by holders thereof (except as
provided in the next paragraph below) and are issued without any covenant upon
the Company regarding registration. The Exchange Notes will be issued under the
indenture governing the Initial Notes. For a complete description of the terms
of the Exchange Notes, see "Description of the Exchange Notes." There will be no
cash proceeds to the Company from this offer. The Initial Notes and the Exchange
Notes are unsecured obligations of the Company.
The Initial Notes were originally issued and sold on December 20, 1996 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of
the Securities Act. Accordingly, the Initial Notes may not be reoffered, resold
or otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Based upon interpretations by the Staff of
the Securities and Exchange Commission issued to third parties, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Initial Notes may be offered for sale, resold and otherwise transferred by
holders thereof (other than any holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes. 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 (as defined herein) 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 Initial Notes where such Exchange Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Initial Notes and the Exchange Notes constitute new issues of securities
with no established trading market. Any Initial Notes not tendered and accepted
in the Exchange Offer will remain outstanding. To the extent that Initial Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered and tendered but unaccepted Initial Notes could be adversely
affected. Following consummation of the Exchange Offer, the holders of Initial
Notes will continue to be subject to the existing restrictions on transfer
thereof and the Company will have no further obligation to such holders to
provide for the registration under the Securities Act of the Initial Notes held
by them. No assurance can be given as to the liquidity of the trading market for
either the Initial Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless extended
(the "Expiration Date"). The date of acceptance for exchange for the Initial
Notes (the "Exchange Date") will be the first business day following the
Expiration Date. Initial Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date; otherwise such tenders are
irrevocable.
Interest on the Exchange Notes shall accrue from the last June 15 or December 15
(an "Interest Payment Date") on which interest was paid on the Initial Notes so
surrendered or, if no interest has been paid on such Notes, from December 20,
1996.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1997
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission and to which reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified by such reference.
For further information with respect to the Company and the Notes,
reference is made to such Registration Statement. A copy of the Registration
Statement can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth St., N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street Suite 1400, Chicago, Illinois 60661-2511. Copies
of such materials can be obtained from the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
The Company intends, and is required by the terms of the Indenture dated as
of December 20, 1996 (the "Indenture") between the Company and Fleet National
Bank, as Trustee, under which the Notes are issued, to furnish the holders of
the Notes with annual reports containing financial statements audited by its
independent certified public accountants and with quarterly reports containing
unaudited financial statements for each of the first three quarters of each
fiscal year.
------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE ISSUER SINCE THE DATE HEREOF.
------------------------
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information, risk factors and financial statements,
including the related notes, appearing elsewhere in this Prospectus. Unless
otherwise referred to herein or the context otherwise requires, references to
"Safelite" and the "Company" shall mean Safelite Glass Corp., a Delaware
corporation and its consolidated subsidiaries, including Lear Siegler Holdings
Corp. and its consolidated subsidiaries. Unless otherwise referred to herein or
the context otherwise requires, references to "Lear Siegler" shall mean Lear
Siegler Holdings Corp., a Delaware corporation, or one or more of its
subsidiaries. Unless otherwise indicated, all references to fiscal years in this
Prospectus are to the fiscal years ending on the Saturday closest to December 31
of each year. Unless otherwise stated, all references to market share data in
this Prospectus are estimates made by the Company's management based on Company
and industry data and are expressed in units, except with respect to insurance
customer segment data which is expressed in dollar volume. Unless the context
otherwise requires, references to the "Exchange Offer" refer to the offer to
exchange the Exchange Notes for the Initial Notes.
THE COMPANY
COMPANY OVERVIEW
Safelite is the largest provider of auto glass replacement and repair
services in the United States. The Company installed approximately 1.6 million
replacement units in 1996 for insurance companies, commercial fleet leasing and
rental car companies, car dealerships and body shops, government agencies and
individual consumers. The Company provides these installation services through
its network of 491 service centers, approximately 1,000 mobile vans, 43
centralized telephone/dispatch centers and 66 warehouses. The Company has
targeted its marketing efforts principally towards auto insurance companies
which management believes, through their policyholders, directly or indirectly
influence approximately 70% of the selections of auto glass replacement
providers. The Company has developed fully integrated claims processing
solutions for auto insurance companies which reduce their glass loss expenses
and total administrative costs and provide a higher level of customer service to
their policyholders. Management believes that this outsourcing capability,
coupled with the convenience of nationwide coverage, consistently high quality
service and low costs, have provided the Company with a significant competitive
advantage in the insurance segment of the market. Since 1992, the Company
estimates that it has increased its leading market share in this segment from
approximately 10% to 18% resulting in improved financial performance as
demonstrated by compound annual growth in sales of 8.6% and operating income
performance improving from a loss of $23.7 million in 1992 to $23.8 million of
operating income in 1996. Adjusted EBITDA (as defined) for the same period grew
from $16.4 million to $35.0 million, a compound annual growth rate of 21%. Sales
and adjusted EBITDA for the year ended December 28, 1996 were $438.3 million and
$35.0 million, respectively. Pro forma adjusted EBITDA (as defined) for the year
ended December 28, 1996 was $43.4 million. See "Summary Historical and Pro Forma
Financial Information."
The auto glass replacement and repair industry in 1996 was a $2.7 billion
market, representing the installation of approximately 12.5 million replacement
units. The replacement and repair of auto glass is driven by the incidence of
breakage. Over the past 10 years, management estimates that total industry sales
have grown at approximately 4% per year, primarily as a result of growth in the
aggregate number of vehicles on the road, the increasing number of miles driven
and increases in price, which principally reflect the increasing size and design
complexity of auto glass. Such growth has been fairly consistent year to year,
with some variations resulting primarily from fluctuations in weather
conditions.
The auto glass replacement and repair industry is highly fragmented with
approximately 20,000 competitors. Safelite is the industry leader with an
overall market share of approximately 13% in 1996 and currently has an estimated
18% market share in the insurance segment of the market. From 1990 to 1996, the
industry has been consolidating as evidenced by an increase in market share for
the top three industry participants from an estimated 24% to an estimated 30%
and a decline in market share for small "mom and pop" providers from an
estimated 70% to an estimated 60% during the same period.
3
<PAGE> 5
Management expects this consolidation to continue, as insurance companies and
large fleet lessors require nationwide coverage and consistent service while
seeking to reduce costs by outsourcing their auto glass claims. For insurance
companies, auto glass repair and replacement claims represent a disproportionate
administrative burden. Management estimates such claims account for less than 6%
of the dollar value of all auto claims paid but over 30% of the total number of
auto claims processed.
COMPETITIVE STRENGTHS
Industry Leadership and Nationwide Coverage. Safelite is the largest
competitor in the highly fragmented auto glass replacement and repair industry.
The Company operates service centers in 95 of the top 100 Metropolitan
Statistical Areas ("MSAs") in the United States, with its closest competitor,
the Company believes, operating in 75 MSAs. Through its nationwide network, the
Company can directly serve 70% of the cars and light trucks in the United States
and, through its authorized independent installation centers, achieves 100%
coverage. Management believes that the Company's leadership position and breadth
of geographic coverage is a significant competitive advantage in working with
insurance companies, commercial fleet lessors and other large customers which
increasingly demand consistent quality in both claims processing and auto glass
repair and replacement services on a nationwide basis.
Strong, Established Relationships with Major Insurance Companies. The
Company has successfully established strong relationships with the nation's
major auto insurance companies, and management believes it has more program
relationships with these companies than any of its competitors. The top 30 auto
insurers represent approximately 70% of total auto insurance premiums written in
the United States. Safelite has entered into Total Customer Solution ("TCS")
arrangements with 24 of those insurers including State Farm Mutual Automobile
Insurance, Farmers Insurance Group, United Services Automobile Association,
Prudential Insurance Company of America, Travelers Group and Safeco Corporation.
Under a TCS arrangement, Safelite typically serves as one of a few recommended
auto glass replacement providers for an insurance company and provides a range
of additional claims management services, including computerized referral
management, policyholder call management, electronic auditing and billing
services and management reporting. Of the Company's total 41 TCS arrangements,
those with Nationwide Mutual Insurance Company, GEICO Corporation, Liberty
Mutual Insurance Company, CNA Insurance Group, Metropolitan Property and
Casualty Insurance Company and National General Insurance are also Master
Provider ("MP") relationships. Under an MP program, Safelite administers 100% of
an insurance company's auto glass claims. As sole administrator, Safelite
administers the allocation of the auto glass replacement and repair business
between Safelite and other approved providers based on the insurance company's
predetermined criteria. TCS and MP programs significantly lower the processing
costs and loss expenses for the insurance companies, provide more consistent and
rapid service for policyholders, and increase Safelite's volume with each
insurance account. In addition, the Company has entered into similar
arrangements with major fleet and rental car companies including GE Capital
Fleet Services, PHH Vehicle Management Services Corporation, USL Capital Fleet
Services, Hertz Corporation and Budget Rent-A-Car Systems, Inc. Of these
arrangements, those with PHH Vehicle Management and USL Capital Fleet are also
MP relationships. By entering into these arrangements with insurance, fleet and
rental car companies, Safelite has substantially increased its volume with these
accounts and enhanced its base of recurring revenues.
Low Cost Provider. Management believes the Company has a significant total
cost advantage compared to its competitors as a result of its manufacturing
facilities, its productivity incentive programs, the efficiency of its
nationwide distribution network and the critical mass of its centralized
customer service, claims processing and information network. Safelite is the
only industry competitor to manufacture a substantial percentage of its
replacement glass. Safelite produces only high volume units to maximize
efficiency, manufacturing approximately 75% of its windshield requirements at
two production sites. The Company utilizes excess manufacturing capacity to
produce windshields for sale in the wholesale market and purchases low volume
units. The Company's management estimates that its performance incentive program
has increased the productivity of its installation associates from 2.5
4
<PAGE> 6
installations per day in 1991 to 3.9 per day in 1996 (while the industry
averages an estimated 3.0 installations per day). As a result of the significant
economies of scale in its manufacturing, information systems, distribution and
installation infrastructure, management believes it has the capacity to add
incremental contracts and units at relatively low marginal cost.
Sophisticated Information Systems. The Company's information systems allow
Safelite to effectively handle all aspects of an insured auto glass claim, from
the initial phone call placed by the insured policyholder to the automatic
billing of the insurance company. Through Safelite's fully integrated network
("SAFENET(TM)"), the Company can provide full service to the policyholder by
electronically accessing the insurance company's database, verifying the
policyholder's coverage status, scheduling the glass installation, checking
relevant inventories, ordering delivery (when necessary) of auto glass to a
Safelite service center, repairing or replacing the glass, electronically
billing the insurance company and, if applicable, paying the service providers.
The insurance company's role is limited to funding the claim payment and
updating its policy files. The Company's information systems can also generate
detailed financial and operating performance statistics, comprehensively track
and report customer satisfaction and monitor speed of service for its customers.
Management believes the Company's information systems represent an important
competitive advantage for Safelite.
Proven Management Team. Garen K. Staglin, Chairman and CEO and John F.
Barlow, President and COO, joined Safelite in late 1991. Messrs. Staglin and
Barlow hired and developed a team of executives who brought to the Company
experience in insurance claims processing and the automotive aftermarket. In
late 1991, the new management team undertook a comprehensive review of the
Company's operations. This review resulted in a shift in Safelite's strategy
towards its key markets. In addition, the new management team recognized that
insurance companies and large fleet owners were responsible for the majority of
auto glass replacement purchasing decisions in the U.S. and focused the Company
on providing a total claims management solution. The initiatives associated with
the execution of the Company's strategies resulted in restructuring charges in
fiscal 1992, 1993 and 1995 of $10.0 million, $4.6 million and $6.3 million,
respectively. From 1992, the first full year of operations under the current
management team, to the twelve months ended December 28, 1996, the Company's
sales have grown at a compound annual rate of 8.6% and operating income has
improved from a loss of $23.7 million in 1992 to $23.8 million of operating
income in 1996. During the same period, adjusted EBITDA (as defined) grew from
$16.4 million to $35.0 million, a compound annual growth rate of 21%. Pro forma
adjusted EBITDA for the year ended December 28, 1996 was $43.4 million. See
"Summary Historical and Pro Forma Financial Information."
STRATEGIES FOR GROWTH
Expand and Enhance Relationships with Insurance Companies. The Company's
principal growth strategy is to increase its share in the segment of the auto
glass replacement and repair market influenced by the insurance companies by
expanding the breadth and depth of its existing relationships. The Company
currently provides its auto glass replacement and repair services for the
policyholders of virtually every significant auto insurance company in the U.S.
The Company focuses its marketing and sales strategy on demonstrating to
insurance companies that as it processes increasing proportions of an insurance
company's auto glass replacement and repair claims it can continue to reduce the
loss expenses and administrative costs of such claims for the insurance company
while improving policyholder satisfaction through faster, more reliable and
consistent installation service. Specifically, Safelite seeks to convert
existing insurance company relationships into TCS arrangements, achieve greater
allocations of existing TCS arrangements and ultimately migrate TCS arrangements
to MP relationships, each of which increases the Company's sales.
The Company believes it has been successful in implementing this strategy
of "program migration" for insurance company clients. During 1995, the Company
established MP relationships with three leading insurance companies, and during
1996, sales to those customers increased approximately 157% ($38.5 million) over
1995. In addition, sales to the Company's other 21 TCS clients which rank among
the top 30 auto insurers increased approximately 17% ($15.7 million), while
sales to all other insurance
5
<PAGE> 7
clients increased approximately 11% ($3.9 million). The Company is currently in
discussions with a number of insurance companies to enter into TCS arrangements
and MP relationships and announced a new MP program with GEICO Corporation in
early 1997. Management also focuses on a similar program migration strategy with
its large fleet and rental car company customers.
In addition to program migration, the Company seeks to grow its sales
through improved policyholder "compliance" with an insurance company's auto
glass referral program. An auto insurance policyholder has the freedom to choose
its own auto glass replacement provider, rather than comply with the insurer's
recommendations. As a result, Safelite may actually perform a lower proportion
of an insurance customer's installations than the insurance company would
otherwise recommend under the TCS or MP program. Management believes that over
time Safelite can improve compliance within its existing TCS and MP programs
through continued demonstration of the program's benefits, resulting in
increased sales and profitability.
Expand Nationwide Coverage. The Company plans to expand the scope of its
nationwide network by selectively acquiring regional auto glass replacement and
repair businesses and opening new service center locations. The Company believes
that it can enhance its sales and operating results through the integration of
well-targeted acquisitions into Safelite's nationwide network. In addition, the
Company expects to open 10 to 20 additional service centers annually to
complement its existing network.
Provide Additional Outsourcing Services to Insurance and Fleet
Companies. Management believes that Safelite can leverage its existing customer
relationships and claims processing infrastructure to provide outsourcing
services in addition to auto glass replacement, such as pre-insurance vehicle
inspection, towing referral and post-collision rental car referral. Similar to
auto glass replacement, these services are characterized by significant
administrative burdens, high processing costs and low dollar loss values. The
Company is evaluating plans to offer these services as a natural extension of
its core auto glass business.
The Company maintains its executive headquarters at 1105 Schrock Road,
Columbus, Ohio 43229, telephone (614) 842-3000.
SUMMARY OF THE TRANSACTIONS
On December 20, 1996, a series of related transactions described below
involving the Company were completed. Prior to such date Safelite was an
indirect subsidiary of Lear Siegler Holdings Corp. and was the only remaining
operating entity within Lear Siegler. In order to effect the Transactions, Lite
Acquisition Corp. was formed and was capitalized by Thomas H. Lee Equity Fund
III, L.P. (the "THL Equity Fund"), certain affiliates of Thomas H. Lee Company
and certain other investors (collectively, "THL"), who made an approximate $117
million aggregate equity investment (the "THL Equity Investment") in Safelite.
Pursuant to the Recapitalization Agreement and Plan of Merger and Stock Purchase
Agreement dated as of November 8, 1996 (the "Recapitalization Agreement"), Lite
Acquisition Corp. was merged with and into Safelite, with Safelite surviving the
merger (the "Merger").
THL owns approximately 88% of the voting stock of Safelite, and certain
existing stockholders, including management of Safelite, own approximately 12%
of Safelite's voting stock. The aggregate cash consideration received by the
prior stockholders of Safelite, including LSNWY Corp. ("LSNWY"), a wholly-owned
subsidiary of Lear Siegler, was approximately $300 million. Immediately
following the Merger, Safelite acquired (the "Stock Purchase") substantially all
of the outstanding capital stock of Lear Siegler (including LSNWY) from its
existing stockholders for a promissory note equal to the cash Merger
consideration for Safelite received by LSNWY (the "Seller Note") and Lear
Siegler was merged with and into L.S. Acquisition Corp., a wholly-owned
subsidiary of the Company, with L.S. Acquisition Corp. surviving the merger and
changing its name to Lear Siegler Holdings Corp. As a result, Lear Siegler
became a wholly-owned subsidiary of the Company upon completion of the
Transactions. LSNWY distributed the Merger consideration to a subsidiary of
Safelite which repaid the Seller Note. See "The Transactions."
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<PAGE> 8
As part of the Transactions, the proceeds of the THL Equity Investment,
together with approximately $250 million of aggregate proceeds from the debt
financings described below, were used to (i) repay approximately $42 million of
existing indebtedness, (ii) pay approximately $300 million of stock purchase
price and Merger consideration, (iii) pay $17 million of transaction fees and
expenses and (iv) pay transaction bonuses aggregating approximately $7 million
to certain members of Safelite management.
The Transactions were financed with (i) the THL Equity Investment, (ii)
$180 million in credit facilities comprised of a $150 million term loan facility
(the "Term Loan Facility") and a $30 million revolving credit facility (the
"Revolving Credit Facility"; together with the Term Loan Facility, the "Senior
Credit Facilities") and (iii) $100 million of the Notes (collectively, the
"Financings" and together with the Merger, the Stock Purchase and the related
transactions, the "Transactions"). After completion of the Transactions (the
"Closing"), the Company had $30 million of availability under the Revolving
Credit Facility (less approximately $4.9 million of outstanding letters of
credit).
The sources and uses of funds for the Transactions, which occurred on
December 20, 1996, were as follows:
SOURCES AND USES
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Term Loan Facility(1)..................................................... $ 150.0
Senior Subordinated Notes................................................. 100.0
THL Equity Investment(2).................................................. 116.9
Management Retained Equity(3)............................................. 7.9
------
$ 374.8
======
USES:
Working Capital........................................................... $ 0.9
Merger Consideration(4)................................................... 300.1
Repayment of Existing Debt................................................ 41.9
Management Transaction Bonuses(5)......................................... 6.9
Management Retained Equity(3)............................................. 7.9
Fees and Expenses......................................................... 17.1
------
$ 374.8
======
</TABLE>
- ---------------
(1) After the Closing, the Company had, excluding Lear Siegler and the uses
described above, approximately $5 million of cash on the balance sheet and
no borrowings under the $30 million Revolving Credit Facility (availability
under which was reduced by approximately $4.9 million in outstanding letters
of credit).
(2) Comprised of $58.7 million of common equity and $58.2 million of preferred
equity.
(3) Represents value of Safelite Class A Common Stock retained by management.
(4) Includes $2.3 million paid directly by THL to certain current stockholders
of Safelite for Safelite common stock.
(5) These bonuses were accrued in fiscal 1996 and paid in January 1997.
7
<PAGE> 9
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering to exchange up to
$100,000,000 aggregate principal amount of 9 7/8%
Series B Senior Subordinated Notes due 2006 for
$100,000,000 aggregate principal amount of its
outstanding 9 7/8% Senior Subordinated Notes due
2006. The terms of the Exchange Notes are
substantially identical in all respects (including
principal amount, interest rate and maturity) to
the terms of the Initial Notes for which they may
be exchanged pursuant to the Exchange Offer, except
that the Exchange Notes are freely transferable by
holders thereof (except as provided herein -- see
"The Exchange Offer -- Terms of the Exchange" and
"-- Terms and Conditions of the Letter of
Transmittal"), and are not subject to any covenant
regarding registration under the Securities Act.
Interest Payments.......... Interest on the Exchange Notes shall accrue from
December 20, 1996 or from the last Interest Payment
Date on which interest was paid on the Initial
Notes so surrendered.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Initial Notes
being tendered for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York time, on , 1997, unless extended.
Exchange Date.............. The date of acceptance for exchange of the Initial
Notes will be the first business day following the
Expiration Date.
Conditions of the Exchange
Offer.................... The obligation of the Issuer to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Issuer reserves the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
such conditions.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Otherwise, all tenders are
irrevocable. Any Initial Notes not accepted for any
reason will be returned without expense to the
tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering
Initial Notes.............. See "The Exchange Offer -- How to Tender."
Federal Income Tax
Consequences............. The exchange of Initial Notes for Exchange Notes
should be treated as a "non-event" for Federal
income tax purposes. See "Income Tax
Considerations."
Effects on Holders of
Initial Notes.............. As a result of the making of, and upon acceptance
for exchange of all validly tendered Initial Notes
pursuant to the terms of, this Exchange Offer, the
Issuer will have fulfilled a covenant contained in
the terms of the Initial Notes and the Exchange and
Registration Rights Agreement as amended (the
"Exchange and Registration Rights Agreement") dated
December 20, 1996 between the Issuer, Chase
Securities Inc., BT Securities Corporation and
Smith Barney Inc. (collectively, the "Initial
Purchasers") and, accordingly, there will be
- --------------------------------------------------------------------------------
8
<PAGE> 10
- --------------------------------------------------------------------------------
no increase in the interest rate on the Initial
Notes pursuant to the terms of the Exchange and
Registration Rights Agreement, the Initial Notes or
the Indenture. The holders of the Initial Notes
will have no further registration rights under the
Exchange and Registration Rights Agreement with
respect to the Initial Notes. Holders of the
Initial Notes who do not tender their Notes in the
Exchange Offer will continue to hold such Initial
Notes and their rights under such Initial Notes
will not be altered, except for any such rights
under the Exchange and Registration Rights
Agreement, which by their terms terminate or cease
to have further effectiveness as a result of the
making of, and the acceptance for exchange of all
validly tendered Initial Notes pursuant to, the
Exchange Offer. All untendered and tendered but
unaccepted Initial Notes will continue to be
subject to the restrictions on transfer provided
for in the Initial Notes and in the Indenture. To
the extent that Initial Notes are tendered and
accepted in the Exchange Offer, the trading market
for untendered Initial Notes could be adversely
affected.
TERMS OF THE EXCHANGE NOTES
Issuer..................... Safelite Glass Corp.
Securities Offered......... $100 million aggregate principal amount of 9 7/8%
Series B Senior Subordinated Notes due 2006.
Maturity................... December 15, 2006.
Interest Payment Dates..... June 15 and December 15, commencing June 15, 1997.
Sinking Fund............... None.
Optional Redemption........ The Exchange Notes are redeemable in whole or in
part, at the option of the Company on or after
December 15, 2001, at the redemption prices set
forth herein plus accrued and unpaid interest, if
any, to the date of redemption. In addition, prior
to December 15, 1999, the Company, at its option,
may redeem up to $35 million of the aggregate
principal amount of the Notes originally issued
with the net cash proceeds of one or more Equity
Offerings, at a redemption price equal to 109.875%
of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of redemption;
provided that at least $65 million of the original
principal amount of Notes remains outstanding after
any such redemption.
Change of Control.......... Upon a Change of Control Triggering Event, the
Company will be required to make an offer to
repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
repurchase. There can be no assurance that the
Company would have the financial resources
necessary to repurchase the Notes upon a Change of
Control Triggering Event. The occurrence of certain
of the events which would constitute a Change of
Control Triggering Event would constitute a default
under the credit agreement evidencing the Senior
Credit Facilities (the "Bank Credit Agreement"). As
of December 28, 1996 the aggregate indebtedness
that would have become due upon the occurrence of a
Change of Control Triggering Event under the
- --------------------------------------------------------------------------------
9
<PAGE> 11
Indenture and a default under the Bank Credit
Agreement was $250 million.
Ranking.................... The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Indebtedness of the Company. The Exchange
Notes will rank pari passu with any future Senior
Subordinated Indebtedness of the Company and will
rank senior to all future subordinated indebtedness
of the Company. As of December 28, 1996, the
Company had approximately $163.7 million of Senior
Indebtedness (excluding $4.9 million in outstanding
letters of credit). The Indenture permits the
Company to incur indebtedness in addition to the
Notes and the Term Loan Facility of up to
approximately $40 million (including the Revolving
Credit Facility) and certain other indebtedness as
described in the definition of "Permitted
Indebtedness," as well as an additional amount
pursuant to a fixed charge coverage ratio test that
as of December 28, 1996, would not permit the
incurrence of any additional indebtedness. See
"Description of Notes--Limitation on Incurrence of
Additional Indebtedness." The Indenture permits all
of such additional indebtedness to be Senior
Indebtedness or Secured Indebtedness. The Senior
Indebtedness under the Senior Credit Facilities
will be Secured Indebtedness. See "Description of
Other Indebtedness."
Restrictive Covenants...... The Indenture contains certain covenants that limit
the ability of the Company and certain of its
subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur indebtedness
that is subordinate in right of payment to any
Senior Indebtedness and senior in right of payment
to the Notes, incur liens, impose restrictions on
the ability of a subsidiary to pay dividends or
make certain payments to the Company and its
subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
the assets of the Company. The Indenture permits
the Company to incur substantial additional
indebtedness under certain circumstances. However,
all of these limitations and prohibitions are
subject to a number of important qualifications and
exceptions. See "Ranking" above.
Future Guarantees.......... The Indenture provides that any subsidiary of the
Company which guarantees the Company's indebtedness
under the Bank Credit Agreement will guarantee the
Notes on an unsecured senior subordinated basis.
None of the Company's current subsidiaries have
guaranteed the Company's indebtedness under the
Bank Credit Agreement or the Notes.
Absence of a Public
Market for the Notes..... The Exchange Notes are new securities and there is
currently no established market for the Exchange
Notes. The Exchange Notes will generally be freely
transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for
which there will not initially be a market.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Exchange Notes. The Exchange Notes have been
designated for trading in the PORTAL
10
<PAGE> 12
market. The Initial Purchasers have advised the
Company that they currently intend to make a market
in the Exchange Notes. However, the Initial
Purchasers are not obligated to do so, and any
market making with respect to the Exchange Notes
may be discontinued at any time without notice. The
Company does not intend to apply for a listing of
the Exchange Notes on any securities exchange or on
any automated dealer quotation system.
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the Exchange Notes.
11
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following Summary Historical and Pro Forma Financial Information of
Safelite was prepared giving retroactive effect to the Transactions on December
20, 1996, which were accounted for as a recapitalization of Safelite and in
accordance with the provisions of FASB Technical Bulletin No. 85-5. See "The
Transactions." The statement of operations data set forth below with respect to
fiscal years ended December 31, 1994, December 30, 1995 and December 28, 1996
and the balance sheet data at December 30, 1995 and December 28, 1996 are
derived from the financial statements included elsewhere in this Prospectus
which have been audited by Deloitte & Touche LLP, independent public
accountants. The pro forma consolidated financial data have been derived from
the Unaudited Pro Forma Consolidated Income Statement (as defined) and the
related notes thereto included elsewhere in this Prospectus. The pro forma
information does not purport to represent what the Company's results would have
actually been if the Transactions and the application of the proceeds therefrom
had occurred at the date indicated nor does such information purport to project
the results of the Company for any future period. The summary financial data
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Income Statement" and the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
----------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 1996
------ ------ ------ ------ ------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................................. $314.4 $328.3 $357.4 $372.1 $438.3 $ 438.3
Cost of sales...................................... 236.9 229.7 246.1 261.7 299.6 298.7
------ ------ ------ ------ ------ ---------
Gross profit....................................... 77.5 98.6 111.3 110.4 138.7 139.6
Selling, general & administrative expenses......... 91.2 100.4 90.8 93.5 107.3 107.7
Other operating expenses(2)........................ -- -- 21.1 -- 7.6 --
Restructuring expense(3)........................... 10.0 4.6 -- 6.3 -- --
------ ------ ------ ------ ------ ---------
Income (loss) from operations...................... (23.7) (6.4) (0.6) 10.6 23.8 31.9
Interest expense................................... (41.4) (15.5) (4.5) (6.0) (6.7) (24.5)
Interest income.................................... 1.9 0.3 2.2 2.9 2.1 2.1
------ ------ ------ ------ ------ ---------
Income (loss) from continuing operations before
income taxes, minority interest and extraordinary
items............................................ (63.2) (21.6) (2.9) 7.5 19.2 9.5
Income tax benefit (provision)(4).................. 0.1 0.3 (0.2) (0.1) 17.6 17.6
Minority interest(5)............................... -- 0.1 (2.7) (1.1) (10.2) --
------ ------ ------ ------ ------ ---------
Income (loss) from continuing operations before
extraordinary items.............................. (63.1) (21.2) (5.8) 6.3 26.6 $ 27.1
=========
Discontinued operations(6)......................... (24.0) (43.2) -- -- 1.7
Extraordinary loss(7).............................. -- -- (1.5) -- (0.5)
------ ------ ------ ------ ------
Net income (loss).................................. $(87.1) $(64.4) $ (7.3) $ 6.3 $ 27.8
====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
EBITDA(8).......................................... $ 3.5 $ 10.2 $ 6.6 $ 24.5 $ 31.8 $ 38.9
EBITDA margin...................................... 1.1% 3.1% 1.8% 6.6% 7.3% 8.9%
Adjusted EBITDA(9)................................. 16.4 22.0 29.1 25.5 35.0 43.4
Adjusted EBITDA to cash interest expense(10)....... 1.9x
Cash flows from operating activities............... (49.8) (10.3) 6.5 (9.5) (2.3)
Cash flows from investing activities............... 25.8 153.2 (24.1) (34.7) 21.5
Cash flows from financing activities............... 23.7 (115.4) 28.9 4.6 (1.8)
Depreciation and amortization...................... $ 17.2 $ 12.0 $ 7.2 $ 7.6 $ 8.0 $ 7.0
Capital expenditures............................... 5.7 7.7 14.2 12.0 12.8 12.8
Ratio of earnings to fixed charges(11)............. -- -- -- 1.4x 2.0x 1.0x
BALANCE SHEET DATA:
Working capital.................................... $ 6.1 $ 41.0 $ 41.9 $ 58.1 $ 50.7
Total assets(12)................................... 360.2 169.8 193.7 188.3 216.2
Total indebtedness(12)............................. 446.8 35.0 63.8 69.0 263.7
Stockholders' equity (deficit)..................... (245.2) 7.7 0.2 (0.6) (128.5)
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the Saturday closest to December 31 of
each year.
(2) Other operating expenses in 1994 is comprised of a $2.5 one-time charge
recorded by the Company to conform its method of accounting to Statement
of Position (SOP) No. 93-7, "Reporting on Advertising Costs" and $18.6
million primarily related to curtailment and settlement losses for pension
plans of previously disposed Lear Siegler subsidiaries. Other operating
expenses in 1996 is comprised of management transaction bonuses of $6.9
million and estimated costs (primarily severance) of $0.7 million to exit
the activities of Lear Siegler. See Notes 1 and 2 to the Company's
Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) In 1992, restructuring charges totaling approximately $10.0 million were
recorded, consisting of (i) $4.9 million for severance costs, facility
relocations and consolidation of the Company's sales and administrative
functions; (ii) $2.7 million in connection with the planned closing of 72
service center locations; and (iii) $2.4 million to cover the cost of
closing one manufacturing plant, disposition of the Company's
architectural flat glass product line and related facilities, and
discontinuance of the Company's long-haul trucking function. In 1993, the
Company recorded $4.6 million in restructuring charges
12
<PAGE> 14
related to the planned closing of approximately 70 service center
locations. In 1995, the Company recorded $6.3 million in restructuring
charges. Of this amount, $5.6 million related to the planned closing of
100 service center locations and $0.7 million related to field management
reorganization. See Note 3 to the Company's Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) The adoption of SFAS No. 109, "Accounting for Income Taxes" in 1993 was
not material to the Company's consolidated results of operations or its
financial condition. During 1996, the valuation allowance provided against
the Company's deferred tax assets was reduced by $25.9 million. See Note
12 to the Company's Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) The summary historical and pro forma financial information of Safelite was
prepared giving retroactive effect to the Transactions on December 20,
1996 and accounted for as a recapitalization of Safelite and in accordance
with the provisions of FASB Technical Bulletin No. 85-5. Accordingly, the
common stock ownership of Safelite held other than by Lear Siegler
(primarily management of Safelite) has been accounted for prior to the
Transactions as a minority interest.
(6) In 1992, one operating business of Lear Siegler was sold and a resulting
loss on sale of discontinued operations of $34.9 million was recognized.
1992 income from operations of this business as well as five operating
businesses sold in 1993 was $10.9 million. In 1993, five operating
businesses of Lear Siegler were sold and a resulting loss on sale of
discontinued operations of $45.2 million was recognized. 1993 income from
operations of such businesses was $2.0 million. In 1996, a gain from
discontinued operations totalling approximately $1.7 million was recorded,
consisting of $27.2 million in favorable resolution of various tax
contingencies of previously discontinued Lear Siegler operations offset by
$25.5 million of settlement costs for various liability issues related to
previously disposed of Lear Siegler subsidiaries.
(7) In 1994 and 1996, extraordinary losses of $1.5 million and $0.5 million,
respectively, were recorded, net of minority interest and income tax of
$0.3 million and $0.3 million, respectively, as a result of expensing
unamortized loan origination fees related to the early retirement of the
associated debt.
(8) "EBITDA" is defined herein as income (loss) from operations plus the sum
of depreciation, amortization and restructuring expenses. EBITDA is
presented in this Prospectus as it is a basis upon which the Company
assesses its financial performance and because certain covenants in the
Company's borrowing arrangements are tied to similar measures. EBITDA as
determined by the Company may not be comparable to EBITDA as reported by
other companies. EBITDA does not represent funds available for
discretionary uses and should not be considered as an alternative to
operating income or net income as a measure of operating results or to
cash flows as a measure of liquidity (each as determined in accordance
with generally accepted accounting principles).
(9) "Adjusted EBITDA" is defined herein as EBITDA plus the operating expenses
of Lear Siegler (which has been treated as an exited activity). The
estimated costs to exit Lear Siegler activities, consisting primarily of
severance costs, have been accrued in 1996. In addition, the Pro Forma
1996 Adjusted EBITDA includes Safelite insurance cost savings of $2
million. Insurance cost savings are based on a program which was put in
place effective upon completion of the Transactions versus Safelite's
historical coverage. See "Unaudited Pro Forma Consolidated Income
Statement." Adjusted EBITDA and pro forma adjusted EBITDA do not represent
funds available for discretionary uses and should not be considered as an
alternative to operating income or net income as a measure of operating
results or to cash flows as a measure of liquidity (each as determined in
accordance with generally accepted accounting principles).
(10) "Adjusted EBITDA to cash interest expense" is computed as the ratio of pro
forma adjusted EBITDA to pro forma cash interest expense. Adjusted EBITDA
to cash interest expense is presented in this Prospectus as it is a basis
upon which the Company assesses its financial performance and because
certain covenants in the Company's borrowing arrangements are tied to
similar measures. See "Unaudited Pro Forma Consolidated Income Statement."
(11) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes and cumulative effect
of accounting changes, plus fixed charges. Fixed charges consist of
interest expense on all indebtedness and capitalized interest,
amortization of deferred financing costs and one-half of rental expense on
operating leases, representing that portion of rental expense deemed by
the Company to be attributable to interest. For fiscal 1992, 1993, and
1994 the deficiency of earnings to fixed charges was $63.2 million, $21.6
million and $2.9 million, respectively.
(12) Reflects the purchase of approximately $12.0 million in prepaid insurance
and the buyout of approximately $4.4 million in Safelite self-insured
liabilities which were partially financed by $13.7 million in premium
financing indebtedness. The purchase and buyout were made on December 20,
1996 in connection with the insurance program discussed at Note 9 above.
See Note 10 to the Company's Consolidated Financial Statements.
13
<PAGE> 15
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the purchase of the
Exchange Notes offered hereby:
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT; NEED TO REFINANCE NOTES
As a result of the Transactions, the Company has significant debt service
obligations. As of December 28, 1996, after giving effect to the sale of the
Notes, the application of the estimated net proceeds therefrom, and consummation
of the Transactions (including the Financings), the Company had aggregate
outstanding indebtedness of approximately $263.7 million, of which $150 million
represented aggregate outstanding indebtedness under the Bank Credit Agreement
(which amount excludes outstanding letters of credit), and stockholders' deficit
of $128.5 million. The Company may incur additional indebtedness in the future,
subject to certain limitations contained in the instruments governing its
indebtedness, including the Indenture.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes and other purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of the principal and interest on its
indebtedness thereby reducing the funds available to finance operations; (iii)
the Company may be more highly leveraged than certain of its competitors, which
may place the Company at a competitive disadvantage; (iv) certain of the
Company's borrowings will be at variable rates of interest (including borrowings
under the Bank Credit Agreement) which will expose the Company to the risk of
fluctuating interest rates; (v) the Company's substantial degree of leverage
will limit its flexibility to adjust to changing market conditions, reduce its
ability to withstand competitive pressures and make it more vulnerable to a
downturn in economic conditions; and (vi) the Company's ability to refinance the
Notes in order to pay the principal of the Notes at maturity or upon a Change of
Control Triggering Event may be adversely affected.
The Company's ability to satisfy its interest payment obligations under its
indebtedness will depend largely on its future performance, which, in turn, is
subject to prevailing economic conditions and to financial, business and other
factors beyond its control. In addition, all amounts owing under the Bank Credit
Agreement will become due prior to the time the principal payments on the
Exchange Notes will become due and such amounts will need to be refinanced.
Furthermore, the Company does not expect to be able to repay the principal
amount of the Notes at maturity and accordingly will need to refinance the
Notes, or repay the Notes with the proceeds of an equity offering, at or prior
to their maturity. There can be no assurance that the Company will be able to
generate sufficient cash flow to service its interest payment obligations under
its indebtedness or that future borrowings or equity financing will be available
for the payment or refinancing of the Company's indebtedness. To the extent that
the Company is not successful in negotiating renewals of its borrowings or in
arranging new financing, it may have to sell significant assets, which would
have a material adverse effect on the Company's business and results of
operations. Among the factors that will affect the Company's ability to effect
an offering of its capital stock or refinance the Notes are financial market
conditions and the value and performance of the Company at the time of such
offering or refinancing. There can be no assurance that any such offering or
refinancing can be successfully completed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Other Indebtedness."
DEBT RESTRICTIONS; COMPLIANCE WITH CERTAIN COVENANTS; ASSET ENCUMBRANCES
The Indenture and the Bank Credit Agreement impose restrictions that
affect, among other things, the ability of the Company and its subsidiaries, as
the case may be, to incur debt, pay dividends, sell assets, create liens, make
capital expenditures and investments and otherwise enter into certain
transactions outside the ordinary course of business. The Bank Credit Agreement
also requires the Company to maintain specified financial ratios and meet
certain financial tests. Although the Company is currently in compliance with
the covenants and restrictions contained in the Bank Credit Agreement, the
14
<PAGE> 16
Company's ability to continue to comply may be affected by events beyond its
control. The breach of any of these covenants or restrictions could result in a
default under the Bank Credit Agreement, which in turn could result in the
acceleration of indebtedness under other instruments evidencing indebtedness
that may contain cross-acceleration or cross-default provisions. In the event of
any such default, the lenders under the Bank Credit Agreement could elect to
declare all amounts borrowed thereunder, together with accrued interest, to be
due and payable, or the lenders could cease making additional revolving loans.
If, as a result thereof, a default occurs with respect to Senior Indebtedness,
the subordination provisions in the Indenture would likely restrict payments to
the holders of the Exchange Notes.
In connection with the Bank Credit Agreement, the Company has granted the
lenders thereunder a first priority lien on substantially all of its assets. If
the Company were unable to repay such amounts, the lenders could foreclose upon
the assets pledged to secure such repayment, and the holders of the Exchange
Notes might not be able to receive payments, if any, until the payment default
was cured or waived, any such acceleration was rescinded, or the indebtedness
under the Bank Credit Agreement was discharged or paid in full.
SUBORDINATION OF NOTES TO SENIOR INDEBTEDNESS
The Company's obligations under the Notes are subordinate and junior in
right of payment to all existing and future Senior Indebtedness of the Company.
As of December 28, 1996, after giving effect to the Transactions, the Company
had (i) approximately $163.7 million of Senior Indebtedness (which amount
excludes outstanding letters of credit) and (ii) approximately $30 million
available under the Revolving Credit Facility (less $4.9 million in outstanding
letters of credit), to fund the future liquidity needs of the Company, if any,
all of which would be Senior Indebtedness, if borrowed. Additional Senior
Indebtedness may be incurred by the Company from time to time, subject to
certain restrictions. By reason of such subordination, in the event of an
insolvency, liquidation, or other reorganization of the Company, the lenders
under the Bank Credit Agreement and other creditors who are holders of Senior
Indebtedness must be paid in full before the holders of the Notes may be paid;
accordingly, there may be insufficient assets remaining after payment of prior
claims to pay amounts due on the Notes. In addition, under certain
circumstances, no payments may be made with respect to the Notes if a default
exists with respect to certain Senior Indebtedness. See "Description of
Notes -- Ranking of Notes."
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control
Triggering Event, the Company will make an offer to purchase all of the Notes at
a price in cash equal to 101% of the aggregate principal amount thereof together
with accrued and unpaid interest to the date of purchase. The Bank Credit
Agreement prohibits the Company from repurchasing any Notes, except with the
proceeds of one or more equity offerings. The Bank Credit Agreement also
provides that certain change of control events with respect to the Company would
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control Triggering Event occurs at a time when the Company is prohibited from
purchasing the Notes, or if the Company is required to make a Net Proceeds Offer
(as defined) pursuant to the terms of the Notes, the Company could seek the
consent of its lenders to the purchase of the Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing the Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the holders of the Notes. The provisions relating to a
Change of Control Triggering Event included in the Indenture may increase the
difficulty of a potential acquiror obtaining control of the Company. See
"Description of Exchange Notes -- Change of Control."
DEPENDENCE ON CERTAIN CUSTOMERS; POTENTIAL ADVERSE IMPACT OF GOVERNMENT
REGULATION
During fiscal 1996 the Company's five largest customers accounted for
approximately 30% of the Company's sales. No customer accounted for more than
10% of the Company's sales during fiscal 1996. The Company is highly dependent
on recurring revenues generated by its insurance company customers
15
<PAGE> 17
and could be adversely affected by changes in such insurance companies' policies
concerning coverage for auto glass replacement claims. Failure by insurance
companies to cover auto glass replacement claims or the imposition of increased
deductibles with respect to coverage of auto glass replacement claims, could
significantly reduce the Company's sales generated through its insurance company
customers. Certain of the Company's TCS arrangements and MP relationships with
insurance company customers are not evidenced by written contracts and are
therefore terminable at any time. A significant decrease in business from the
Company's insurance company customers would have a material adverse effect on
the Company's results of operations and financial condition. See
"Business -- Customers" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Many states have statutes or regulations prohibiting certain referral
practices of insurers. Approximately 30 states currently have statutes or
regulations which would prohibit an insurance company from requiring a
policyholder to use a particular vendor. In addition, new laws or regulations
relating to the referral practices of insurance companies may be adopted in
these or other states. The Company does not enter into arrangements with
insurance companies pursuant to which such insurance companies require
policyholders to use the Company for auto glass replacement or repair services.
Although the Company does not believe that existing government regulation of
insurance company referral practices will have a material adverse effect on the
Company, no assurance can be given that future regulation of such referral
practices will not have a material adverse effect on the Company.
COST AND AVAILABILITY OF RAW MATERIALS
The major raw materials used in the manufacturing of the Company's products
include glass and vinyl. Most of the raw materials used in the Company's
products are available from multiple sources. However, several raw materials
used in the Company's products are currently obtained from a single source. The
Company does not have guaranteed supply arrangements with any of its suppliers
and there can be no assurance that these suppliers will continue to meet the
Company's requirements. An extended interruption in the supply of glass or vinyl
could have a material adverse effect on the Company's operating results. There
can be no assurance that severe shortages of raw materials will not occur in the
future which could increase the cost or delay the shipment of the Company's
products and have a material adverse effect on the Company's operating results.
Significant increases in the prices of these raw materials could also have a
material adverse effect on the Company's operating results since the Company may
not be able to adjust product pricing to reflect the increases in raw material
costs. See "Business -- Suppliers and Raw Materials."
RELIANCE ON CENTRALIZED MANUFACTURING
All of the Company's manufacturing occurs at facilities in Enfield, North
Carolina and Wichita, Kansas. The Company's manufacturing operations utilize
certain equipment which, if damaged or otherwise rendered inoperable, would
result in the disruption of the Company's manufacturing operations. Although the
Company maintains business interruption insurance which the Company believes is
adequate, any extended interruption of the operations at these facilities could
have a material adverse effect on the Company's operating results. See "Business
- -- Operations -- Manufacturing."
POTENTIAL RISK OF PRODUCT LIABILITY
The manufacture and sale of windshields entails risk of product liability
claims. To date, no such material product liability claims have been made
against the Company relating to its manufacture and sale of windshields. There
can be no assurance, however, that such claims will not be made in the future. A
successful product liability claim (or series of claims) against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The industries in which the Company competes are very competitive. In the
installation and related services market, competition is based on price,
customer service, technical capabilities, quality and geographic coverage. This
market is highly fragmented with approximately 20,000 competitors. Although
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the Company is the market leader in installation and related services, it does
compete against several other large competitors in this market, the largest two
of which had market shares estimated to be 10% and 7% in 1996. In addition, many
of the Company's competitors have incurred substantially less debt than the
Company, which may allow them greater flexibility than the Company in managing
their operations. There can be no assurance that the Company will be able to
continue to compete effectively with these or other competitors. State Farm, one
of the Company's largest customers, has informed the Company that it intends to
use a competitor to function as its glass claims call center and bill processing
administrator in a region by region roll-out commencing in the summer of 1997.
The Company does not expect that this arrangement will have a material impact on
its relationship with State Farm; however, there can be no assurance that this
arrangement will not have an impact on the Company's business with State Farm.
See "Business -- Competition."
Competition in the wholesale market is based principally on price and
quality. The Company is a relatively small participant in the wholesale market,
which is dominated by several significantly larger companies.
Future growth in the Company's revenues will depend upon the Company's
ability to maintain and increase its market share in the installation and
related services market while continuing to provide high levels of customer
service to insurers and fleet owners, and its ability to access the wholesale
market in order to utilize excess manufacturing capacity. No assurance can be
given that the Company will be successful in obtaining these objectives.
EFFECT OF WEATHER CONDITIONS; SEASONAL EARNINGS
The severity of weather has historically affected the Company's sales and
operating income, with severe winters generating increased sales and income and
mild winters generating lower sales and income. Accordingly, mild weather
conditions may adversely affect the Company's results of operations.
The Company's business is somewhat seasonal, with the fourth quarter
traditionally its slowest period of activity. This reduced level of sales in the
fourth quarter has resulted in a disproportionate decline in operating income
and EBITDA during the fourth quarter due to the Company's significant operating
leverage. The Company believes such seasonal trends will continue for the
foreseeable future. See "Summary Historical and Pro Forma Financial
Information."
POTENTIAL LIABILITIES OF NON-OPERATING SUBSIDIARIES
Upon completion of the Transactions, Lear Siegler and its subsidiaries
became subsidiaries of the Company. The current and former subsidiaries of Lear
Siegler engaged in a wide variety of manufacturing activities including, without
limitation, the manufacture and sale of firearms, small aircraft, motorcycle
helmets, baby products, heaters for mobile homes and products made with
asbestos. While Lear Siegler and its current subsidiaries no longer engage in
manufacturing or selling activities, their former activities and the activities
of former subsidiaries may expose Lear Siegler or its subsidiaries to a variety
of potential environmental liabilities, asbestos and non-asbestos product
liability claims and certain other contingent liabilities.
Environmental Claims. Lear Siegler's current or former subsidiaries are
currently involved in 18 environmental matters relating to the former operation
of manufacturing and other facilities and the cleanup of a number of disposal
sites. Of these matters, Lear Siegler is entitled to indemnification for seven
which are being actively managed by the current owners of the disposed business
unit. Lear Siegler has not received notification of any material additional
sites in two years. However, there can be no assurance that additional,
potentially material, claims will not be made against Lear Siegler in the
future. The purchasers of a number of Lear Siegler's former operations assumed
the environmental liabilities related to those operations. If those purchasers
are unwilling or unable to address those liabilities in the future, Lear Siegler
could be held responsible for the assumed liabilities.
Asbestos Claims. Lear Siegler has exposure to asbestos claims arising out
of the use or installation of automotive brakes manufactured by Lear Siegler
from the late 1960s through 1987. A Lear Siegler subsidiary has been named as a
defendant in approximately 860 lawsuits relating to asbestos claims
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since 1988, of which approximately 280 remain active. This Lear Siegler
subsidiary has already expended approximately $2.9 million in handling asbestos
claims, of which $2.3 million has been expended in defense costs, $0.1 million
has been expended in settlements and $0.5 million has been paid to a third party
administrator. In addition, workers in Lear Siegler's former automotive brake
plants may assert claims in the future for medical conditions relating to
exposure to asbestos.
Non-Asbestos Product Liability Claims. Although Lear Siegler sold its last
operating unit other than Safelite in 1993, Lear Siegler has ongoing exposure
for product liability claims relating to the products sold by certain operating
units prior to divestiture. In the majority of divestitures, the purchaser of
the business unit assumed liability for all product liability claims, regardless
of when the underlying products were sold. In certain divestitures, however,
liability for product liability claims attributable to products delivered prior
to the sale of the business unit was retained. In several cases, the buyer's
subsequent financial difficulties required Lear Siegler to respond to product
liability claims. L.S. Acquisition Corp., Lear Siegler's post-Transactions
parent corporation, purchased an insurance policy which became effective at the
Closing that provided certain coverages relating to product liability claims.
Insurance Claims and Miscellaneous Claims. A Lear Siegler subsidiary is
liable under certain insurance policies for retroactive insurance premium
adjustments. In addition, such Lear Siegler subsidiary in the past has made
payments for self-insured retention payments relating to a liability policy for
a divested unit although the contract of sale relating to such unit requires the
purchaser to make such payments. Lear Siegler does not anticipate additional
liability under such policy, although one liability claim for a relevant policy
year remains unresolved.
Benefit Plans and Other Matters. Lear Siegler has potential liabilities
under certain employee benefit plans and other matters, including certain tax
liabilities. Following the Transactions, the Company is responsible for
maintaining certain pension plans of the Company and Lear Siegler. According to
actuarial studies, the pension plans are adequately funded on an on-going basis
and cash contributions by the Company to the pension plans are expected to
aggregate approximately $1 million annually.
In addition to the reserves established by Lear Siegler in connection with
the potential liabilities discussed above, pursuant to the terms of the
Recapitalization Agreement, L.S. Acquisition Corp. obtained insurance coverage
with respect to certain product liability claims against Lear Siegler (with no
deductible and subject to a $15 million per year limit) for occurrences from
December 20, 1996 to December 31, 2001. Additional insurance coverage was
obtained with respect to other liabilities of Lear Siegler and Lear Siegler may
in the future obtain additional insurance. There can be no assurance that such
insurance will be sufficient to cover all such product liability claims and
other intended covered liabilities. Such coverage does not include claims
relating to asbestos, aircraft product liability claims or environmental
matters.
Based on a claim and loss analysis performed in connection with the
Transactions, the Company believes that the insurance acquired at the time of
the Transactions and the existing liquid assets of Lear Siegler, which consist
primarily of cash and $7.6 million of tax refunds expected to be received in
1997 (which amount the former stockholders of Lear Siegler have placed in escrow
and agreed to pay to Lear Siegler if such refund is not paid), will be adequate
to cover the liabilities of Lear Siegler. There can be no assurance, however,
that the existing assets of Lear Siegler and the insurance acquired at the time
of the Transactions will be sufficient to pay all the potential liabilities of
Lear Siegler. In addition, there can be no assurance that the Company's insurers
will not challenge the coverage provided to the Company in their policies. If
such liabilities exceed the assets and insurance coverage of Lear Siegler,
claims may be made against the Company and if successful, the Company could
incur significant liabilities and expenses which could have a material adverse
effect on the financial condition of the Company.
ENVIRONMENTAL REGULATION, POSSIBLE CHANGES AND RELATED MATTERS
The Company's manufacturing operations in Wichita, Kansas and Enfield,
North Carolina involve the handling of materials and the generation of waste
materials that are classified as hazardous. The Company is subject to federal,
state and local laws and regulations concerning the handling and disposal
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<PAGE> 20
of hazardous materials, and therefore in the ordinary course of its business,
the Company in its manufacturing operations incurs compliance costs. The Company
does not anticipate that compliance with federal, state and local provisions
regarding the use and disposal of materials into the environment or otherwise
relating to the protection of the environment will have any material adverse
effect upon the earnings or competitive position of the Company and does not
anticipate any material capital expenditures for environmental control
facilities for the remainder of the Company's current fiscal year or the
succeeding fiscal year. Actions by federal, state and local governments
concerning environmental matters, however, could increase the costs of producing
the products manufactured by the Company. In addition, the future costs of
compliance with environmental laws and regulations and liabilities resulting
from currently unknown circumstances or developments could be substantial or
could have a material adverse effect on the Company. Regulations resulting from
the 1990 amendments to the Clean Air Act (the "1990 Amendments") that will
pertain to the Company's manufacturing operations are currently not expected to
be promulgated until 1997 or later. The Company cannot predict the level of
required capital expenditures resulting from future environmental regulations;
however, the Company does not anticipate that expenditures required by such
regulations, if any, will have a material adverse effect on the Company.
INDUSTRY INVESTIGATION
The Company, along with other domestic companies, has received a subpoena
to produce documents to a grand jury investigating possible violations of
federal antitrust laws in the automobile glass replacement industry. The
investigation is directed towards possible anti-competitive or collusive pricing
practices. Neither the Company nor any director, officer or employee has been
charged in connection with the investigation. The investigation is in its
preliminary stages.
If the investigation were to uncover evidence of anti-competitive or
collusive behavior by the Company or its employees, it could result in the
Company or such employees being subject to monetary fines, penalties and other
sanctions and expenses. A finding of anti-competitive or collusive behavior by
the Company could lead to civil litigation against the Company by persons
claiming to have paid higher prices as a result of the alleged improper
activity. Private plaintiffs in antitrust suits are entitled, if successful, to
recover treble damages, attorneys fees and costs.
Management does not believe that the Company or its employees have engaged
in any anti-competitive or collusive activities and does not believe that this
investigation will result in a material adverse effect on the Company. However,
no assurance can be given that the Company will not be found to have engaged in
anti-competitive or collusive activities or be liable for such fines, penalties,
damages and costs or, that if it were liable, that they will not have a material
adverse effect on the Company.
OTHER LITIGATION
The Company, along with three other industry defendants, has been sued by
nine local auto glass replacement companies in the U.S. District Court for the
Eastern District of Texas. Plaintiffs allege that defendants conspired with
insurance companies to boycott plaintiffs and control the business in Texas of
replacement and repair of auto glass and residential and commercial flat glass
in violation of Sections 1 and 2 of the Sherman Act, and interfered with
contracts. Seven of the nine plaintiffs have claimed damages of approximately
$3.2 million, plus attorneys costs and fees. The other two plaintiffs have not
yet claimed damages. Under the federal antitrust laws any damages proven for
antitrust violations would be trebled. Under Texas law, punitive damages can be
assessed for intentional interference with contract claims. The Company intends
to defend these claims vigorously and does not believe they will have a material
adverse effect on the Company's financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part on the Company's senior
management, including Garen K. Staglin, John F. Barlow and Douglas A. Herron,
and its ability to attract and retain other highly qualified management
personnel. The Company faces competition for such personnel from other
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<PAGE> 21
companies and other organizations. There can be no assurance that the Company
will be successful in hiring or retaining key personnel. The Company entered
into employment agreements with each of Messrs. Staglin, Barlow and Herron in
connection with the Transactions. The Company does not maintain key man life
insurance on any of its executives. See "Management -- Directors and Executive
Officers."
CONCENTRATION OF OWNERSHIP
THL owns approximately 88% of the outstanding voting stock of the Company
and Messrs. DiNovi, Lawry and Sperling, affiliates of Thomas H. Lee Company,
serve on Safelite's Board of Directors. THL owns all of the outstanding
non-voting preferred stock of the Company. As a result of the Stockholders'
Agreement, THL has the right to elect a majority of the members of the Company's
Board of Directors. The Company anticipates that additional independent members
of the Board of Directors may be appointed. Because THL has more than 50% of the
outstanding common stock of the Company and has the right to control the Board
of Directors, THL has the exclusive ability to determine the outcome of
fundamental corporate transactions such as refinancing indebtedness of the
Company or causing a Change of Control Triggering Event to occur. There can be
no assurance that the interests of THL will not conflict with the interests of
the holders of the Notes. See "Security Ownership of Certain Beneficial Owners
and Management."
FRAUDULENT CONVEYANCE
The net proceeds from the sale of the Initial Notes were used to finance a
portion of the cash consideration paid to the prior shareholders of the Company
and Lear Siegler in the Transactions. The obligations of the Company incurred
under the Indenture and the Notes may be subject to review under relevant
federal and state fraudulent conveyance statutes (the "fraudulent conveyance
statutes") in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of the Company. The
requirements for establishing a fraudulent conveyance or revocatory transfer
vary depending on the law of the jurisdiction which is being applied. If under
relevant fraudulent conveyance statutes a court were to find that, at the time
the Initial Notes were issued, (i) the Company issued the Initial Notes with the
intent of hindering, delaying or defrauding current or future creditors of the
Company, or (ii) (a) the Company received less than reasonably equivalent value
or fair consideration for issuing the Initial Notes and (b) the Company (A) was
insolvent or was rendered insolvent by reason of the issuance of the Initial
Notes, (B) was engaged or about to engage in a business or transaction for which
its assets constituted unreasonably small capital, (C) intended to incur, or
believed that it would incur, indebtedness beyond its ability to pay as such
indebtedness matured (as all of the foregoing terms are defined in or
interpreted under the applicable fraudulent conveyance statutes) or (D) was a
defendant in an action for money damages, or had a judgment for money damages
docketed against it (if, in either case, the judgment is unsatisfied after the
final judgment), such court could avoid or subordinate the Notes to presently
existing and future indebtedness of the Company and take other action
detrimental to the holders of the Notes, including, under certain circumstances,
invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or local law that is being applied in any such
proceeding. Generally, however the Company would be considered insolvent if, at
the time it incurs the indebtedness constituting the Initial Notes, either (i)
the fair market value (or fair saleable value) of its assets is less than the
amount required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured or (ii) it is incurring indebtedness beyond its ability to pay as such
indebtedness matures.
The Company believes that at the time of issuance of the Initial Notes it
received reasonably equivalent value or fair consideration for issuing the
Initial Notes and that it (i) will be (a) neither insolvent nor rendered
insolvent thereby for purposes of the foregoing standards, (b) in possession of
sufficient capital to meet its obligations as such obligations mature or become
due and to operate its business effectively and (c) incurring obligations within
its ability to pay such obligations as they mature
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or become due and (ii) will have sufficient assets to satisfy any probable money
judgment against it in any pending action. No assurance can be given, however,
that a court passing on such issues would reach the same conclusions.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange or on any automated dealer quotation system. There is
currently no established market for the Exchange Notes and there can be no
assurance as to the liquidity of markets that may develop for the Exchange
Notes, the ability of the holders of the Exchange Notes to sell their Exchange
Notes or the price at which such holders would be able to sell their Exchange
Notes. If such markets were to exist, the Exchange Notes could trade at prices
that may be lower than the initial market value of the Initial Notes or the
Exchange Notes depending on many factors, including prevailing interest rates
and the markets for similar securities. The Exchange Notes are expected to be
designated for trading in the PORTAL market. The Initial Purchasers have advised
the Company that they currently intend to make a market with respect to the
Notes. However, the Initial Purchasers are not obligated to do so, and any
market making with respect to the Notes, may be discontinued at any time without
notice.
The Exchange Offer will not be conditioned upon any minimum or maximum
aggregate principal amount of Initial Notes being tendered for exchange. No
assurance can be given as to the liquidity of the trading market for the
Exchange Notes, or, in the case of nonexchanging holders of Initial Notes, the
trading market for the Notes following the Exchange Offer.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Company.
RECENT HISTORY OF LOSSES ON A CONSOLIDATED BASIS
The Company incurred losses from operations and net losses during its 1992,
1993 and 1994 fiscal years. Such losses resulted principally from the
discontinued operations of Lear Siegler. Adjusted EBITDA of the Company, which
is defined herein as EBITDA plus the operating expenses of Lear Siegler (which
has been treated as an exited activity) was $16.4 million, $22.0 million and
$29.1 million, respectively, during such years. See "Summary Historical and Pro
Forma Financial Information."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of Initial Notes set forth in the legend thereon as a
consequence of the issuance of the Initial Notes pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act. In general, the Initial Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Initial Notes under the Securities Act.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Initial Notes were originally issued and sold on December 20, 1996.
Such sales were not registered under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act. In connection with the
sale of the Initial Notes, the Issuer agreed to file with the Commission a
registration statement relating to an exchange offer (the "Exchange Offer
Registration Statement") pursuant to which the Exchange Notes would be offered
in exchange for Initial Notes tendered at the option of the holders thereof or,
if applicable interpretations of the staff of the Commission did not permit the
Company to effect such an exchange offer or any holder of Initial Notes is
either not eligible to participate in the exchange offer or does not receive
freely transferrable securities in the exchange offer. The Issuer agreed, at its
cost, to file a shelf registration statement covering resales of the Initial
Notes (the "Resale Registration Statement") and to have such Resale Registration
Statement declared effective and kept effective for a period of three years from
the effective date thereof or such shorter period that will terminate when
either (i) all of the Initial Notes. In the event that (i) the Issuer fails to
file the Exchange Offer Registration Statement, (ii) the Exchange Offer
Registration Statement is not declared effective by the Commission, or (iii) the
Exchange Offer is not consummated or the Resale Registration Statement is not
declared effective by the Commission, in each case within specified time
periods, the interest rate borne by the Notes shall increase, which interest
will accrue and be payable in cash until completion of such filing, declaration
of effectiveness or completion of such exchange. See "Exchange and Registration
Rights Agreement."
The sole purpose of the Exchange Offer is to fulfill obligations of the
Issuer with respect to the foregoing agreement. Following the consummation of
the Exchange Offer, the Issuer does not currently anticipate registering any
untendered Initial Notes under the Securities Act and will not be obligated to
do so.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Initial
Notes that are exchanged. Therefore, no gain or loss will be recorded in the
Company's financial statements as a result of the transaction.
TERMS OF THE EXCHANGE
The Issuer hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Initial Notes. The terms of the Exchange Notes are identical in all respects to
the terms of the Initial Notes, for which they may be exchanged pursuant to this
Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and the holders of the Exchange Notes (as well
as remaining holders of any Initial Notes, other than those who were not
eligible to participate in this Exchange Offer) will not be entitled to
registration rights under the Exchange and Registration Rights Agreement. See
"Exchange and Registration Rights Agreement." The Exchange Notes will evidence
the same debt as the Initial Notes and will be entitled to the benefits of the
Indenture. See "Description of the Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuer believes the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Initial Notes may be
offered for sale, resold or otherwise transferred by any holder of such Exchange
Notes (other than any such holder which is an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Security Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
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<PAGE> 24
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Initial Notes, where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Interest on the Exchange Notes shall accrue from December 20, 1996 or from
the last Interest Payment Date on which interest was paid on the Initial Notes
so surrendered.
Tendering holders of the Initial Notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Initial Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term
"Expiration Date" means 5:00 p.m. New York City time, on , 1997,
unless the Issuer, in its sole discretion, extends the period during which the
Exchange Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date on which the Exchange Offer, as so extended by the Company,
shall expire. The Company reserves the right to extend the Exchange Offer at any
time and from time to time by giving oral or written notice to Fleet National
Bank (the "Exchange Agent") and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service. During any extension of the Exchange Offer, all
Initial Notes previously tendered pursuant to the Exchange Offer will remain
subject to the Exchange Offer.
The Exchange Date will be the first business day following the Expiration
Date. The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Initial Notes if either of the events set
forth below under "Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is advantageous
to the holders of the Initial Notes, whether before or after any tender of the
Initial Notes. If any such termination or amendment occurs, the Company will
notify the Exchange Agent and will either issue a press release or give oral or
written notice to the holders of the Initial Notes as promptly as practicable.
Unless the Company terminates the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date, the Company will exchange the Exchange Notes
for the Initial Notes on the Exchange Date.
HOW TO TENDER
The tender to the Company of Initial Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
A holder of an Initial Note may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all reference in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Initial Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth on the back
cover of this Prospectus on or prior to the Expiration Date, (ii) complying with
the procedure for book entry transfer described below or (iii) complying with
the guaranteed delivery procedures described below.
If tendered Initial Notes are registered in the name of the signer of the
Letter or Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Initial Notes are to be reissued) in the
name of the registered holder (which term, for the purposes described herein,
shall
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include any participant in The Depository Trust Company ("DTC") (also referred
to as a book-entry transfer facility) whose name appears on a security listing
as the owner of Initial Notes), the signature of such signer need not be
guaranteed. In any other case, the tendered Initial Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuer and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a commercial bank or
trust company located or having an office or correspondent in the United States,
or by a member firm of a national securities exchange or of the National
Association of Securities Dealers, Inc. (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the Exchange Notes and/or Initial
Notes not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Initial Notes, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
The method of delivery of Initial Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper insurance obtained,
and the mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent on or before the Expiration Date.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system (a "Participant") may utilize DTC's
Automated Tender Offer Program ("ATOP") to tender Initial Notes.
The Exchange Agent will request that DTC establish an account with respect
to the Initial Notes for purposes of the Exchange Offer within two business days
after the date of this Prospectus. Any Participant may make book-entry delivery
of Initial Notes by causing DTC to transfer such Initial Notes into the Exchange
Agent's account in accordance with DTC's ATOP procedures for transfer. However,
the exchange for the Initial Notes so tendered will only be made after timely
confirmation (a "Book-Entry Confirmation") of such book-entry transfer of
Initial Notes into the Exchange Agent's account, and timely receipt by the
Exchange Agent of an Agent's Message (as such term is defined in the next
sentence) and any other documents required by the Letter of Transmittal. The
term "Agent's Message" means a message, transmitted by DTC and received by the
Exchange Agent and forming part of a Book-Entry Confirmation, which states that
DTC has received an express acknowledgment from a Participant tendering Initial
Notes which are the subject of such Book-Entry Confirmation that such
Participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that the Issuer may enforce such agreement against such
Participant.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Initial Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the
Initial Notes are registered and, if possible, the certificate numbers of the
Initial Notes to be tendered, and stating that the tender is being made thereby
and guaranteeing that within five New York Stock Exchange trading days after the
date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, the Initial Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Initial Notes into the Exchange
Agent's account at the book-entry transfer facility), will be delivered by such
Eligible Institution together with a properly completed and duly executed Letter
of Transmittal (and any other required documents). Unless Initial Notes being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Initial Notes is received by
24
<PAGE> 26
the Exchange Agent, (ii) a confirmation of book-entry transfer of such Initial
Notes into the Exchange Agent's account at the book-entry transfer facility is
received by the Exchange Agent, or (iii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
for an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Initial Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Initial Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Initial Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of the counsel
of the Company, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Initial Notes. None of the Company, the Exchange Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Initial Notes for exchange (the "Transferor")
exchanges, assigns and transfer the Initial Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Initial Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Initial Notes and to
acquire Exchange Notes issuable upon the exchange of such tendered Initial
Notes, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Initial Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Initial Notes or transfer ownership of such Initial Notes on the
account books maintained by a book-entry transfer facility. The Transferor
further agrees that acceptance of any tendered Initial Notes by the Issuer and
the issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Issuer of its obligations under the Exchange and Registration
Rights Agreement and that the Company shall have no further obligations or
liabilities thereunder. All authority conferred by the Transferor will survive
the death or incapacity of the Transferor and every obligation of the Transferor
shall be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of such Transferor.
By tendering Initial Notes, the Transferor certifies that it is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act and that it is acquiring the Exchange Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no arrangement
with any person to participate in the distribution of such Exchange Notes.
WITHDRAWAL RIGHTS
Initial Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the back cover of this Prospectus.
Any such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Initial Notes to be withdrawn, the certificate
numbers of Initial Notes to be withdrawn, the principal amount of Initial Notes
to be withdrawn, a statement that such holder is
25
<PAGE> 27
withdrawing his election to have such Initial Notes exchanged, and the name of
the registered holder of such Initial Notes, and must be signed by the holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the issuer that the person withdrawing the tender has succeeded
to the beneficial ownership of the Initial Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Initial Notes promptly following
receipt of notice of withdrawal. If Initial Notes have been tendered pursuant to
the procedures for book-entry transfer,any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Initial Notes or otherwise comply with book-entry
transfer facility procedure. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Issuer, and
such determination will be final and binding on all parties.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance of Initial Notes validly tendered and not withdrawn and issuance of
the Exchange Notes will be made on the Exchange Date. For the purpose of the
Exchange Offer, the Company shall be deemed to have accepted for exchange
validly tendered Initial Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Initial
Notes for the purpose of receiving Exchange Notes from the Company and causing
the Initial Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Initial Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Initial Notes. Initial Notes not
accepted for exchange by the Company will be returned without expense to the
tendering holders promptly following the Expiration Date or, if the Company
terminates the Exchange Offer prior to the Expiration Date, promptly after the
Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Initial Notes not previously accepted and
may terminate the Exchange Offer (by oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service) or, at its option, modify or otherwise amend the Exchange Offer, if
there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any court
or governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
or assessing or seeking any damages as a result thereof, or (ii) resulting in a
material delay in the ability of the Issuer to accept for exchange or exchange
some or all of the Initial Notes pursuant to the Exchange Offer, or any statute,
rule, regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the reasonable judgment of the Company,
might directly or indirectly result in any of the consequences referred to in
clauses (i) or (ii) above or, in the reasonable judgment of the Company, might
result in the holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than those described
in the interpretations of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the Exchange
Offer.
In addition, the Company will not accept for exchange any Initial Notes
tendered and no Exchange Notes will be issued in exchange for any such Initial
Notes, if at such time any stop order shall be
26
<PAGE> 28
threatened or in effect with respect to the Registration Statement of which this
Prospectus constitutes a part or qualification of Indenture under the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Initial Notes upon the occurrence of either of
the foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Initial Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
either of the conditions set forth above occur. Moreover, regardless of whether
either of such conditions has occurred, the Company may amend the Exchange Offer
in any manner which, in its good faith judgment, is advantageous to holders of
the Initial Notes.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole part, if, in its reasonable judgment, such
waiver is not disadvantageous to holders of the Initial Notes. Any determination
made by the Company concerning an event, development or circumstance described
or referred to above will be final and binding on all parties.
EXCHANGE AGENT
Fleet National Bank has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
at its address set forth on the back cover of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of the Initial Notes and in handling or forwarding
tenders for their customers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Issuer. Neither the delivery
of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Initial Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Initial
Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Issuer by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Initial Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the
27
<PAGE> 29
terms of the Exchange and Registration Rights Agreement. Eligible holders of the
Initial Notes who do not tender their certificates in the Exchange Offer will
continue to hold such certificates and their rights under such Initial Notes
will not be altered, except for any such rights under the Exchange and
Registration Rights Agreement, which by their terms terminate or cease to have
further effect as a result of the making of this Exchange Offer. See
"Description of the Initial Notes." All untendered Initial Notes will continue
to be subject to the restrictions on transfer set forth in the Indenture. To the
extent that Initial Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered Initial Notes could be adversely affected.
The Company may in the future seek to acquire untendered Initial Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuer has no present plan to acquire any Initial Notes
which are not tendered in the Exchange Offer or to file a registration statement
to permit resales of any Initial Notes which are not tendered pursuant to the
Exchange Offer.
28
<PAGE> 30
THE TRANSACTIONS
In order to effect the Transactions described below, Lite Acquisition Corp.
was formed and was capitalized by THL, which made a $117 million equity
investment in Safelite. Pursuant to the Recapitalization Agreement, Lite
Acquisition Corp. was merged with and into Safelite, with Safelite surviving the
Merger.
Upon completion of the Merger, THL owned approximately 88% of the voting
stock of Safelite and certain existing stockholders of the Company, including
management, retained approximately 12% of Safelite's voting stock. The aggregate
cash consideration received by the previous owners of Safelite, including LSNWY,
was approximately $300 million. Immediately following the Merger, Safelite
acquired substantially all of the outstanding capital stock of Lear Siegler
(including LSNWY) from its current owners for a promissory note equal to the
cash Merger consideration for Safelite received by LSNWY (the "Seller Note").
Lear Siegler was then merged with and into L.S. Acquisition Corp., a
wholly-owned subsidiary of the Company, with L.S. Acquisition Corp. surviving
the merger and changing its name to Lear Siegler Holdings Corp. As a result,
Lear Siegler became a wholly-owned subsidiary of the Company upon completion of
the Transactions. LSNWY distributed the Merger consideration to a subsidiary of
Safelite which repaid the Seller Note.
As part of the Transactions, the proceeds of the THL Equity Investment,
together with approximately $250 million of aggregate proceeds from the debt
financings described below, were used to (i) repay approximately $42 million of
existing indebtedness, (ii) pay approximately $300 million of stock purchase
price and Merger consideration, (iii) pay an estimated $17 million of
transaction fees and expenses and (iv) pay transaction bonuses aggregating
approximately $7 million to certain members of Safelite management. After the
Closing, the Company had $30 million of availability under the Revolving Credit
Facility (less approximately $4.9 million of outstanding letters of credit).
A summary schematic diagram of the structure of Safelite before the
Transactions and the corporate structure of Safelite following the Transactions
is set forth below.
[Pre-Transactions Structure Art] [Post-Transactions Structure Art]
29
<PAGE> 31
Prior to the Transactions, the capital stock of Safelite consisted of a
class of Preferential Common Stock, as well as Class A and Class B Common Stock.
The Preferential Common Stock was owned by LSNWY Corp., an indirect subsidiary
of Lear Siegler. The Class A Common Stock was owned by LSNWY and certain other
stockholders, including management of Safelite. The Class B Common Stock was
owned by LSNWY and certain other stockholders.
The Transactions occurred in three steps, each described below.
In the first step of the Transactions, THL acquired 169,000 shares of
Safelite Class A Common Stock for $13.40 per share from certain selling
stockholders for aggregate consideration of approximately $2.3 million. Except
for such shares and approximately 627,000 shares of Safelite Class A Common
Stock and 18,000 shares of Class B Common Stock owned by other existing
stockholders, primarily management of Safelite, all remaining shares of Safelite
were then owned by LSNWY.
In the second step of the Transactions, THL capitalized Lite Acquisition
Corp. with $56.4 million of common equity and $58.2 million of preferred equity
(which, together with the $2.3 million paid for Safelite Class A Common Stock in
the first step of the Transactions, comprise the $116.9 million THL Equity
Investment). Lite Acquisition Corp. then merged with and into Safelite, with
Safelite surviving the Merger. Immediately following the Merger, the Company
borrowed $150.0 million pursuant to the Bank Credit Agreement and consummated
the Offering of the Initial Notes, from which it received approximately $97.0
million. Upon effectiveness of the Merger:
(i) each share of Safelite Class A Common Stock outstanding prior to the
Merger (A) was converted into the right to receive cash in the amount
of $13.40 or (B) at the election of any holder thereof, remained
outstanding and unaffected by the Merger (LSNWY agreed that it would
not elect to retain any of the 310,000 shares of Safelite Class A
Common Stock owned by it and therefore received approximately $4.2
million for such shares in the Merger and other stockholders and
optionholders received approximately $0.6 million for their Class A
Common Stock and options);
(ii) each share of Safelite Class B Common Stock outstanding prior to the
Merger was converted into the right to receive cash equal to $.01;
(iii) each share of Safelite Preferential Common Stock outstanding prior to
the Merger was converted into the right to receive cash (in the
aggregate amount of approximately $293.1 million);
(iv) each share of Lite Acquisition Corp.'s common stock outstanding prior
to the Merger was converted into one share of Safelite Class A Common
Stock; and
(v) each share of Lite Acquisition Corp.'s preferred stock outstanding
prior to the Merger was converted into one share of Safelite 8%
Preferred Stock.
Safelite is now owned approximately 88% by THL, and certain existing
stockholders of the Company, including management, retained approximately 12% of
Safelite's voting stock.
In the final step of the Transactions, Safelite, through a new wholly-owned
subsidiary, L.S. Acquisition Corp., acquired in excess of 96% of the outstanding
capital stock of Lear Siegler (including all shares of Lear Siegler preference
stock) for a demand promissory note with a principal amount equal to the
consideration received by LSNWY in the Merger, which amount was approximately
$297.3 million. Lear Siegler was merged with and into L.S. Acquisition Corp.
with L.S. Acquisition Corp. surviving the merger and changing its name to Lear
Siegler Holdings Corp., making Lear Siegler a wholly-owned subsidiary of the
Company. On the closing date of the Transactions, all of the consideration
received by LSNWY in the Merger was distributed to L.S. Acquisition Corp. which
was used to repay the note delivered in connection with the purchase of Lear
Siegler's capital stock.
As a result of this three-step transaction, THL holds a direct equity
investment in Safelite and other stockholders of Safelite, primarily management,
retained their existing interest in Safelite. The Company
30
<PAGE> 32
believes that this resulting structure also more accurately reflects the
Company's operations, which consist entirely of the operations of Safelite, as
opposed to the prior Lear Siegler structure which was put in place at a time
when Safelite was only one of several operating subsidiaries owned within the
Lear Siegler consolidated group. See "Risk Factors -- Potential Liabilities of
Non-Operating Subsidiaries" for a description of certain potential liabilities
associated with Lear Siegler and its current and former subsidiaries.
The sources and uses of funds for the Transactions were as follows:
SOURCES AND USES
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Term Loan Facility(1)................................................ $150.0
Senior Subordinated Notes............................................ 100.0
THL Equity Investment(2)............................................. 116.9
Management Retained Equity(3)........................................ 7.9
------
$374.8
======
USES:
Working Capital...................................................... $ 0.9
Merger Consideration(4).............................................. 300.1
Repayment of Existing Debt........................................... 41.9
Management Transaction Bonuses(5).................................... 6.9
Management Retained Equity(3)........................................ 7.9
Fees and Expenses.................................................... 17.1
------
$374.8
======
</TABLE>
- ---------------
(1) After the Closing, the Company had $30 million of availability under the
Revolving Credit Facility (less approximately $4.9 million in outstanding
letters of credit) and, excluding Lear Siegler and the uses described above,
approximately $5 million of cash on the balance sheet.
(2) Comprised of $58.7 million of common equity and $58.2 million of preferred
equity.
(3) Represents value of Safelite Class A Common Stock retained by management.
(4) Includes $2.3 million paid directly by THL to certain current stockholders
of Safelite for Safelite common stock.
(5) These bonuses were accrued in fiscal 1996 and paid in January 1997.
31
<PAGE> 33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated income statement (the
"Unaudited Pro Forma Consolidated Income Statement") of the Company is based on
the audited financial statements of Safelite which are included elsewhere in
this Prospectus, as adjusted to illustrate the estimated effects of the
Transactions. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Unaudited Pro Forma Consolidated Statement of Operations and accompanying
notes should be read in conjunction with the historical financial statements of
Safelite and other financial information pertaining to the Company included
elsewhere in this Prospectus including "The Transactions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Unaudited Pro Forma Consolidated Income Statement has been prepared to
give effect to the Transactions as though such Transactions had occurred as of
December 31, 1995. The Transactions have been accounted for as a
recapitalization of Safelite and in accordance with the provisions of FASB
Technical Bulletin 85-5. See "The Transactions."
The Unaudited Pro Forma Consolidated Income Statement does not purport to
be indicative of what the Company's results of operation would actually have
been had the Transactions been completed at the beginning of the period
indicated or to project the Company's results of operations for any future date.
32
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL TRANSACTIONS PRO FORMA
SAFELITE ADJUSTMENTS SAFELITE
-------- ----------- ---------
<S> <C> <C> <C>
Sales:
Installation and related services.................... $380,142 $ 380,142
Wholesale............................................ 58,183 58,183
-------- --------
Total sales.................................. 438,325 438,325
Cost of sales.......................................... 299,623 (870)(1) 298,753
-------- --------
Gross profit........................................... 138,702 139,572
Selling, general and administrative.................... 107,350 500(2) 107,660
(190)(1)
Other expense.......................................... 7,558 (7,558)(3) --
-------- --------
Operating income....................................... 23,794 31,912
Interest expense....................................... (6,726) (17,770)(4) (24,496)
Interest income........................................ 2,094 2,094
-------- --------
Income from continuing operations before income tax
benefit and minority interest........................ 19,162 9,510
Income tax benefit(5).................................. 17,605 17,605
Minority Interest...................................... (10,199) 10,199(6) --
-------- ------ --------
Income from continuing operations...................... $ 26,568 $ 27,115
======== ========
Other data:
EBITDA(7).............................................. $ 38,883
Adjusted EBITDA(8)..................................... 43,412
Adjusted EBITDA to cash interest expense(3)............ 1.9x
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Income Statement
33
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
(DOLLARS IN THOUSANDS)
1. Reflects the reduction in depreciation of property, plant and equipment and
amortization of intangible assets associated with the adjustment of the
Safelite minority interest carrying value at the date of the Transactions to
the fair value of the minority shares acquired. Property, plant and equipment
amounts are being amortized over lives ranging from three to twenty years.
Intangible asset amounts are being amortized over twenty-five years. In
connection with the fair value adjustments described above, inventory was
written up by $1.6 million. It is anticipated that this fair value increase
to inventory will be charged to cost of sales within a twelve month period
following the Transactions. As this cost is non-recurring, it has been
excluded from the Unaudited Pro Forma Consolidated Income Statement.
2. Represents the annual management consulting fee of $500 to be paid to Thomas
H. Lee Company.
3. Reflects the transaction bonus paid to management of $6,858 and $700 of costs
(primarily severance) related to exiting the activities of Lear Siegler.
4. Reflects interest expense and amortization of deferred financing fees as a
result of the Financings.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 28, 1996
-----------------
<S> <C>
Term Loan Facility at estimated interest rates:
Tranche A at 8.25%(a)................................. $ 6,188
Tranche B at 8.75%(a)................................. 6,562
The Notes at 9.875%..................................... 9,875
Revolving credit borrowings at historical levels and
interest rates........................................ 640
-------
Cash interest expense................................. 23,265
Amortization of deferred financing fees................. 1,231
-------
Pro forma interest expense.............................. 24,496
Less: Historical interest expense..................... (6,726)
-------
Pro forma adjustments................................... $17,770
=======
</TABLE>
(a) A 0.125 percent change in interest rates would change annual pro forma
interest expense by $188.
5. The 1996 historical income tax benefit recorded by the Company resulted
primarily from a reduction in the valuation allowance relating to net
operating loss carryforwards. The reduction in the valuation allowance in
1996 gave effect to the adjustments and limitations resulting from the
Transactions. Accordingly, no pro forma adjustment to the 1996 historical
income tax benefit has been reflected. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Effective Income
Tax Rate."
6. Reflects the elimination of the deduction for minority interest earnings as a
result of the Transactions.
7. "Pro forma EBITDA" is defined herein as pro forma operating income plus the
sum of depreciation, amortization and restructuring expenses. EBITDA is
presented in this Prospectus as it is a basis upon which the Company assesses
its financial performance and because certain covenants in the Company's
borrowing arrangements are tied to similar measures. EBITDA as determined by
the Company may not be comparable to EBITDA as reported by other companies.
EBITDA does not represent funds available for discretionary uses and should
not be considered as an alternative to net income as a measure of operating
results or to cash flows as a measure of liquidity (each as determined in
accordance with generally accepted accounting principles).
34
<PAGE> 36
8. "Pro forma adjusted EBITDA" is defined herein as pro forma EBITDA plus the
sum of (i) operating expenses of Lear Siegler (which has been treated as an
exited activity, see Note 2 to the Company's Consolidated Financial
Statements) and (ii) annual insurance cost reductions of approximately $2.0
million for Safelite, which are based on a program put in place effective
upon completion of the Transactions versus Safelite's historical coverage.
The table below summarizes the adjustments. Pro Forma adjusted EBITDA does
not represent funds available for discretionary uses and should not be
considered as an alternative to operating income or net income as a measure
of operating results or to cash flows as a measure of liquidity (each as
determined in accordance with generally accepted accounting principles).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 28, 1996
-----------------
<S> <C>
EBITDA.................................................. $38,883
Lear Siegler operating expenses....................... 2,529
Insurance cost savings................................ 2,000
-------
Adjusted EBITDA......................................... $43,412
=======
</TABLE>
35
<PAGE> 37
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of Safelite was prepared giving
retroactive effect to the Transactions on December 20, 1996, which were
accounted for as a recapitalization of Safelite and in accordance with the
provisions of FASB Technical Bulletin No. 85-5. See the "Transactions." The
statement of operations data set forth below with respect to fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996 and the balance sheet
data at December 30, 1995 and December 28, 1996 are derived from the financial
statements included elsewhere in this Prospectus which have been audited by
Deloitte & Touche LLP, independent public accountants. The selected financial
data below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Income Statement" and the financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ $314.4 $328.3 $357.4 $372.1 $438.3
Cost of sales................................ 236.9 229.7 246.1 261.7 299.6
------ ------ ------ ------ ------
Gross profit................................. 77.5 98.6 111.3 110.4 138.7
Selling, general & administrative expenses... 91.2 100.4 90.8 93.5 107.3
Other operating expenses (2)................. -- -- 21.1 -- 7.6
Restructuring expense (3).................... 10.0 4.6 -- 6.3 --
------ ------ ------ ------ ------
Income (loss) from operations................ (23.7) (6.4) (0.6) 10.6 23.8
Interest expense............................. (41.4) (15.5) (4.5) (6.0) (6.7)
Interest income.............................. 1.9 0.3 2.2 2.9 2.1
------ ------ ------ ------ ------
Income (loss) from continuing operations
before income taxes, minority interest and
extraordinary items........................ (63.2) (21.6) (2.9) 7.5 19.2
Income tax benefit (provision)(4)............ 0.1 0.3 (0.2) (0.1) 17.6
Minority interest (5)........................ -- 0.1 (2.7) (1.1) (10.2)
------ ------ ------ ------ ------
Income (loss) from continuing operations
before extraordinary items................. (63.1) (21.2) (5.8) 6.3 26.6
Discontinued operations (6).................. (24.0) (43.2) -- -- 1.7
Extraordinary loss (7)....................... -- -- (1.5) -- (0.5)
------ ------ ------ ------ ------
Net Income (loss)............................ $(87.1) $(64.4) $ (7.3) $ 6.3 $ 27.8
====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
Depreciation and amortization................ $ 17.2 $ 12.0 $ 7.2 $ 7.6 $ 8.0
Capital expenditures......................... 5.7 7.7 14.2 12.0 12.8
Ratio of earnings to fixed charges (8)....... -- -- -- 1.4x 2.0x
BALANCE SHEET DATA:
Working capital.............................. $ 6.1 $ 41.0 $ 41.9 $ 58.1 $ 50.7
Total assets (9)............................. 360.2 169.8 193.7 188.3 216.2
Total indebtedness (9)....................... 446.8 35.0 63.8 69.0 263.7
Stockholders' equity (deficit)............... (245.2) 7.7 0.2 (0.6) (128.5)
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the Saturday closest to December 31 of
each year.
(2) Other operating expenses in 1994 is comprised of a $2.5 million one-time
charge recorded by the Company to conform its method of accounting to SOP
No. 93-7 "Reporting on Advertising Costs" and $18.6 million primarily
related to curtailment and settlement losses for pension plans of previously
disposed of Lear Siegler subsidiaries. Other operating expenses in 1996 is
comprised of management Transaction bonuses of $6.9 million and estimated
costs (primarily severance) of $0.7 million to exit the activities of Lear
Siegler. See Notes 1 and 2 to the Company's Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(3) In 1992, restructuring charges totaling approximately $10.0 million were
recorded, consisting of (i) $4.9 million for severance costs, facility
relocations and consolidation of the Company's sales and administrative
functions; (ii) $2.7 million in connection with the planned closing of 72
service center locations; and (iii) $2.4 million to cover the cost of
closing one manufacturing plant, disposition of the Company's architectural
flat glass product line and related facilities, and discontinuance of the
Company's long-haul trucking function. In 1993, the Company recorded $4.6
million in restructuring charges related to the planned closing of
approximately 70
36
<PAGE> 38
service center locations. In 1995, the Company recorded $6.3 million in
restructuring charges. Of this amount, $5.6 million related to the planned
closing of 100 service center locations and $0.7 million related to field
management reorganization. See Note 3 to the Company's Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) The adoption of SFAS No. 109, "Accounting for Income Taxes" in 1993 was not
material to the Company's consolidated results of operations or its
financial condition. During 1996, the valuation allowance provided against
the Company's deferred tax assets was reduced by $25.9 million. See Note 12
to the Company's Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) The summary historical and pro forma financial information of Safelite was
prepared giving retroactive effect to the Transactions on December 20, 1996
and accounted for as a recapitalization of Safelite and in accordance with
the provisions of FASB Technical Bulletin No. 85-5. Accordingly, the common
stock ownership of Safelite held other than by Lear Siegler (primarily
management of Safelite) has been accounted for prior to the Transactions as
a minority interest.
(6) In 1992, one operating business of Lear Siegler was sold and a resulting
loss on sale of discontinued operations of $34.9 million was recognized.
1992 income from operations of this business as well as five operating
businesses sold in 1993 was $10.9 million. In 1993, five operating business
of Lear Siegler were sold and a resulting loss on sale of discontinued
operations of $45.2 million was recognized. 1993 income from operations on
such businesses was $2.0 million. In 1996, a gain from discontinued
operations totalling approximately $1.7 million was recorded, consisting of
$27.2 million in favorable resolution of various tax contingencies of
previously discontinued Lear Siegler operations offset by $25.5 million of
settlement costs for various liability issues related to previously disposed
of Lear Siegler subsidiaries.
(7) In 1994 and 1996, extraordinary losses of $1.5 million and $0.5 million,
respectively, were recorded, net of minority interest and income tax of $0.3
million and $0.3 million, respectively, as a result of expensing unamortized
loan origination fees related to the early retirement of the associated
debt.
(8) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and cumulative effect of
accounting changes, plus fixed charges. Fixed charges consist of interest
expense on all indebtedness and capitalized interest, amortization of
deferred financing costs and one-half of rental expense on operating leases,
representing that portion of rental expense deemed by the Company to be
attributable to interest. For fiscal 1992, 1993 and 1994 the deficiency of
earnings to fixed charges was $63.2 million, $21.6 million and $2.9 million,
respectively.
(9) Reflects the purchase of approximately $12.0 million in prepaid insurance
and the buyout of approximately $4.4 million in Safelite self-insured
liabilities which were partially financed by $13.7 million in premium
financing indebtedness. The purchase and buyout were made on December 20,
1996 in connection with an insurance program put in place effective upon
completion of the Transactions. See Note 10 to the Company's Consolidated
Financial Statements.
37
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis has been prepared giving retroactive
effect to the Transactions which were completed on December 20, 1996. The
Transactions were accounted for as a recapitalization of Safelite and in
accordance with the provisions of FASB Technical Bulletin No. 85-5 (see Note 2
to the Company's Consolidated Financial Statements). The discussion and analysis
presented below should be read in conjunction with the Consolidated Financial
Statements and related notes thereto included elsewhere in this Prospectus.
OVERVIEW
Safelite is the largest provider of auto glass replacement and repair
services in the United States. The Company's installation and related services
customers include insurance companies, commercial fleet leasing and rental car
companies, car dealerships and body shops, government agencies and individual
consumers. In addition, Safelite also acts as a subcontractor for other auto
glass replacement and repair providers. Approximately 87%, or $380.1 million, of
the Company's sales for the year ended December 28, 1996 were derived from
installation and related services sales. Of these sales, approximately 88% were
generated through the Company's own service centers, mobile vans, centralized
telephone/dispatch centers and warehouses ("service center sales"). The
remainder of installation and related services sales, or $47.5 million, for the
year ended December 28, 1996 were derived from the Company's network of
independent auto glass installation providers which install glass for Safelite
under subcontracting arrangements ("network sales").
Insurance companies represent the largest installation and related services
customer segment comprising approximately 48% and 56% of installation and
related services sales in fiscal 1995 and 1996, respectively. The implementation
of Master Provider programs in the second half of 1995 and 1996 generated a
significant increase in the Company's sales to insurance companies, with a
related increase in lower margin network sales.
The Company manufactures approximately 75% of the windshields it installs
and utilizes its excess manufacturing capacity to produce windshields for sale
into the wholesale market. Wholesale customers are primarily regional and local
auto glass replacement and repair companies. Approximately 15% and 13% of
Safelite's sales for fiscal 1995 and 1996, respectively, were derived from
wholesale sales. Safelite's strategic focus for its wholesale operations is to
maintain sales and increase overall gross margins.
The Company's costs and expenses include cost of sales and selling, general
and administrative expenses. Cost of sales includes product and distribution
costs, installation labor, service center occupancy and vehicle expenses.
Selling, general and administrative expenses include costs of the Company's
national phone centers, sales force and other general and administrative
functions.
From 1992 to 1996, the Company's sales have increased from $314.4 million
to $438.3 million, and operating income has improved from a loss of $23.7
million to operating income of $23.8 million. During the same period, adjusted
EBITDA (as defined) grew from $16.4 million to $35.0 million. Pro forma adjusted
EBITDA was $43.4 million in 1996. See "Summary Historical and Pro Forma
Financial Information."
38
<PAGE> 40
RESULTS OF OPERATIONS
The following table reflects the Company's sales, related expenses and
earnings expressed as a percentage of sales for the periods set forth below.
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
SALES:
Installation and related services:
Service center................................ 82.0% 80.7% 75.9%
Network....................................... 1.5 4.1 10.8
Wholesale........................................ 16.5 15.2 13.3
----- ----- -----
Total sales........................................ 100.0% 100.0% 100.0%
Cost of sales...................................... 68.9 70.3 68.4
----- ----- -----
Gross profit....................................... 31.1 29.7 31.6
Selling, general and administrative
expenses......................................... 25.4 25.1 24.5
Other operating expenses........................... 5.9 -- 1.7
Restructuring expense.............................. -- 1.7 --
Interest expense................................... (1.2) (1.6) (1.5)
Interest income.................................... 0.6 0.7 0.5
----- ----- -----
Income (loss) before income taxes.................. (0.8) 2.0 4.4
Income tax benefit (provision)..................... (0.1) -- 4.0
Minority interest.................................. (0.7) (0.3) (2.4)
Discontinued operations............................ -- -- 0.3
Extraordinary loss................................. (0.4) -- --
----- ----- -----
Net income (loss).................................. (2.0)% 1.7% 6.3%
===== ===== =====
</TABLE>
1996 Compared with 1995
Sales. Sales in 1996 increased $66.2 million, or 17.8%, to $438.3 million,
from $372.1 million in 1995. Installation and related services sales grew $64.5
million, or 20.4% to $380.1 million. Approximately half of this growth was
attributable to increased service center sales while the remaining half was
provided by increased network sales. Service center sales increases were the
result of volume improvements associated with the continued implementation of
Master Provider programs and favorable pricing achieved through improved
customer mix. The $32.3 million increase in network sales to $47.5 million was a
direct result of the growth in the Company's Master Provider programs. Under a
Master Provider program, the Company administers 100% of an insurance company's
auto glass claims and, as a result, receives more referrals and is more likely
to use its network of independent auto glass installation providers to perform
subcontract work.
Wholesale sales rose 3.0% to $58.2 million as a result of price increases
which were partially offset by a decline in unit sales of 4.4%. These results
reflect the Company's strategic shift of wholesale sales efforts towards higher
margin local auto glass accounts and away from larger, more price-sensitive
regional customers.
Gross Profit. Gross profit in 1996 increased 25.6% to $138.7 million, from
$110.4 million in 1995. Gross profit margin increased to 31.6% in 1996, from
29.7% in 1995. This improvement in gross profit margin was primarily the result
of increased service center sales volume, higher prices, and reductions in the
Company's fixed cost structure as a result of the 1995 restructuring activities.
These improvements in gross profit margin were partially offset by increases in
the lower-margin network sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses rose 14.8% in 1996 to $107.3 million. As a percentage of
net sales, selling, general and administrative expenses declined to 24.5% from
25.1%. The overall increase in selling, general and administrative
39
<PAGE> 41
expenses was related to the opening of the Company's third national phone
center, increased staffing to support the rapid growth in network sales and
higher incentive compensation. The decline in selling, general and
administrative expenses as a percentage of sales is a result of increased total
sales and the benefits of the Company's improved operating leverage.
Income Before Income Taxes. Income before income taxes increased 156.0% to
$19.2 million in 1996, from $7.5 million in 1995. Income before income taxes
increased from 2.0% of total sales to 4.4% of total sales as a result of the
improved gross profit margins and a decline in selling, general and
administrative expenses as a percentage of total sales described above,
partially offset by one-time charges for management transaction bonuses of $6.9
million and estimated costs (primarily severance) of $0.7 million to exit the
activities of Lear Siegler.
Income Taxes. In 1996, the Company recorded an income tax benefit of $17.6
million primarily as a result of reversing a valuation allowance for certain
deferred tax assets in accordance with the provisions of SFAS No. 109 and in
recognition of the Company's improved profitability. See also "Effective Income
Tax Rate."
Net Income. The increase in net income to $27.8 million from $6.3 million
in 1995 was due primarily to the changes in income before taxes and the reversal
of the deferred tax valuation allowance described above, offset by an increase
in 1996 in the deduction for minority interest earnings of $9.1 million. The
minority interest earnings arose during the period prior to December 20, 1996,
when Safelite was an approximately 82% owned subsidiary of Lear Siegler. See
"The Transactions." Also affecting net income in 1996 was a $1.7 million gain,
related to Lear Siegler discontinued operations. See Note 14 to the Company's
consolidated financial statements.
1995 Compared with 1994
Sales. Sales in 1995 increased 4.1% to $372.1 million from $357.4 million
in 1994. Installation and related services sales grew $17.1 million, or 5.7%.
Approximately half of this growth was from increased service center sales and
half was from increased network sales. Sales increases were primarily driven by
volume improvements associated with the initiation of Master Provider programs
in 1995. Industry unit volumes in 1995 were lower compared to the high unit
volumes in 1994 attributable to the harsh winter that year. Despite the more
moderate winter in 1995, the Company experienced year-over-year sales and unit
increases.
Wholesale sales declined 3.9% to $56.5 million reflecting the market
conditions discussed above.
Gross Profit. Gross profit in 1995 declined 0.8% to $110.4 million from
$111.3 million in 1994. Gross profit margin decreased as a percentage of sales
to 29.7% from 31.1% in 1994. The decline in gross profit as a percentage of
sales was caused by a higher mix of lower margin network sales and expenditures
made by the Company in anticipation of the Master Provider program
implementations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.0% in 1995 to $93.5 million. As a percentage
of sales, selling, general and administrative expenses decreased from 25.4% to
25.1% due to increased total sales and a decline in administrative costs
associated with Lear Siegler. The decline in Lear Siegler administration costs
was partially offset by higher telecommunications costs and the establishment of
a second national phone center related to the commencement of the MP program.
Income Before Income Taxes. Income before income taxes increased to $7.5
million in 1995 from a loss of $2.9 million in 1994. This increase was due
primarily to a reduction in other operating expenses from 1994 offset by (i) the
decrease in gross profit margin and increase in selling, general and
administrative expenses described above, and (ii) the recording of $5.6 million
in restructuring charges associated with the planned closing of 100 service
center locations and $0.7 million in related field reorganization expenses. See
"-- Restructuring Charges." Other operating expenses in 1994 consisted of a $2.5
million one-time charge recorded by the Company to conform its method of
accounting to SOP Number 93-7, "Reporting on Advertising Costs," and a charge of
$18.6 million primarily related to curtailment and settlement losses for pension
plans of previously disposed of Lear Siegler subsidiaries.
40
<PAGE> 42
Net Income. The increase in net income to $6.3 million in 1995 from a $7.3
million loss in 1994 was due to the changes in income before income taxes
discussed above and a decrease in the 1995 deduction for minority interest
earnings of $1.6 million, partially offset by an extraordinary loss of $1.5
million recorded in 1994 to expense unamortized loan origination fees related to
the early retirement of debt.
RESTRUCTURING CHARGES
During the period 1987 through 1990, the Company grew through acquisitions
and service center openings. In late 1991, the new management team undertook a
comprehensive review of the Company's operations. The new management team
recognized that insurance companies and large fleet owners
were responsible for the majority of auto glass replacement purchasing decisions
in the U.S. and focused the Company on providing a total claims management
solution. In addition, the Company reorganized its national network by
introducing sophisticated information systems that permitted the Company to
close redundant service center locations and consolidate certain administrative
functions. The initiatives associated with the execution of the Company's new
strategy and closing of non-strategic operations resulted in restructuring
charges in fiscal 1992, 1993 and 1995.
In 1992, the Company recorded restructuring charges totaling approximately
$10.0 million consisting of (i) $4.9 million for severance costs, facility
relocations and consolidation of the Company's sales and administrative
functions; (ii) $2.7 million in connection with the planned closing of 72
service center locations; and (iii) $2.4 million to cover the cost of closing
one manufacturing plant, disposition of the Company's architectural flat glass
product line and related facilities, and discontinuance of the Company's
long-haul trucking function. In 1993, the Company recorded $4.6 million in
restructuring charges related to the planned closing of approximately 70 service
center locations. In 1995, the Company recorded restructuring charges of $5.6
million related to the planned closing of 100 service center locations and $0.7
million related to field management reorganization. Management believes that it
has completed its restructuring activities and does not anticipate any
additional restructuring charges. There were no restructuring charges during
1996. See Note 3 to the Company's Consolidated Financial Statements.
EFFECTIVE INCOME TAX RATE
The Company recorded a net income tax benefit of $17.6 million for fiscal
year 1996. This tax benefit resulted primarily from a reduction in the valuation
allowance relating to net operating loss carryforwards generated prior to 1994.
The reduction in the valuation allowance was based upon management's review of
the Company's historical and current pre-tax earnings, giving effect to
adjustments and limitations resulting from the Transactions. Based upon this
review, management believes that the Company will realize the benefit of a
portion of its existing deductible temporary differences. Accordingly, the
valuation allowance was reduced in 1996 by $25.9 million. See Note 12 to the
Company's Consolidated Financial Statements. Based on management's current
projections, management expects that an increase in interest expense which will
occur as a result of the Transactions combined with the Company's net operating
loss carryforwards may result in reduced Federal cash tax liabilities for a
period of up to 11 years.
EFFECTS OF INFLATION
Inflation has not been material to the Company's operations for the periods
presented.
41
<PAGE> 43
QUARTERLY DATA
The following table sets forth the Company's quarterly sales for fiscal
1994, 1995 and 1996.
NET SALES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------ -----------------
SALES % SALES % SALES %
-------- ---- ------- ---- ------- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter........................................ $ 91.4 25% $ 85.6 23% $102.9 24%
Second Quarter....................................... 96.9 27 99.0 26 122.0 28
Third Quarter........................................ 92.2 26 99.5 27 115.8 26
Fourth Quarter....................................... 76.9 22 88.0 24 97.6 22
------ --- ------ --- ------ ---
Total Annual....................................... $357.4 100% $ 372.1 100% $438.3 100%
====== === ====== === ====== ===
</TABLE>
Historically, the Company has experienced seasonal variations in revenues,
with lower revenues typically reported in the fourth quarter. See "-- Effect of
Weather Conditions; Seasonal Earnings."
EFFECT OF WEATHER CONDITIONS; SEASONAL EARNINGS
The severity of weather has historically affected the Company's sales and
operating income, with severe winters generating increased sales and income and
mild winters generating lower sales and income. Accordingly, mild weather
conditions may adversely affect the Company's results of operations.
The Company's business is somewhat seasonal, with the fourth quarter
traditionally its slowest period of activity. This reduced level of sales in the
fourth quarter has resulted in a disproportionate decline in operating income
and EBITDA during the fourth quarter due to the Company's significant operating
leverage. The Company believes such seasonal trends will continue for the
foreseeable future. See "Summary Historical and Pro Forma Financial
Information."
ENVIRONMENTAL AND PRODUCT LIABILITIES
Current and former subsidiaries of Lear Siegler engaged in a wide variety
of manufacturing activities. While Lear Siegler and its current subsidiaries no
longer engage in manufacturing or selling activities, their former activities
and the activities of former subsidiaries exposed Lear Siegler to a variety of
potential environmental liabilities and asbestos and non-asbestos product
liability claims. See "Risk Factors -- Potential Liabilities of Non-Operating
Subsidiaries. Management believes that the ultimate resolution of these matters
will not have a significant impact on the Company's financial position, results
of operations or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for 1996 was ($2.3) million, an
increase in operating cash flow of $7.2 million from 1995. Excluding cash flows
used to settle Lear Siegler pension plan liabilities in 1995 and Lear Siegler
discontinued operations in 1996, the increase in cash flows was $17.8 million.
This $17.8 million improvement in cash flow was primarily due to improvements in
operating income and improved accounts receivable management, offset by the
purchase of insurance liability coverage for 1997 through 1999 for approximately
$12 million. Net cash used in operating activities in 1995 totaled ($9.5)
million, a decrease in operating cash flow of $15.9 million from the prior year.
This decrease was primarily a result of lower income from Safelite installation
and related services and wholesale operations combined with $11.0 million in
cash payments related to the settlement of pension liabilities of Lear Siegler
discontinued operations.
The Company's investing activities consist mainly of capital expenditures
for new and existing service center and warehouse locations, capacity and
efficiency upgrades to manufacturing facilities, as well as information
technology equipment. Capital expenditures totaled $12.8 million, $12.0 million,
and $14.2 million for fiscal years 1996, 1995, and 1994, respectively. The
increased capital spending in 1994 reflects the Company's investment in
centralized DCC/CTUs. Included in 1995 capital spending is $3.5
42
<PAGE> 44
million for the purchase and renovation of the Company's
manufacturing/distribution facilities in Wichita, Kansas. The level of 1996
capital spending reflects expansion of service center and warehouse coverage
into new markets as well as upgrades to the Company's manufacturing facilities.
Management expects future capital spending levels to be consistent with historic
amounts. Of those amounts, management estimates maintenance levels of capital
expenditures to be approximately $6 million.
Historically, the Company has utilized internally generated funds and
borrowings under credit facilities to meet ongoing working capital and capital
expenditure requirements. In connection with the Transactions, the Company
incurred new indebtedness aggregating approximately $250 million. Substantially
all of the proceeds of such indebtedness was used to refinance existing debt, to
pay Merger consideration and to pay bonuses, fees and expenses related to the
Transactions. See "The Transactions."
As a result of the Transactions, the Company has significantly increased
cash requirements for debt service relating to the Notes and the Senior Credit
Facilities. See "Description of Other Indebtedness" for a description of the
amortization of the Term Loan Facility. The Company will rely on internally
generated funds and, to the extent necessary, on borrowings under the Revolving
Credit Facility, which provides for borrowings up to $30.0 million, to meet its
liquidity needs. At December 28, 1996, the Company had long-term borrowings of
$263.7 million and $30.0 million of availability under the Revolving Credit
Facility (less $4.9 million in letters of credit outstanding).
The Recapitalization Agreement restricts Lear Siegler's ability to
distribute cash or other assets to Safelite or Safelite's non-Lear Siegler
subsidiaries. Accordingly, cash and assets of Lear Siegler will not be available
to satisfy the obligations of the Company (other than those of Lear Siegler),
including the Notes.
Management believes that based on the current level of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds, including borrowings under the Revolving Credit
Facility, will be adequate to make required payments of principal and interest
on the Company's indebtedness and to fund anticipated capital expenditures and
working capital requirements. However, actual capital requirements may change.
The ability of the Company to meet its debt service obligations and reduce its
total debt will be dependent on the future performance of the Company, which in
turn, will be subject to general economic conditions and to financial, business,
and other factors, including factors beyond the Company's control. A portion of
the Company's debt bears interest at floating rates; therefore, its financial
condition is and will continue to be affected by changes in prevailing interest
rates.
CHANGES IN ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which is effective for fiscal years beginning after
December 15, 1995. The adoption of this standard had no material effect on the
Company's consolidated results of operations or its financial condition.
In 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes."
The adoption of this standard had no material effect on the Company's 1993
consolidated results of operations or its financial condition.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which was effective for fiscal year 1996. The Company elected in
1996 to continue to account for stock based compensation using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25. Therefore the
adoption of SFAS No. 123 had no effect on the Company's 1996 consolidated
results of operations or its financial condition.
43
<PAGE> 45
BUSINESS
COMPANY OVERVIEW
Safelite is the largest provider of auto glass replacement and repair
services in the United States. The Company installed approximately 1.6 million
replacement units in 1996 for insurance companies, commercial fleet leasing and
rental car companies, car dealerships and body shops, government agencies and
individual consumers. The Company provides these installation services through
its network of 491 service centers, approximately 1,000 mobile vans, 43
centralized telephone/dispatch centers and 66 warehouses. The Company has
targeted its marketing efforts principally towards auto insurance companies
which management believes, through their policyholders, directly or indirectly
influence approximately 70% of the selections of auto glass replacement
providers. The Company has developed fully integrated claims processing
solutions for auto insurance companies which reduce their glass loss expenses
and total administrative costs and provide a higher level of customer service to
their policyholders. Management believes that this outsourcing capability,
coupled with the convenience of nationwide coverage, consistently high quality
service and low costs, have provided the Company with a significant competitive
advantage in the insurance segment of the market. Since 1992, the Company
estimates that it has increased its leading market share in this segment from
approximately 10% to 18% resulting in improved financial performance as
demonstrated by compound annual growth in sales of 8.6% and operating income
performance improving from a loss of $23.7 million in 1992 to $23.8 million of
operating income in 1996. Adjusted EBITDA (as defined) for the same period grew
from $16.4 million to $35.0 million, a compound annual growth rate of 21%. Pro
forma adjusted EBITDA for the year ended December 28, 1996 was $43.4 million.
See "Summary Historical and Pro Forma Financial Information."
COMPETITIVE STRENGTHS
Industry Leadership and Nationwide Coverage. Safelite is the largest
competitor in the highly fragmented auto glass replacement and repair industry.
The Company operates service centers in 95 of the top 100 Metropolitan
Statistical Areas ("MSAs") in the United States, with its closest competitor,
the Company believes, operating in 75 MSAs. Through its nationwide network, the
Company can directly serve 70% of the cars and light trucks in the United States
and, through its authorized independent installation centers, achieves 100%
coverage. Management believes that the Company's leadership position and breadth
of geographic coverage is a significant competitive advantage in working with
insurance companies, commercial fleet lessors and other large customers which
increasingly demand consistent quality in both claims processing and auto glass
repair and replacement services on a nationwide basis.
Strong, Established Relationships with Major Insurance Companies. The
Company has successfully established strong relationships with the nation's
major auto insurance companies, and management believes it has more program
relationships with these companies than any of its competitors. The top 30 auto
insurers represent approximately 70% of total auto insurance premiums written in
the United States. Safelite has entered into Total Customer Solution ("TCS")
arrangements with 24 of those insurers including State Farm Mutual Automobile
Insurance, Farmers Insurance Group, United Services Automobile Association,
Prudential Insurance Company of America, Travelers Group and Safeco Corporation.
Under a TCS arrangement, Safelite typically serves as one of a few recommended
auto glass replacement providers for an insurance company and provides a range
of additional claims management services including computerized referral
management, policyholder call management, electronic auditing and billing
services and management reporting. Of the Company's total 41 TCS arrangements,
those with Nationwide Mutual Insurance Company, GEICO Corporation, Liberty
Mutual Insurance Company, CNA Insurance Group, Metropolitan Property and
Casualty Insurance Company and National General Insurance are also Master
Provider ("MP") relationships. Under an MP program, Safelite administers 100% of
an insurance company's auto glass claims. As sole administrator, Safelite
administers the allocation of the auto glass replacement business between
Safelite and other approved providers based on the insurance company's
predetermined criteria. TCS and MP programs significantly lower the processing
costs and
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loss expenses for the insurance companies, provide more consistent and rapid
service for policyholders, and increase Safelite's volume with each insurance
account. In addition, the Company has entered into similar arrangements with
major fleet and rental car companies including GE Capital Fleet Services, PHH
Vehicle Management Services Corporation, USL Capital Fleet Services, Hertz
Corporation and Budget Rent-A-Car Systems, Inc. Of these arrangements, those
with PHH Vehicle Management and USL Capital Fleet are also MP relationships. By
entering into these arrangements with insurance, fleet and rental car companies,
Safelite has substantially increased its volume with these accounts and enhanced
its base of recurring revenues.
Low Cost Provider. Management believes the Company has a significant total
cost advantage compared to its competitors as a result of its manufacturing
facilities, its productivity incentive programs, the efficiency of its
nationwide distribution network and the critical mass of its centralized
customer service, claims processing and information network. Safelite is the
only industry competitor to manufacture a substantial percentage of its
replacement glass. Safelite produces only high volume units to maximize
efficiency, manufacturing approximately 75% of its windshield requirements at
two production sites. The Company utilizes excess manufacturing capacity to
produce windshields for sale in the wholesale market and purchases low volume
units. The Company's management estimates that its performance incentive program
has increased the productivity of its installation associates from 2.5
installations per day in 1991 to 3.9 per day in 1996 (while the industry
averages an estimated 3.0 installations per day). As a result of the significant
economies of scale in its manufacturing, information systems, distribution and
installation infrastructure, management believes it has the capacity to add
incremental contracts and units at relatively low marginal cost.
Sophisticated Information Systems. The Company's information systems allow
Safelite to effectively handle all aspects of an insured auto glass claim, from
the initial phone call placed by the insured policyholder to the automatic
billing of the insurance company. Through Safelite's fully integrated network
("SAFENET(TM)"), the Company can provide full service to the policyholder by
electronically accessing the insurance company's database, verifying the
policyholder's coverage status, scheduling the glass installation, checking
relevant inventories, ordering delivery (when necessary) of auto glass to a
Safelite service center, repairing or replacing the glass, electronically
billing the insurance company and, if applicable, paying the service providers.
The insurance company's role is limited to funding the claim payment and
updating its policy files. The Company's information systems can also generate
detailed financial and operating performance statistics, comprehensively track
and report customer satisfaction and monitor speed of service for its customers.
Management believes the Company's information systems represent an important
competitive advantage for Safelite.
Proven Management Team. Garen K. Staglin, Chairman and CEO and John F.
Barlow, President and COO, joined Safelite in late 1991. Messrs. Staglin and
Barlow hired and developed a team of executives who brought to the Company
experience in insurance claims processing and the automotive aftermarket. In
late 1991, the new management team undertook a comprehensive review of the
Company's operations. This review resulted in a shift in Safelite's strategy
towards its key markets. In addition, the new management team recognized that
insurance companies and large fleet owners were responsible for the majority of
auto glass replacement purchasing decisions in the U.S. and focused the Company
on providing a total claims management solution. The initiatives associated with
the execution of the Company's strategies resulted in restructuring charges in
fiscal 1992, 1993 and 1995 of $10.0 million, $4.6 million and $6.3 million,
respectively. From 1992, the first full year of operations under the current
management team, to 1996, the Company's sales have grown at a compound annual
rate of 8.6% and operating income has improved from a loss of $23.7 million in
1992 to $23.8 million of operating income in 1996. Adjusted EBITDA (as defined)
grew from $16.4 million to $35.0 million, a compound annual growth rate of 21%.
Pro forma adjusted EBITDA for the year ended December 28, 1996 was $43.4
million. See "Summary Historical and Pro Forma Financial Information."
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STRATEGIES FOR GROWTH
Expand and Enhance Relationships with Insurance Companies. The Company's
principal growth strategy is to increase its share in the segment of the auto
glass replacement and repair market influenced by the insurance companies by
expanding the breadth and depth of its existing relationships. The Company
currently provides its auto glass replacement and repair services for the
policyholders of virtually every significant auto insurance company in the U.S.
The Company focuses its marketing and sales strategy on demonstrating to
insurance companies that as it processes increasing proportions of an insurance
company's auto glass replacement and repair claims it can continue to reduce the
loss expenses and administrative costs of such claims for the insurance company
while improving policyholder satisfaction through faster, more reliable and
consistent installation service. Specifically, Safelite seeks to convert
existing insurance company relationships into TCS arrangements, achieve greater
allocations of existing TCS arrangements and ultimately migrate TCS arrangements
to MP relationships, each of which increases the Company's sales.
The Company believes it has been successful in implementing this strategy
of "program migration" for insurance company clients. During 1995, the Company
established MP relationships with three leading insurance companies, and in
1996, sales to those customers have increased approximately 157% ($38.5 million)
over 1995. In addition, sales to the Company's other 21 TCS clients which rank
among the top 30 auto insurers increased approximately 17% ($15.7 million),
while sales to all other insurance clients increased approximately 11% ($3.9
million). The Company is currently in discussions with a number of insurance
companies to enter into TCS arrangements and MP relationships and announced a
new MP program with GEICO Corporation, one of its principal TCS customers, in
early 1997. Management also focuses on a similar program migration strategy with
its large fleet and rental car company customers.
In addition to program migration, the Company seeks to grow its sales
through improved policyholder "compliance" with an insurance company's auto
glass referral program. An auto insurance policyholder has the freedom to choose
its own auto glass replacement provider, rather than comply with the insurer's
recommendations. As a result, Safelite may actually perform a lower proportion
of an insurance customer's installations than the insurance company would
otherwise recommend under the TCS or MP program. Management believes that over
time Safelite can improve compliance within its existing TCS and MP programs
through continued demonstration of the program's benefits, resulting in
increased sales and profitability.
Expand Nationwide Coverage. The Company plans to expand the scope of its
nationwide network by selectively acquiring regional auto glass replacement and
repair businesses and opening new service center locations. The Company believes
that it can enhance its sales and operating results through integration of
well-targeted acquisitions into Safelite's nationwide network. In addition, the
Company expects to open 10 to 20 additional service centers annually to
complement its existing network.
Provide Additional Outsourcing Services to Insurance and Fleet
Companies. Management believes that Safelite can leverage its existing customer
relationships and claims processing infrastructure to provide outsourcing
services in addition to auto glass replacement, such as pre-insurance vehicle
inspection, towing referral and post-collision rental car referral. Similar to
auto glass replacement, these services are characterized by significant
administrative burdens, high processing costs and low dollar loss values. The
Company is evaluating plans to offer these services as a natural extension of
its core auto glass business.
INDUSTRY OVERVIEW
The market consists of two segments, the manufacture and sale of auto glass
to large original equipment manufacturers ("OEMs") and the manufacturing and
installation of auto glass for the replacement market. The OEM market is
generally characterized as a high-volume, manufacturing intensive industry. By
contrast, the auto glass replacement market consists of service providers
focused on providing auto glass replacement installation to a broad base of
institutional and individual customers.
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Replacement auto glass is generally purchased by installers from large OEM
suppliers in the wholesale market.
The auto glass replacement and repair industry in 1996 was an approximately
$2.7 billion industry representing the installation of approximately 12.5
million replacement units. The replacement and repair of auto glass is driven by
the incidence of breakage. The market for the installation of replacement auto
glass is highly fragmented with over 20,000 providers of auto glass replacement
services. Many competitors in the industry are small "mom & pop" installers who
do not have either the national networks or sophisticated information systems
required to effectively compete in a national market. From 1990 to 1996, the
industry has been consolidating as evidenced by an increase in market share for
the top three industry participants from an estimated 24% to an estimated 30%
while the market share for small "mom and pop" providers declined from an
estimated 70% to an estimated 60% during the same period. Management expects
this consolidation to continue, as insurance companies and large fleet lessors
require nationwide coverage and more consistent service while seeking to reduce
costs by outsourcing their auto glass claims. See "-- Customers -- Installation
Customers."
Over the past 10 years, management estimates that total industry sales have
grown at approximately 4% per year. Revenue growth has been due primarily to an
increase in the aggregate number of vehicles on the road, from approximately 157
million units in 1985 to approximately 193 million units in 1995 and the
increasing number of miles driven per year, from approximately 1.8 billion miles
in 1985 to 2.2 billion miles in 1995. Growth in industry sales have also been
driven by price increases which principally reflect the increasing size and
design complexity of auto glass. In the aggregate, industry growth has been
fairly consistent, with some variation resulting primarily from year-to-year
fluctuations in weather conditions.
Customers in the auto glass replacement industry include auto insurance
companies, commercial fleet leasing companies, rental car companies, car
dealerships, body shops, governmental agencies and individual consumers.
Insurance companies represent the largest segment of the market as a result
of their payment of replacement auto glass claims for their policyholders. The
Company believes that insurance companies through their policyholders, directly
or indirectly, influence approximately 70% of the selections of auto glass
replacement providers. As a result of this influence, insurance companies
represent the most important segment of the auto glass replacement market. Auto
insurance companies have been under pressure to improve policyholder service,
while simultaneously reducing their operating expenses. As a result, the
outsourcing of certain functions associated with high volume and low dollar
payouts is gaining increasing acceptance within the insurance industry. Auto
glass repair and replacement claims represent a disproportionate administrative
burden. Management estimates such claims account for less than 6% of the dollar
value of all auto claims paid but over 30% of the total number of auto claims
processed. By outsourcing the claims management function and spreading the costs
over a larger claims base, insurance companies can eliminate an estimated
$50-$100 of processing costs per claim. In addition, insurance companies can
reduce their loss severity through lower per unit pricing, and improved repair
ratios.
PRICING
The price of replacement auto glass is related to the list prices developed
by the National Auto Glass Specification ("NAGS"), an independent third party.
Changes to the NAGS list prices generally follow the wholesale price increases
announced by the OEMs. Prices charged in the auto glass replacement industry are
calculated using varying percentage discounts from the NAGS price list. Actual
revenue per unit ("RPU") charged in the industry has generally been increasing
as a result of increases in the NAGS list price, the increasing design
complexity of auto glass and the increasing level of claims processing services
associated with insurance-related replacement auto glass purchases.
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CUSTOMERS
Safelite has a broad customer base across two primary segments: (i)
installation and related services and (ii) wholesale customers. The Company's
largest customer base is insurance companies, generating approximately 49% of
total sales for the year ending December 28, 1996 and 41% of total sales in
fiscal 1995. Safelite's top ten customers accounted for approximately 39% and
35% of the Company's consolidated sales in 1996 and 1995, respectively, and no
customer accounted for more than 10% of the Company's consolidated sales during
such years.
INSTALLATION CUSTOMERS. The Company's installation and related services
customers are described as follows:
Insurance. Insurance companies represent Safelite's primary area of
strategic focus. Safelite has aggressively pursued this customer group and is
the leader in this market with an industry-leading share currently estimated to
be 18%. From 1993 to 1996, the Company's sales to this market segment have grown
at a compound annual rate of approximately 18%. The Company has developed fully
integrated claims processing solutions for auto insurance companies which reduce
their glass loss expenses and total administrative costs and provide a higher
level of customer service to their policyholders. Management believes this
outsourcing capability, coupled with the convenience of nationwide coverage,
consistently high quality service and low costs, have provided the Company with
a significant competitive advantage in the insurance-influenced segment of the
market.
The Company has developed Total Customer Solution arrangements and Master
Provider relationships to service its auto insurance company customers. Under a
TCS arrangement, Safelite serves as one of a few recommended auto glass
replacement providers for an insurance company and typically provides a range of
additional claims management services including computerized referral
management, policyholder call management, electronic auditing and billing
services and management reporting. Under an MP program, Safelite administers
100% of an insurance company's auto glass claims. As sole administrator,
Safelite manages the allocation of the auto glass replacement business between
Safelite and other approved providers based on the insurance company's
predetermined criteria. The Company currently provides its auto glass
replacement and repair services for the policyholders of virtually every
significant auto insurance company in the U.S.
Following is a list of the Company's top insurance company customers ranked
by total auto insurance premiums written for 1995:
<TABLE>
<CAPTION>
AUTO PREMIUMS WRITTEN
MARKET POSITION NAME ---------------------
- --------------- ---------------------------------------------------------- (DOLLARS IN BILLIONS)
<C> <S> <C>
1 State Farm................................................ $23.2
3 Farmers................................................... 6.3
4 Nationwide................................................ 4.4
5 USAA...................................................... 3.4
7 GEICO..................................................... 2.7
8 Liberty Mutual............................................ 2.1
9 CNA....................................................... 2.0
14 Prudential................................................ 1.5
20 Safeco.................................................... 1.2
21 Metropolitan.............................................. 1.1
</TABLE>
Source: Best's Review, October 1996
The Company believes that its ability to provide complete claims
outsourcing and a consistent level of high quality service on a nationwide basis
will continue to make it an attractive partner for the insurance industry.
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Consumer. The Company defines consumers as cash and credit card customers.
Much of this business occurs on a "walk-in" basis as a result of Yellow Pages
advertising and insurance referrals. Safelite believes that its 43 Dispatch
Command Center/Central Telephone Units ("DCC/CTUs") enable the Company to close
more of these consumer sales by using scripted Customer Service Representatives
("CSRs") and offering the most comprehensive mobile and in-store service at
competitive prices. This segment does not include individuals who file a claim
to be paid by insurance companies.
Dealer. The dealer segment is comprised of new and used car dealerships
and body shops. Sales are generated largely by the Company's experienced field
sales force, which is the largest in the industry. Safelite has dedicated
Customer Service Representatives at several DCC/CTU locations who only handle
customers in the dealer segment. Dealers generally request auto glass repair and
replacement services for work being done at their captive repair shops, and, to
a lesser extent, for mishaps with their car inventories. Body shops generally
perform their own installations.
Rental Car. The Company has national account relationships with most large
rental car companies, including significant arrangements with Budget Rent-A-Car
and Hertz. Management estimates that Safelite replaces over 90% of both Budget's
and Hertz's units. Customers in this segment are served in a cost effective
manner, with multiple jobs completed during a single visit to the customer's
rental car lot.
Fleet. Safelite has national account relationships with the major
commercial fleet lessors, including GE Capital Fleet, PHH Vehicle Management and
USL Capital Fleet. Of these, the Company has established Master Provider
relationships with PHH Vehicle Management and USL Capital Fleet. As fleet
companies concentrate their sales with a smaller group of providers who can
satisfy requirements for nationwide service and more sophisticated systems,
Safelite believes it is well positioned to increase its market share in this
segment. By outsourcing their auto glass replacement needs, large fleet
customers are able to take advantage of many of the same benefits provided to
Safelite's insurance clients, including lower costs and better service.
Subcontract. The subcontract segment represents business which is
subcontracted to Safelite by other glass companies. Safelite is an attractive
subcontractor because of its broad geographic coverage and ability to deliver
rapid and consistent service. In addition, Safelite's fully-automated systems
and top quality reputation make the Company an attractive business partner.
Government. The government segment includes sales to state and local
government agencies such as police and highway departments.
WHOLESALE CUSTOMERS. The Company utilizes its excess manufacturing
capacity to produce windshields sold into the wholesale market. Wholesale
customers include other auto glass replacement companies and distributors.
Almost all of the Company's wholesale customers are in the United States. The
Company's wholesale volume allows Safelite to maximize the efficiency of its
manufacturing facilities. As the Company grows its higher margin insurance
business, however, management expects the wholesale business to decline as a
percent of total sales.
OPERATIONS
SALES AND MARKETING. Safelite's sales organization, with 181 associates,
is the largest in the industry. The Company's sales associates are highly
trained and use a team selling approach when interacting with customers.
Safelite has 13 national "strategic account" representatives. These individuals
have built relationships with the major insurance, fleet and rental car company
decision makers and average 15 years of industry experience. The strategic
account representative system is designed to establish an environment of
confidence that positions Safelite to become the sole administrator for an
insurance company's glass claims. Safelite also utilizes 168 field sales
representatives to educate local insurance agents on the benefits of using
Safelite. The field sales representatives have been a critical component in
increasing compliance with insurance company auto glass programs.
PRICING. Safelite has a reputation for providing innovative pricing
solutions to its customers. Safelite's low cost position enables the Company to
be competitive on price. In addition, the Company's
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TCS and MP programs have shifted the emphasis for auto insurance companies away
from the price of an installation to the all-in cost of an auto glass claim. The
Company's prices are generally calculated using a percentage discount from the
NAGS price list. Windshields carry higher unit prices than curved tempered
glass, and glass parts used in newer vehicle models tend to carry higher list
prices than those used in older models. In addition, due to the higher levels of
service required for outsourcing programs, insurance and fleet claims typically
have a higher average revenue per unit ("RPU"). Overall, Safelite's average RPU
has increased from $178 in 1992 to $221 in 1996, a compound annual growth rate
of 5%.
CLAIMS MANAGEMENT PROCESS. Safelite is an industry leader in using
information systems and technology to improve customer service and better manage
its business. The Company's fully integrated network, SAFENET(TM), connects its
service centers, vans, central telephone units, warehouses and distribution
centers and provides associates with "real time" data for customer information,
scheduling, billing, sales and inventory management. The Company's 43
centralized DCC/CTU locations and three 24-hour National Referral Centers serve
as the local market "hubs," are strategically located in the Company's major
markets and receive "real time" data from SAFENET(TM). Approximately 70% of the
Company's total customer calls are routed to one of the National Referral
Centers or DCC/CTUs.
The Company's three National Referral Centers in Columbus, Ohio have
capacity for up to 2.5 million calls per year. These facilities provide overflow
capacity for local CTU operations and handle almost 65% and 35% respectively, of
the Company's auto insurance and fleet calls. Each auto insurance company that
outsources auto glass claims with Safelite receives a dedicated "1-800" number
which connects directly into one of the National Referral Centers.
At each of the Company's National Referral Centers and DCC/CTUs,
professional, scripted CSRs answer customer calls and input directly into a
computer the information necessary to schedule an installation, complete the
paperwork, order the glass and deliver it to the service location and issue
billing. Unlike any of its competitors, the Safelite CSRs can access scheduling
information for their entire local market of service centers and vans, as well
as monitor inventory levels to determine glass availability. Using SAFENET(TM),
the CSRs can schedule the customer at the most convenient service center
location and electronically send the customer's information to the service
center computer or arrange mobile van service. If there is no nearby Safelite
location, the CSRs can schedule the customer through one of the Company's 3,000
authorized independent installation centers. On average, over 90% of Safelite's
installations are done through a company owned service center or mobile van.
Safelite's DCC/CTUs operate extended evening and weekend hours, enabling
customers to make appointments with Safelite when many competitors are closed.
The National Referral Centers operate on a 24-hour per day basis.
Once the CSR schedules an appointment, the piece of glass is automatically
ordered and dispatched. The glass is loaded from the warehouse, which is
co-located with the DCC/CTU, onto a Glassmobile for mobile installation or
delivery to the appropriate service center location. The inventory movement is
recorded electronically by the SAFENET(TM) point-of-sale system. Based on
predetermined "optimal" inventory levels for each SKU at each warehouse, the
sale of a windshield automatically sends an order request to the distribution
center and manufacturing request to the production floor. The Company maintains
the majority of its inventory at its distribution centers and warehouses
(instead of at the service centers) in order to minimize inventory levels and
maximize flexibility/speed of delivery.
In addition to providing an integrated delivery system, SAFENET(TM) also
provides management and Safelite's customers with valuable information. This
"real time" data allows Safelite to track and monitor important statistics
including customer satisfaction, length of call, and speed of installation.
Safelite uses this data to improve its customer service and provide
comprehensive monthly management reports for its large insurance customers.
Reports include information which the insurance companies do not otherwise have
access to, including statistics on number of claims, price per claim and percent
of repairs versus replacement. Safelite believes it is the only company in the
industry currently providing such reports.
DISTRIBUTION. The Company has a three tiered distribution system which
enables Safelite to better serve its customers and minimize its inventory
levels. Two central distribution facilities are located at the
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Company's manufacturing facilities in Enfield, North Carolina and Wichita,
Kansas. These central distribution facilities send inventory to the Company's 66
regional warehouses (23 free-standing warehouses and 43 co-located with the
Company's CTUs). These facilities can then quickly and accurately stock the
service centers and vans in their local markets on an as-needed basis.
The Company's distribution system has been structured to optimize speed and
efficiency. Trucks pick up windshields from the distribution centers and follow
a fixed route schedule, making delivery stops at the Company's warehouses and
wholesale customers at almost exactly the same time each week. The same trucks
then pick up raw glass from the Company's suppliers and back haul it to
Safelite's central distribution facilities.
The back hauling process lowers Safelite's freight costs for its raw glass,
as Safelite is able to move the goods less expensively than its suppliers'
delivery rates. Safelite believes that its modern distribution centers are among
the lowest cost in the industry, and management believes the Company can double
the volume through its distribution centers with limited additional capital
investment.
MANUFACTURING. Safelite is the only full-scale vertically integrated auto
glass replacement company in the U.S., producing 75% of its windshield needs at
its two manufacturing plants in Enfield, North Carolina and Wichita, Kansas. The
Enfield facility encompasses 70,000 square feet of manufacturing space and has
an annual capacity of one million units. The Company recently reconfigured the
Enfield facility, doubling its capacity and improving operating efficiency. The
Wichita facility encompasses 66,000 square feet with an annual production
capacity of over 600,000 units.
Safelite produces only high-volume windshield models, manufacturing 550 of
the total 2,800 active windshield parts available in the industry. When a new
automobile model is introduced, Safelite waits until it has been on the market
for a year in order to assess the sales trends and estimate future windshield
demand. The Company then designs selected windshield models through a process of
reverse engineering. The manufacturing process is described as follows:
Cutting. Both the Enfield and Wichita plants have numerically controlled
(computer programmable) cutting machines and automated machines which follow a
cutting ring tool. Two pieces of glass are cut for each windshield; the outer
piece is slightly larger than the inner piece (they are later equalized in the
bending process). After cutting, the freshly cut edges are ground down to remove
any burrs or sharp corners. This process gives the windshield a safe and smooth
edge for handling. The glass is then washed and sprayed with a lubricant
(allowing the two pieces of glass to later bend independently without sticking
together).
Painting. The border or band of most new windshields is painted with a
ceramic (lead based) paint. The paint band hides the installation sealants
(urethane) and gives the windshield an improved cosmetic appearance. The paint
band designs are reverse engineered from actual OEM windshields and follow the
same specifications.
Bending. The flat pairs of glass are inspected prior to bending. The pairs
are then fitted into the bending tools (molds) that run along a conveyor system
through the furnace. This process is repeated every 30 seconds as the new
bending mold is readied for another windshield. The bending furnaces are gas
heated, time indexed and computer controlled.
Lamination. A Poly Vinyl Butyl ("PVB") is used to laminate the two pieces
of glass together. The vinyl layer is stored, cut and sandwiched between the
pairs of glass in environmentally controlled rooms. A vacuum channel is placed
around the sandwich to draw air out. While de-airing, the windshield is sealed
into a pressure vessel. The process of lamination begins by rapidly heating and
pressurizing the windshields. The heat and pressure are maintained for several
minutes and then the vessel is rapidly cooled. The entire process takes about
one hour and each autoclave has a capacity of approximately 100 windshields.
Encapsulation. Some windshields require a specialized molding to be
attached at the plant. This process, Reactive Injection Molding (RIM), is a
process whereby two chemicals meet and form a border
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(or gasket) around the part. The attached gasket saves time for the windshield
installer since everything is attached at the plant. The Enfield plant has
installed this process and is capable of producing 75,000 units a year. The
Company, however, is currently outsourcing its encapsulation needs to a
supplier.
Inspection. Each windshield is inspected through a process consisting of
four different functions of inspection and assembly. The finished goods scrap
rate has historically been less than 1%.
Scrap. The overall manufacturing process produces approximately 11% scrap
(as a percentage of original input). The excess glass trim in cutting and other
pre-laminated glass is recycled back to the supplier. Scrap glass which has
paint on it is disposed of as hazardous waste. Likewise, the vinyl trim is
collected and stored to be recycled back to the supplier.
Production Scheduling. Production scheduling is a shared responsibility by
the plant scheduler, the materials management department in Columbus, Ohio and
the Company's MIS system. The system receives daily updated sales and inventory
data from all Safelite facilities. This data is used to update the plant
schedule by recommending the parts that have the greatest need for
replenishment. A computerized schedule of manufacturing is created on a daily
basis to optimize inventory levels, plant capacity, plant tooling availability,
raw material availability and furnace scheduling.
PRODUCTS
Safelite's primary installation product is the auto windshield. Windshields
are made of laminated safety glass, which consists of two layers of glass bound
together with a thin layer of vinyl. The safety benefit of laminated glass comes
from the strength which the vinyl adds; the vinyl makes it very difficult to
penetrate the windshield upon impact. As part of Safelite's commitment to serve
all of its customers' auto glass needs, the Company also offers tempered auto
glass and other products. Tempered glass is generally used for side and rear car
and truck windows and is twice as strong as raw glass because of specialized
processing which causes the glass to break into dull-edged pebbles, reducing
glass-related injuries. Safelite also offers auto products and services
including flat glass, bipass glass, installation supplies, wiper blades, window
tinting, sunroofs, alarm systems and vehicle inspection services for insurance
companies.
SUPPLIERS AND RAW MATERIALS
Safelite generally purchases low volume windshields from third parties, as
well as raw glass, vinyl, paint, adhesives and tempered glass. The Company
sources 50% of its purchased glass from Libby-Owens-Ford. Safelite's volume with
Libby-Owens-Ford has enabled Safelite and Libby-Owens-Ford to form an alliance
which includes a national pricing agreement and an electronic link to
Libby-Owens-Ford's inventory data. The Company also utilizes other suppliers for
both domestic and foreign windshields. Safelite buys all of its raw glass from
Guardian Automotive, with the exception of solar resistant glass. Vinyl is
purchased from E.I. Du Pont De Nemours. The Company believes alternate sources
of vinyl are also available. With few exceptions, inventory is centrally
purchased at Safelite's headquarters in Columbus, Ohio. The Company believes
that its primary raw materials are widely available from numerous suppliers and
has not had material difficulty in sourcing windshields or raw materials in the
past.
PROPERTIES
Safelite leases 459 of its 491 installation service centers, with the terms
of its leases generally being five years with one or two five year renewal
options. Safelite also leases 63 of its 66 warehouses, with the terms of its
leases generally being five years with one or two five year renewal options. The
Company owns its manufacturing facilities in Enfield, North Carolina and
Wichita, Kansas. Safelite's principal corporate office is at 1105 Schrock Road
in Columbus, Ohio. Safelite leases this space pursuant to agreements expiring in
2001. The Company maintains administrative offices at 2400 Farmer's Drive in
Columbus, Ohio, which it leases pursuant to a lease expiring in November of
1998. The Company plans to renew this lease. The Company also maintains a
national referral center, regional DCC/CTU and regional warehouse at 760
Dearborn Park Lane in Columbus, Ohio. Safelite leases this space pursuant to
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agreements expiring in 2001. The Company's leases generally provide that the
Company pay property tax, utilities, common area maintenance, and insurance
expenses. Safelite believes that its facilities are adequate for its current
needs and that suitable additional space will be available as required.
EMPLOYEES
As of December 28, 1996, the Company employed 3,954 people. The Company has
approximately 330 employees covered by three unions, with one agreement expiring
in 1997 and the other two expiring in 1999. Safelite has experienced no labor
related work stoppages and believes that its employee relations are good.
COMPETITION
The industries in which the Company competes are very competitive. In the
auto glass replacement industry, competition is based on price, customer
service, technical capabilities, quality and geographic coverage. This industry
is highly fragmented with approximately 20,000 competitors. Although the Company
is the industry leader in the auto glass replacement industry, it does compete
against several other large competitors in this market, the largest two of which
had market shares estimated to be 10% and 7% in 1995. State Farm, one of the
Company's largest customers, has informed the Company that it intends to use a
competitor to function as its glass claims call center and bill processing
administrator in a region by region roll-out commencing in the summer of 1997.
The Company does not expect that this arrangement will have a material impact on
its relationship with State Farm; however, there can be no assurance that this
arrangement will not have an impact on the Company's business with State Farm.
Competition in the wholesale market is based principally on price and
quality. The Company is a relatively small participant in the wholesale market,
which is dominated by several significantly larger companies.
Future growth in the Company's revenues will depend upon the Company's
ability to maintain and increase its market share in the auto glass replacement
industry, while continuing to provide high levels of customer service to
insurance companies and fleet owners, and its ability to access the wholesale
market in order to utilize excess manufacturing capacity. See "Risk
Factors -- Competition."
ENVIRONMENTAL REGULATION
The Company's manufacturing operations in Wichita, Kansas and Enfield,
North Carolina involve handling of materials and the generation of waste
materials that are classified as hazardous. The Company is subject to federal,
state and local laws and regulations concerning the handling and disposal of
hazardous materials, and therefore in the ordinary course of its business, the
Company in its manufacturing operations incurs compliance costs. The Company
does not anticipate that compliance with federal, state and local provisions
regarding the use and disposal of materials into the environment or otherwise
relating to the protection of the environment will have any material adverse
effect upon the earnings or competitive position of the Company and does not
anticipate any material capital expenditures for environmental control
facilities for the remainder of the Company's current fiscal year or the
succeeding fiscal year. Actions by federal, state and local governments
concerning environmental matters, however, could increase the costs of producing
the products manufactured by the Company. In addition, the future costs of
compliance with environmental laws and regulations and liabilities resulting
from currently unknown circumstances or developments could be substantial or
could have a material adverse effect on the Company. Regulations resulting from
the 1990 amendments to the Clean Air Act that will pertain to the Company's
manufacturing operations are currently not expected to be promulgated until 1997
or later. The Company cannot predict the level of required capital expenditures
resulting from future environmental regulations; however, the Company does not
anticipate that expenditures required by such regulations, if any, will have a
material adverse effect on the Company.
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<PAGE> 55
INDUSTRY INVESTIGATION
The Company, along with other domestic companies, has received a subpoena
to produce documents to a grand jury investigating possible violations of
federal antitrust laws in the automobile glass replacement industry. The
investigation is directed towards possible collusive pricing practices. Neither
the Company nor any director, officer or employee has been charged in connection
with the investigation. The investigation is in its preliminary stages.
If the investigation were to uncover evidence of anti-competitive or
collusive behavior by the Company or its employees, it could result in the
Company or such employees being subject to monetary fines, penalties and other
sanctions and expenses. A finding of anti-competitive or collusive behavior by
the Company could lead to civil litigation against the Company by persons
claiming to have paid higher prices as a result of the alleged improper
activity. Private plaintiffs in antitrust suits are entitled, if successful, to
recover treble damages, attorneys fees and costs.
Management does not believe that the Company or its employees have engaged
in any anti-competitive or collusive activities and does not believe that this
investigation will result in a material adverse effect on the Company. However,
no assurance can be given that the Company will not be found to have engaged in
anti-competitive or collusive activities or be liable for such fines, penalties,
damages and costs or, that if it were liable, that they will not have a material
adverse effect on the Company.
LITIGATION
Safelite is party to certain claims and litigation in the ordinary course
of business and litigation concerning environmental compliance which it does not
believe will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations. See "--
Environmental Regulation."
Safelite is the subject of an industry-wide grand jury investigation of
pricing practices. See "-- Industry Investigation." In addition the Company,
along with three other industry defendants, has been sued by nine local auto
glass replacement companies in the U.S. District Court for the Eastern District
of Texas, claiming violation of federal antitrust laws and interference with
contracts. The Company intends to defend these claims vigorously and does not
believe they will have a material adverse effect on the Company's financial
position or results of operations. See "Risk Factors -- Other Litigation."
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<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of the Company after giving effect to the Transactions. All
directors will hold office until the next annual meeting of stockholders of the
Company and until their successors have been duly elected and qualified. All
officers will serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------- --- ------------------------------------------------------
<S> <C> <C>
Garen K. Staglin............. 52 Chairman of the Board, Chief Executive Officer and
Director
John F. Barlow............... 53 President, Chief Operating Officer and Director
Douglas A. Herron............ 47 Senior Vice President and Chief Financial Officer
Douglas R. Maehl............. 49 Senior Vice President, Manufacturing, Distribution and
Purchasing
Elizabeth A. Wolszon......... 42 Vice President, Marketing and Strategic Planning
James K. West................ 54 Vice President, Information Systems
Poe A. Timmons............... 36 Vice President and Corporate Controller
Anthony J. DiNovi............ 34 Director
Seth W. Lawry................ 32 Director
Morton Meyerson.............. 58 Director
Scott M. Sperling............ 39 Director
</TABLE>
A brief biography of each director and executive officer follows:
Garen K. Staglin has served as the Company's Chairman of the Board and
Chief Executive Officer since July 1991. From January 1979 to June 1991, Mr.
Staglin served in various management roles, most recently as President of the
Automotive Services Group, of ADP, Inc., a computer services firm. He currently
serves as a director for First Data Corp., QuickResponse Services, Inc. and
CyberCash, Inc. and serves on the Advisory Board of the Stanford Graduate School
of Business.
John F. Barlow has served as a director and the Company's President and
Chief Operating Officer since September 1991. From October 1986 to August 1991,
Mr. Barlow served as the President and Chief Executive Officer of Western Auto
Stores, a retailer of automobile parts.
Douglas A. Herron has served as the Company's Senior Vice President and
Chief Financial Officer since June 1992. From December 1989 to May 1992, Mr.
Herron served as Manager, Finance Operation of GE Medical Systems, a leading
manufacturer and supplier of diagnostic imaging equipment and financing products
to hospitals and clinics throughout the world.
Douglas R. Maehl has served as the Company's Vice President of
Manufacturing, Distribution and Purchasing since October 1991. From September
1978 to September 1991, Mr. Maehl served as Vice President of Merchandising for
Western Auto Stores, a retailer of automobile parts.
Elizabeth A. Wolszon has served as the Company's Vice President of
Marketing and Strategic Planning since July 1992. From January 1989 to June
1992, Ms. Wolszon served as Senior Vice President of Marketing for Western Auto
Stores, a retailer of automobile parts, and Director of Strategic Planning for
Sears Speciality Merchandising, a group of specialty retailing chains owned by
Sears Roebuck & Co.
James K. West has served as the Company's Vice President of Information
Systems since June 1990. From November 1987 to May 1990, Mr. West served as the
Director of Information Systems for Transworld Music, the largest record
retailer in the United States.
Poe A. Timmons has served as the Company's Vice President and Corporate
Controller since January 1996. Prior to 1996, Ms. Timmons was an audit partner
at Deloitte & Touche LLP, where she served clients in the manufacturing, retail
and service industries.
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<PAGE> 57
Anthony J. DiNovi has served as a director since the consummation of the
Merger. Mr. DiNovi has been employed by Thomas H. Lee Company, an investment
company, since 1988 and currently serves as a Managing Director. Mr. DiNovi is
also Vice President and Trustee of THL Equity Trust III, the general partner of
the THL Equity Advisors III Limited Partnership, which is the general partner of
the Thomas H. Lee Equity Fund III, L.P. and Vice President of Thomas H. Lee
Advisors I and T.H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund,
L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II
(Retirement Accounts), L.P., respectively. Mr. DiNovi also serves as a director
of First Alert, Inc. and several private corporations.
Seth W. Lawry has served as a director since the consummation of the
Merger. Since April 1994, Mr. Lawry has served as an Associate and Vice
President at Thomas H. Lee Company, an investment company. Mr. Lawry is also
Vice President of THL Equity Trust III, the general partner of the THL Equity
Advisors III Limited Partnership, which is the general partner of the Thomas H.
Lee Equity Fund III, L.P. Mr. Lawry also serves as a director of other private
corporations. From September 1992 to March 1994, Mr. Lawry served as an
Associate at Morgan Stanley & Co. Incorporated, an investment bank. From
September 1990 to June 1992, Mr. Lawry attended Stanford Graduate School of
Business.
Morton Meyerson has served as a director of the Company since January 1992.
Since June 1992, Mr. Meyerson has served as Chairman and Chief Executive Officer
of Perot Systems Corporation, an information systems and consulting firm. Mr.
Meyerson also serves as a director of Energy Services Company International,
Inc., Crescent Real Estate Equities, Inc., Harvard Medical School Board of
Fellows, Harry Ransom Center for Humanities Studies at the University of Texas
and the National Park Foundation.
Scott M. Sperling has served as a director since the consummation of the
Merger. Since July 1994, Mr. Sperling has served as a Managing Director of
Thomas H. Lee Company. Mr. Sperling is also Vice President and Trustee of THL
Equity Trust III, the general partner of THL Equity Advisors III Limited
Partnership, which is the general partner of Thomas H. Lee Equity Fund III, L.P.
Mr. Sperling also serves as a director of Beacon Properties, Inc., The Learning
Company, Livent, Inc., The General Chemical Group Inc., Object Design Inc. and
several private corporations. Prior to joining Thomas H. Lee Company in 1994,
Mr. Sperling was managing partner of Aeneas Group, Inc. an investment company
and a wholly-owned subsidiary of Harvard Management Company, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
It is expected that the Board of Directors will establish an Audit
Committee and a Compensation Committee, although such committees have not yet
been constituted. The Compensation Committee will make recommendations
concerning the salaries and incentive compensation of employees of and
consultants to Safelite, and will oversee and administer the Company's stock
option plans. The Audit Committee will be responsible for reviewing the results
and scope of audits and other services provided by Safelite's independent
auditors.
DIRECTOR COMPENSATION
Directors that are neither employees of the Company nor of Thomas H. Lee
Company receive $1,000 for every Board meeting they attend. Such directors are
also eligible to receive options under the Company's 1996 Stock Option Plan.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements on December 20, 1996 with
each of Messrs. Staglin, Barlow and Herron. Mr. Staglin serves as Chairman of
the Board and Chief Executive Officer of the Company with an annual base salary
of $700,000 and a performance bonus determined by the Board of Directors of the
Company. Mr. Barlow serves as President and Chief Operating Officer of the
Company with a base salary of $700,000 and a performance bonus determined by the
Board of Directors of the Company. Mr. Herron serves as Senior Vice President
and Chief Financial Officer of the Company with a
56
<PAGE> 58
base salary of $350,000 and an annual bonus to be determined by the Board of
Directors of the Company in accordance with an executive compensation plan.
Each of these agreements provides for an initial term of three years with
two year automatic renewal periods, unless either party gives notice of its
intent to terminate the employment agreement at least 30 days, but not more than
60 days, prior to the expiration of the original term or any renewal term. Each
of the agreements provides that in the event the executive is terminated due to
death or disability, (i) his base salary will continue for six months following
the date of termination, (ii) a pro rata portion of his bonus (based on days
worked) shall be paid (unless the Board of Directors determines to pay a greater
amount) and (iii) his additional benefits under his employment agreement will
continue for 12 months following the date of termination. If the executive is
terminated without cause, (i) his base salary will continue for the greater of
24 months following the date of such termination or the remaining portion of the
initial term of the agreement, (ii) he will receive a pro rata portion of his
bonus (unless the Board of Directors determines to pay a greater amount) and
(iii) his additional benefits will continue for 12 months following the date of
termination. Each of these agreements include non-disclosure provisions, as well
as non-competition provisions covering the period of time he is employed by the
Company plus one year, but in no event less than three years.
Safelite and Poe Timmons entered into an Employment Contract on January 2,
1996 for a three-year term expiring on January 2, 1999. Pursuant to that
agreement, Ms. Timmons is to be paid an annual base salary of at least $190,000.
Additionally, Ms. Timmons is eligible to participate in an executive bonus plan
adopted by Safelite during the term of the agreement and she was granted options
to purchase 8,758 shares of Safelite Class A Common Stock at $3.00 per share.
Should Safelite terminate Ms. Timmons without cause, however, Ms. Timmons is
entitled to an immediate single sum distribution equal to the aggregate
outstanding balance of her remaining base salary payments through January 2,
1999. Should Ms. Timmons terminate this agreement because of a breach by
Safelite or because of a change of control in the ownership of Safelite followed
by a reduction in her title, duties, responsibilities or status, Ms. Timmons
will also be entitled to receive the aggregate balance of her base salary
payments for the remaining term of the agreement.
STOCK OPTION PLANS
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan") provides for grants of options to acquire up to 175,000 shares of Common
Stock. Incentive stock options may be granted to employees and officers of the
Company and non-qualified stock options may be granted to consultants,
directors, employees and officers of the Company.
The 1996 Plan is administered by the Board of Directors of the Company or a
committee thereof consisting of two or more directors. Subject to the provisions
of the 1996 Plan, the Board of Directors will have the authority to select
optionees and determine the terms of the options granted, including (i) the
number of shares subject to each option, (ii) when the option becomes
exercisable, (iii) the exercise price of the option (which in the case of an
incentive stock option cannot be less than the fair market value of the Common
Stock on the date of grant, or less than 110% of fair market value in the case
of employees or officers holding 10% or more of the voting stock of the
Company), (iv) the duration of the option and (v) the time, manner and form of
payment upon exercise of an option.
An option is not transferable by the optionee except by will or by the laws
of descent and distribution. Options are exercisable only while the optionee
remains in the employ of the Company or for a period of time thereafter. If an
optionee becomes disabled or dies while in the employ of the Company, the option
is exercisable prior to the last day of the third and sixth month, respectively,
following the date of termination of employment. If the optionee leaves the
employ of the Company for any other reason, the option terminates immediately
upon termination of employment; provided that the Board of Directors may extend
this period up to the original expiration date of such option. Options which are
exercisable following termination of employment are exercisable only to the
extent that the optionee was entitled to exercise such options on the date of
such termination.
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<PAGE> 59
1993 Restated Employee Stock Option Plan. The Company's 1993 Restated
Employee Stock Option Plan (the "1993 Restated Stock Option Plan") provides for
the grants of options to acquire up to 264,000 shares of Class A Common Stock,
in such amounts, on such terms and for such officers and other key employees as
the administrators of the 1993 Restated Stock Option Plan may select. Options
granted under the Plan are not intended to qualify as Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended. The 1993 Restated Stock Option Plan is administered by a committee (the
"Committee"), consisting of one or more persons appointed by the Board of
Directors of the Company, and provides that all of the options shall have a per
share exercise price established by the Committee in its sole discretion at the
time an option is granted. All options currently outstanding under the 1993
Restated Stock Option Plan became fully vested and exercisable upon the closing
of the Transactions. In connection with the Transactions, options to purchase
4,829 shares of Class A Common Stock at an exercise price of $3.00 per share
were redeemed for $10.40 per option and options to purchase 876 shares of Class
A Common Stock at an exercise price of $1.00 per share were redeemed for $12.40
per option. Following the Transactions, the Company had 50,629 options to
purchase shares under the 1993 Plan outstanding.
Options granted under the 1993 Restated Stock Option Plan become fully
exercisable no later than the fifth anniversary of the date of grant and no
option may have a term in excess of 10 years from the date of grant. The stock
option agreements pursuant to which options have been granted under the 1993
Restated Stock Option Plan provide for acceleration of the options upon the
occurrence of a terminating event, which includes the Transactions.
Options are exercisable only while the optionee remains an employee of the
Company, and the Company shall have the right, at its option, upon termination
of an optionee's employment to redeem the exercisable portion of the option, or
any portion thereof as determined by the Company. If the Company elects not to
exercise its right to redeem the exercisable portion of the option, the
terminated optionee shall have the right to exercise any unredeemed portion of
the then exercisable options at any time within 90 days after the notification
date. Options which are exercisable following termination of employment are
exercisable only to the extent that the optionee was entitled to exercise such
options on the date of such termination. All options are non-transferable other
than by will or the laws of descent and distribution. The Company has the right
to terminate the option in the event the optionee engages in any prohibited
activity, including disclosure of confidential or proprietary knowledge obtained
during the course of employment, solicitation of employment after termination of
any person who at the time of the solicitation is employed by the Company,
publishing any statement or making any statement critical of the Company,
engaging in any competitive activity during the optionee's employment or during
the three years following the optionee's termination or being convicted of a
crime against the Company or any of its affiliates.
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<PAGE> 60
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by Safelite for services rendered for the fiscal year ended
December 28, 1996, to its Chief Executive Officer and its four most highly paid
executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- ------------------------------- ---- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Garen K. Staglin............... 1996 $666,827 $2,230,000 $ 75,628(2) $ 5,246(3)
Chairman of the Board and
Chief Executive Officer
John F. Barlow................. 1996 $573,798 $2,040,000 -- $ 5,024(4)
President and Chief Operating
Officer
Douglas A. Herron.............. 1996 $327,885 $ 691,713 -- $ 4,772(5)
Senior Vice President and
Chief Financial Officer
Elizabeth A. Wolszon........... 1996 $270,192 $ 430,703 -- $ 2,113(6)
Vice President Marketing and
Strategic Planning
Douglas R. Maehl............... 1996 $256,154 $ 419,702 -- $ 8,587(7)
Senior Vice President
Manufacturing,
Distribution and
Purchasing
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
have been omitted because the aggregate amount of such perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total annual salary and bonuses for the Named Executive Officers for such
year. Amounts presented reflect compensation earned in the period presented,
although payment may have been made in other periods.
(2) Includes $60,591 for compensation related to reimbursement of certain
expenses, primarily the salaries of Mr. Staglin's personal assistants.
(3) Represents $1,980 in Company contributions to the 401(k) plan and $3,266 in
medical plan benefits.
(4) Represents $1,980 in Company contributions to the 401(k) plan and $3,044 in
medical plan benefits.
(5) Represents $2,336 in Company contributions to the 401(k) plan and $2,436 in
medical plan benefits.
(6) Represents $2,024 in Company contributions to the 401(k) plan and $89 in
medical plan benefits.
(7) Represents $2,501 in Company contributions to the 401(k) plan and $6,086 in
medical plan benefits.
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<PAGE> 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and 8% Preferred Stock as of
December 28, 1996 (i) by each person (or group of affiliated persons) known by
the Company to be the beneficial owner of more than 5% of the outstanding common
stock, (ii) each Director, (iii) the Company's Chief Executive Officer and the
Company's other named executive officers (as determined in accordance with the
rules of the Securities and Exchange Commission), and (iv) all of the Company's
executive officers and Directors as a group. Except as indicated in the
footnotes to this table, the Company believes that the persons named in this
table have sole voting and investment power with respect to all the shares of
common stock indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES OF
NAME OF BENEFICIAL OWNER OF COMMON STOCK(1) PERCENTAGE OF CLASS 8% PREFERRED STOCK PERCENTAGE OF CLASS(1)
- ------------------------------------ ------------------ ------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Garen K. Staglin(2)................. 207,880 4.2% -- --
John F. Barlow(2)(3)................ 166,304 3.3% -- --
Douglas A. Herron(2)................ 41,576 * -- --
Elizabeth A. Wolszon(2)............. 21,902 * -- --
Douglas R. Maehl(2)................. 21,902 * -- --
James K. West(2).................... 21,902 * -- --
Poe A. Timmons(2)(4)................ 8,758 * -- --
Anthony J. DiNovi(5)................ 4,341,240 87.4% 577,516 99.1%
Seth W. Lawry(5).................... 4,341,240 87.4% 577,516 99.1%
Morton Meyerson(2)(6)............... 59,351 1.2% 4,982 *
Scott M. Sperling(5)................ 4,341,240 87.4% 577,516 99.1%
All Directors and Executive Officers
as a Group (11 persons)........... 4,890,815 98.4% 582,498 100.0%
5% Stockholders:
Thomas H. Lee Equity Fund, III,
L.P.(7)........................... 3,724,438 75.0% 495,463 85.1%
THL-CCI Limited Partnership(8)...... 386,345 7.8% 51,395 8.8%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes general voting power and/or
investment power with respect to securities. Shares of common stock subject
to options and warrants currently exercisable or exercisable within 60 days
of December 28, 1996 are deemed outstanding.
(2) The address of this stockholder is c/o Safelite Glass Corp., 1105 Schrock
Road, Columbus, Ohio 43229.
(3) Includes 33,260 shares owned of record by trusts established for the benefit
of Mr. Barlow's children.
(4) Comprised of options to purchase shares of Safelite Class A Common Stock.
(5) The address of this stockholder is c/o Thomas H. Lee Company, 75 State
Street, Boston, Massachusetts 02109. All such securities are owned by the
THL Equity Fund, THL-CCI Limited Partnership and Thomas H. Lee Foreign Fund
III, L.P. and may be deemed to be beneficially owned by Messrs. DiNovi,
Lawry and Sperling, officers of the Thomas H. Lee Company, pursuant to the
definition of beneficial ownership provided in footnote(1). Each of such
persons disclaims beneficial ownership of such shares.
(6) In connection with the Transactions, Mr. Meyerson acquired beneficial
ownership of 37,449 shares of the Company's Class A Common Stock and 4,982
shares of 8% Preferred Stock. These shares are included in the number of
shares owned by THL for purposes of this Prospectus.
(7) THL Equity Advisors III Limited Partnership ("Advisors"), the general
partner of the THL Equity Fund and Thomas H. Lee Foreign Fund III, L.P., THL
Equity Trust III ("Equity Trust"), the general partner of Advisors, Thomas
H. Lee, Messrs. DiNovi and Sperling and other managing directors of Thomas
H. Lee Company, as Trustees of Equity Trust, and Thomas H. Lee as sole
shareholder of Equity Trust, may be deemed to be beneficial owners of the
shares held by the THL Equity Fund and Thomas H. Lee Foreign Fund III, L.P.
(which owns 230,457 shares of Class A Common Stock and 30,658 shares of 8%
Preferred Stock). Each of such persons maintains a principal business
address at Suite 2600, 75 State Street, Boston, MA 02109. Each of such
persons disclaims beneficial ownership of such shares.
(8) THL Investment Management Corp., the general partner of THL-CCI Limited
Partnership, and Thomas H. Lee, as director and sole shareholder of THL
Investment Management Corp., may also be deemed to be beneficial owners of
the shares held by THL-CCI Limited Partnership. Each of such persons
maintains a principal business address at Suite 2600, 75 State Street,
Boston, MA 02109. Each of such persons disclaims beneficial ownership of
such shares.
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<PAGE> 62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THL owns approximately 88% of the Class A Common Stock and 100% of the 8%
Preferred Stock of the Company. See "The Transactions."
At Closing, the Company entered into a Management Agreement with Thomas H.
Lee Company pursuant to which the Company agreed to pay Thomas H. Lee Company a
closing fee of $5.0 million in connection with the Transactions and an annual
fee of $500,000 for each of five successive years, for management services to
the Company. Such management services consist of on-going operational,
financial, accounting and strategic planning analysis and advice. Following the
initial five year term of such agreement, such agreement automatically continues
for successive one year terms unless any party thereto, at least ninety days
prior to the end of any term, provides all other parties thereto with notice of
the intent to terminate the agreement.
The Company also entered into employment agreements with each of Messrs.
Staglin, Barlow and Herron in connection with the Transactions and is party to
an existing employment agreement with Ms. Timmons. See "Employment Agreements."
Each of the Company's executive officers is also entitled to participate in
stock option plans maintained by the Company. See "Management -- Stock Option
Plans." Members of management of the Company received a transaction bonus in
connection with the Closing of approximately $7 million. Of such amount, Mr.
Staglin received $2,175,000, Mr. Barlow received $2,040,000, Mr. Herron received
$435,000, Mr. Maehl received $229,000, Ms. Wolszon received $229,000, Mr. West
received $229,000 and Ms. Timmons received $160,000.
The Company entered into a stockholders agreement (the "Stockholders'
Agreement") with THL, the Named Executive Officers and certain other management
stockholders of the Company in connection with the Transactions. Pursuant to the
Stockholders' Agreement, the stockholders party thereto are required to vote
their shares of Class A Common Stock to elect a Board of Directors of the
Company consisting of certain directors designated by THL and certain management
directors. THL has the right to elect a majority of the Board of Directors. The
Stockholders' Agreement also grants THL the right to require the Company to
effect the registration of shares of Class A Common Stock they hold for sale to
the public, subject to certain conditions and limitations. In addition, under
the terms of the Stockholders' Agreement, if the Company proposes to register
any of its securities under the Securities Act of 1933, as amended, whether for
its own account or otherwise, the stockholders party thereto are entitled to
notice of such registration and are entitled to include their shares therein,
subject to certain conditions and limitations. All fees, costs and expenses of
any registration effected on behalf of such stockholders under the Stockholders'
Agreement (other than underwriting discounts and commissions) will be paid by
the Company.
The Company made loans to certain executive officers of the Company in 1994
in connection with their purchase of shares of Safelite Class A Common Stock.
These loans are evidenced by promissory notes which bear interest at the average
rate of interest the Company must pay to borrow money, which was approximately
7.3% per annum for the five month period ended December 28, 1996. The principal
amounts of such loans are: Mr. Staglin, $138,594; Mr. Barlow, $110,689; Mr.
Herron, $27,000; Ms. Wolszon, $14,600; Mr. Maehl, $14,600; and Mr. West,
$14,000.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Safelite consists of 10,000,000 shares of
Safelite Class A Common Stock, 50,000 shares of Safelite Class B Common Stock,
and 1,000,000 shares of 8% Preferred Stock, $.01 par value per share (the "8%
Preferred Stock").
The following summary of certain provisions of the Safelite common stock
and 8% Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of Safelite's Certificate of
Incorporation as amended (the "Certificate of Incorporation") and by the
provisions of applicable law.
COMMON STOCK
Class A Common Stock. Holders of Safelite Class A Common Stock are
entitled to one vote per share on matters to be voted upon by the stockholders.
There are no cumulative voting rights. Holders of Safelite Class A Common Stock
are entitled to receive ratable dividends when, as and if declared by the Board
of Directors out of funds legally available therefor, subject to any
preferential dividend rights of any then outstanding 8% Preferred Stock. Upon
the liquidation, dissolution or winding up of Safelite, holders of Safelite
Class A Common Stock share ratably in the assets of Safelite available for
distribution to its stockholders, subject to the preferential rights of any then
outstanding 8% Preferred Stock. The shares of Safelite Class A Common Stock
outstanding upon the effective date of this Offering Memorandum are fully paid
and nonassessable. The rights, preferences and privileges of holders of Safelite
Class A Common Stock are subject to, and may be adversely affected by, the
rights of holders of shares of any 8% Preferred Stock that Safelite may
designate in the future.
Class B Common Stock. Holders of Safelite Class B Common Stock are
entitled to one vote per share on matters to be voted upon by the stockholders.
There are no cumulative voting rights. Holders of Safelite Class B Common Stock
are entitled to receive ratable dividends when, as and if declared by the Board
of Directors out of funds legally available therefor, subject to any
preferential dividend rights of any then outstanding Class A Common Stock and 8%
Preferred Stock. Upon the liquidation, dissolution or winding up of Safelite,
holders of Safelite Class B Common Stock share ratably in the assets of Safelite
available for distribution to its stockholders, subject to the preferential
rights of any then outstanding Class A Common Stock and 8% Preferred Stock. At
December 28, 1996, there were no shares of Safelite Class B Common Stock
outstanding. The rights, preferences and privileges of holders of Safelite Class
B Common Stock are subject to, and may be adversely affected by, the rights of
holders of shares of any 8% Preferred Stock that Safelite may designate in the
future.
PREFERRED STOCK
The 8% Preferred Stock is an accumulating perpetual preferred stock issued
pursuant to the Transactions. The 8% Preferred Stock is part of the THL Equity
Investment.
Mandatory Redemption. The 8% Preferred Stock is not mandatorily
redeemable.
Optional Redemption. At any time on or after December 15, 2001, or upon
the occurrence of a Redemption Event (as defined), the Company may redeem the 8%
Preferred Stock at its option, in whole or in part, at $100 per share, together
with accumulated unpaid dividends thereon to the date fixed for redemption. For
purposes hereof, a "Redemption Event" shall mean (i) an underwritten initial
public offering of the common stock of the Company or (ii) a Change of Control.
The terms of the Bank Credit Agreement and the Indenture restrict the Company's
ability to redeem shares of the 8% Preferred Stock. Redemptions made upon an
initial public offering constituting a Redemption Event shall be limited to the
net proceeds of such initial public offering received by the Company. See
"Description of Other Indebtedness" and "Description of Notes."
Dividends. Dividends on the 8% Preferred Stock accumulate at an annual
rate of 8% of the stated value thereof and are payable if, when and as declared
by the Board of Directors. Accumulated dividends that are unpaid compound on a
semi-annual basis at the annual rate of 8%. As a result of restrictions
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contained in the Indenture, dividends are not payable in respect of the 8%
Preferred Stock unless (i) the Company elects to redeem the 8% Preferred Stock
upon the occurrence of a Redemption Event or (ii) the Company exercises its
optional right to redeem the 8% Preferred Stock on or after December 15, 2001;
provided that the payment of such dividends will only be permitted if such
payment is in compliance with covenants contained in the Indenture. In the event
the Company elects not to redeem shares of 8% Preferred Stock upon the
occurrence of a Redemption Event, then immediately following such Redemption
Event the 8% annual dividend rate increases to 14% per annum and increase to 15%
and 16% per annum on the first and second anniversaries of such Redemption
Event.
Ranking. The 8% Preferred Stock, with respect to dividend and redemption
rights and rights upon liquidation, dissolution and winding up, ranks prior to
all other series of preferred stock of the Company and all classes of common
stock of the Company. No preferred stock or other class of equity securities of
the Company ranking senior to or pari passu with the 8% Preferred Stock, with
respect to dividends or redemption payments or upon dissolution, liquidation or
winding up, may be created without the consent of the holders of the 8%
Preferred Stock.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the shares
of 8% Preferred Stock then outstanding shall be entitled to receive out of the
assets of the Company available for distribution to its stockholders an amount
in cash equal to $100 per share outstanding, plus an amount in cash equal to all
accrued but unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding up, before any payment shall be made or any assets
distributed to the holders of any other equity securities of the Company which
rank junior to the 8% Preferred Stock with respect to liquidation preference
rights.
Voting Rights. The holders of shares of 8% Preferred Stock shall not be
entitled to any voting rights except as otherwise provided by law.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Certificate of Incorporation of Safelite provides that no director
shall be personally liable to Safelite or its stockholders for monetary damages
for beach of fiduciary duty as a director, except for (i) any breach of the
director's duty of loyalty to Safelite or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct; (iii) acts
or omissions in respect of certain unlawful dividends and payments or stock
redemptions or repurchases; or (iv) any transaction from which such director
derives improper personal benefit. The effect of this provision is to eliminate
the rights of Safelite and its stockholders through stockholders' derivative
suits on behalf of Safelite to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches resulting
from negligent or grossly negligent behavior) except in the situations described
in clauses (i) through (iv) above. The limitations summarized above, however, do
not affect the ability of Safelite or its stockholders to seek non-monetary
based remedies, such as an injunction or rescission, against a director for
breach of his fiduciary duty nor would such limitations limit liability under
the Federal Securities Laws. Safelite's By-laws provide that Safelite, shall, to
the full extent permitted by the Delaware General Corporation Law as currently
in effect, indemnify and advance expenses to each of its currently acting and
former directors, officers, employees and agents arising in connection with
their acting in such capacities.
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DESCRIPTION OF OTHER INDEBTEDNESS
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Bank Credit Agreement.
The Chase Manhattan Bank ("Chase") has provided the Company with senior
secured credit facilities (the "Bank Credit Agreement") in an aggregate
principal amount of $180.0 million under which $150.0 million was borrowed under
the Term Loan Facility (as defined below) and the Company had $30.0 million of
commitments available under the Revolving Credit Facility.
Structure. The Bank Credit Agreement consists of (a) a term loan facility
in an aggregate principal amount of $150.0 million (the "Term Loan Facility"),
consisting of two tranches in principal amounts of $75.0 million (the "Tranche A
Term Loan" and "Tranche B Term Loan", respectively), and (b) a revolving credit
facility providing for revolving loans to the Company and the issuance of
letters of credit for the account of the Company in an aggregate principal
amount (including the aggregate stated amount of letters of credit and the
aggregate reimbursement and other obligations in respect thereof) at any time
not to exceed $30.0 million (the "Revolving Credit Facility").
Availability. The availability of the Bank Credit Agreement is subject to
various conditions precedent typical for bank loans, and Chase's commitments to
provide the Bank Credit Agreement are also subject to, among other things, the
absence of any material adverse change with respect to the Company in particular
or the financial, banking or capital markets in general. The full amount of the
Term Loan Facility was drawn in a single drawing at the closing of the
Recapitalization and amounts repaid or prepaid under the Term Loan Facility may
not be reborrowed.
Repayment. The Tranche A Term Loan and the Revolving Credit Facility will
mature on the sixth anniversary of the Closing. The Tranche B Term Loan will
mature on the eighth anniversary of the Closing. The Tranche A Term Loan and the
Tranche B Term Loan will be subject to the following amortization schedule:
<TABLE>
<CAPTION>
REPAYMENT AMOUNTS
------------------------------------------
DATE TRANCHE A TERM LOAN TRANCHE B TERM LOAN
- ------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Last business day in September, December 1998.......... $ 2,500,000 $ 187,500
Last business day in March, June, September and
December 1999........................................ 2,500,000 187,500
Last business day in March, June, September and
December 2000........................................ 3,750,000 187,500
Last business day in March, June, September and
December 2001........................................ 5,000,000 187,500
Last business day in March, June, September 2002....... 6,250,000 187,500
December 20, 2002...................................... 6,250,000 --
Last business day in December 2002..................... -- 187,500
Last business day in March, June, September and
December 2003........................................ -- 8,953,125
Last business day in March, June and September 2004.... -- 8,953,125
December 20, 2004...................................... -- 8,953,125
</TABLE>
In addition, the Bank Credit Agreement is subject to mandatory principal
prepayment and commitment reductions (to be applied first to the Term Loan
Facility) in an amount equal to, subject to certain exceptions, (a) 100% of the
net proceeds of (i) certain debt and equity offerings by the Company or any of
its subsidiaries and (ii) certain asset sales or other dispositions and (b) 50%
of the Company's excess operating cash flow.
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Security. The Bank Credit Agreement is secured by security interests in
and pledges of or liens on substantially all the material tangible and
intangible assets of the Company, including pledges of all the capital stock of,
or other equity interests in, certain subsidiaries of Safelite.
Interest. At the Company's election, the interest rates per annum
applicable to the loans under the Bank Credit Agreement is a fluctuating rate of
interest measured by reference to either (a) an adjusted London inter-bank
offered rate ("LIBOR") plus a borrowing margin or (b) an alternate base rate
("ABR") (equal to the higher of Chase's published prime rate and the Federal
Funds effective rate plus 1/2 of 1% per annum) plus a borrowing margin. The
borrowing margins applicable to the Tranche A Term Loan and loans under the
Revolving Credit Facility are 1.50% per annum for ABR loans and 2.50% per annum
for LIBOR loans. These margins will be subject to reduction after the first
anniversary of the Closing if certain financial performance thresholds are met.
The interest rate borrowing margins applicable to the Tranche B Term Loan are
2.00% per annum for ABR loans and 3.00% per annum for LIBOR loans and are not
subject to reduction. Amounts under the Bank Credit Agreement not paid when due
bear interest at a default rate equal to 2.00% per annum above the rate
otherwise applicable.
Fees. The Company has agreed to pay certain fees with respect to the
Senior Credit Facilities, including (i) fees on the unused commitments of the
lenders equal to 1/2 of 1% per annum of the undrawn portion of the commitments
in respect of the facilities; (ii) letter of credit fees on the aggregate face
amount of outstanding letters of credit equal to the then applicable borrowing
margin for LIBOR loans under the Revolving Credit Facility plus a per annum
fronting bank fee for the letter of credit issuing bank; (iii) annual
administration fees; and (iv) agent, arrangement and other similar fees.
Covenants. The Bank Credit Agreement contains a number of covenants that,
among other things, will restrict the ability of the Company to dispose of
assets, incur additional indebtedness, incur guarantee obligations, prepay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, make investments, loans or advances, make acquisitions, create
subsidiaries, engage in mergers or consolidations, change the business conducted
by the Company, make capital expenditures, or engage in certain transactions
with affiliates and otherwise restrict certain corporate activities. In
addition, under the Bank Credit Agreement, the Company is required to comply
with specified financial ratios and minimum tests, including minimum interest
coverage ratios, maximum leverage ratios and minimum EBITDA covenants.
The Bank Credit Agreement also contains provisions that limit the Company's
ability to amend or modify the Indenture and the Company's ability to prepay or
refinance the Notes without the consent of such lenders.
Events of Default. The Bank Credit Agreement contains customary events of
default including non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations or warranties in any material respect,
cross default and cross acceleration to certain other indebtedness, bankruptcy,
material judgments and liabilities and change of control.
During 1996, the Company purchased workers' compensation, automobile and
product liability coverage for the period December 20, 1996 through December 31,
1999. The cost of this insurance was partially financed by approximately $13.7
million in premium financing, payable in monthly installments, including
interest of 6.67% to 6.99%, of $514,000 in 1997 and $416,000 in 1998 and 1999.
Under the terms of the financing, if the Company cancels its insurance policies
for any reason, corresponding unearned premium refunds would be applied directly
against the outstanding principal balance. At December 28, 1996, the outstanding
principal balance of this premium financing was approximately $13.7 million.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture"),
dated as of December 20, 1996 by and between the Company and Fleet National
Bank, as Trustee (the "Trustee"). References to the Notes include the Initial
Notes and the Exchange Notes unless the context otherwise requires. Upon the
issuance of the Exchange Notes, if any, or the effectiveness of a Shelf
Registration Statement, the Indenture will be subject to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The following summary of the
material provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act, and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." For purposes
of this section, references to the "Company" include only the Company and not
its subsidiaries.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Indebtedness of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration of transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders.
Any Initial Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100 million and
will mature on December 15, 2006. Interest on the Notes will accrue at the rate
of 9 7/8% per annum and will be payable semiannually in cash on each June 15 and
December 15 commencing on June 15, 1997, to the Persons who are registered
Holders at the close of business on the June 1 and December 1 immediately
preceding the applicable 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 date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after December
15, 2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on December 15 of the year
set forth below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
----------------------------------------------------------- ----------
<S> <C>
2001....................................................... 104.9375%
2002....................................................... 103.2917
2003....................................................... 101.6458
2004 and thereafter........................................ 100.0000
</TABLE>
Optional Redemption Upon Equity Offerings. At any time, or from time to
time, on or prior to December 15, 1999, the Company may, at its option, use the
net cash proceeds of one or more Equity
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Offerings (as defined below) to redeem up to $35 million of the aggregate
principal amount of Notes originally issued at a redemption price equal to
109.875% of the principal amount thereof plus accrued interest to the date of
redemption; provided that at least $65 million of the original principal amount
of Notes remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Equity Offering. "Equity Offering" means an offering of Qualified
Capital Stock of the Company.
SELECTION AND NOTICE
In case of a partial redemption, selection of the Notes or portions thereof
for redemption shall be made by the Trustee by lot, pro rata or in such manner
as it shall deem appropriate and fair and in such manner as complies with any
applicable legal requirements; provided, however, that if a partial redemption
is made with the proceeds of an Equity Offering, selection of the Notes or
portion thereof for redemption shall be made by the Trustee only on a pro rata
basis, unless such method is otherwise prohibited. Notes may be redeemed in part
in multiples of $1,000 principal amount only. Notice of redemption will be sent,
by first class mail, postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption to each Holder whose Notes are to be
redeemed at the last address for such Holder then shown on the registry books.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after any redemption date, interest will cease to
accrue on the Notes or part thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the redemption
price pursuant to the Indenture.
RANKING OF NOTES
The indebtedness evidenced by the Notes will be unsecured Senior
Subordinated Indebtedness of the Company, will be subordinated in right of
payment, as set forth in the Indenture, to all existing and future Senior
Indebtedness of the Company, will rank pari passu in right of payment with all
existing and future Senior Subordinated Indebtedness of the Company and will be
senior in right of payment to all existing and future Subordinated Obligations
of the Company. The Notes will also be effectively subordinated to any Secured
Indebtedness of the Company to the extent of the value of the assets securing
such Indebtedness, and to all Indebtedness of its Subsidiaries. However, payment
from the money or the proceeds of U.S. government obligations held in any
defeasance trust described under "--Legal Defeasance and Covenant Defeasance"
below is not subordinated to any Senior Indebtedness or subject to the
restrictions described above if the deposit to such trust which is used to fund
such payment was permitted at the time of such deposit.
As of December 28, 1996, the Company had approximately $163.7 million of
Senior Indebtedness outstanding (excluding unused commitments) all of which
would have been Secured Indebtedness (excluding $4.9 million of outstanding
letters of credit). Although the Indenture contains limitations on the amount of
additional Indebtedness which the Company and its Restricted Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness or
Secured Indebtedness. See "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness" below.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior in right of payment to the Notes in accordance with the provisions of the
Indenture. The Notes will in all respects rank pari passu in right of payment
with all other Senior Subordinated Indebtedness of the Company. The Company has
agreed in the Indenture that it will not incur, directly or indirectly, any
Indebtedness which is expressly subordinate in right of payment to Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
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Without limiting the foregoing, unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, or
any other amount in respect of, the Notes or make any deposit pursuant to the
provisions described under "--Legal Defeasance and Covenant Defeasance" below
and may not otherwise purchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid when
due in cash or Cash Equivalents or (ii) any other default on Senior Indebtedness
occurs and the maturity of such Senior Indebtedness is accelerated in accordance
with its terms unless, in either case, the default has been cured or waived and
any such acceleration has been rescinded or such Senior Indebtedness has been
paid in full in cash or Cash Equivalents. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the holders of the
Designated Senior Indebtedness with respect to which either of the events set
forth in clause (i) or (ii) of the immediately preceding sentence has occurred
and is continuing.
In addition, during the continuance of any default (other than a default
described in clause (i) or (ii) of the first sentence of the immediately
preceding paragraph) 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, the Company may not pay the
Notes for a period (a "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 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 in cash or Cash Equivalents).
Notwithstanding the provisions described in the immediately preceding
paragraph, unless any of the events described in clause (i) or (ii) of the first
sentence of the second immediately preceding paragraph is then occurring, the
Company may resume payments on the Notes after the end of such Payment Blockage
Period, including any missed payments. 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 Indebtedness during such period. However, if
any Blockage Notice within such 360-day period is given by or on behalf of any
holders of Designated Senior Indebtedness other than the Bank Indebtedness, a
Representative of holders of Bank Indebtedness may give another Blockage Notice
within such period. In no event, however, may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets or securities of the Company
upon a total or partial liquidation or dissolution or reorganization of or
similar proceeding relating to the Company or its property or in a bankruptcy,
insolvency, receivership or similar proceeding relating to the Company or its
property, or in an assignment for the benefit of creditors or any marshalling of
the assets and liabilities of the Company, the holders of Senior Indebtedness
will be entitled to receive payment in full in cash or Cash Equivalents of the
Senior Indebtedness before the holders of the Notes are entitled to receive any
payment and, until the Senior Indebtedness is paid in full in cash or Cash
Equivalents, any payment or distribution to which holders of the Notes would be
entitled but for the subordination provisions of the Indenture will be made to
holders of the Senior Indebtedness as their interests may appear. If a payment
or distribution is made to holders of the Notes that due to the subordination
provisions should not have been made to them, such holders of the Notes are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear.
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If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five business days after such holders or
the Representative of the holders of Designated Senior Indebtedness receive
notice of such acceleration and, thereafter, may pay the Notes only if the
subordination provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Notes, and
creditors of the Company who are not holders of Senior Indebtedness or of Senior
Subordinated Indebtedness (including the Notes) may recover less, ratably, than
holders of Senior Indebtedness and may recover more than the holders of Senior
Subordinated Indebtedness.
GUARANTEES
After the Issue Date, the Company will cause each Restricted Subsidiary of
the Company that guarantees payment of the Bank Indebtedness (each, a
"Subsidiary Guarantor") to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Restricted Subsidiary will guarantee (each, a
"Guarantee") payment of the Notes. None of the Company's current subsidiaries
have guaranteed the Company's indebtedness under the Bank Credit Agreement or
the Notes. See "Certain Covenants--Future Guarantees."
Each such Subsidiary Guarantor will unconditionally guarantee, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture and
the Notes, including the payment of principal of and interest on the Notes. The
Guarantees will be subordinated to Guarantor Senior Indebtedness on the same
basis as the Notes are subordinated to Senior Indebtedness. The obligations of
each Subsidiary Guarantor are limited to the maximum amount which, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Subsidiary Guarantor in an amount pro
rata, based on the Adjusted Net Assets (as defined in the Indenture) of each
Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into, liquidate,
dissolve or sell its assets to the Company or another Subsidiary Guarantor that
is a Wholly Owned Restricted Subsidiary of the Company without limitation, or
with other Persons upon the terms and conditions set forth in the Indenture. See
"Certain Covenants--Merger, Consolidation and Sale of Assets." In the event that
(i) either all of the Capital Stock of a Subsidiary Guarantor is sold by the
Company (whether by merger, stock purchase or otherwise) or all or substantially
all of the assets of a Subsidiary Guarantor are sold by such Subsidiary
Guarantor and such sale complies with the provisions set forth in "Certain
Covenants--Limitation on Asset Sales" or (ii) the lenders under the Bank Credit
Agreement release a Subsidiary Guarantor of all guarantees under the Bank Credit
Agreement and release all Liens on the property and assets of such Subsidiary
Guarantor relating to the Bank Indebtedness, then in each case the Subsidiary
Guarantor's Guarantee will be released.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control
Triggering Event, each Holder will have the right to require that the Company
purchase all or a portion of such Holder's Notes pursuant to the offer described
below (the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase.
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<PAGE> 71
The Indenture will provide that, prior to the mailing of the notice
referred to below, but in any event within 30 days following any Change of
Control Triggering Event, the Company covenants to (i) repay in full and
terminate all commitments under the Bank Indebtedness or offer to repay in full
and terminate all commitments under all Bank Indebtedness and to repay the Bank
Indebtedness owed to each holder of Bank Indebtedness which has accepted such
offer or (ii) obtain the requisite consents under the Bank Credit Agreement to
permit the repurchase of the Notes as provided below. The Company shall first
comply with the covenant in the immediately preceding sentence before it shall
be required to repurchase Notes pursuant to the provisions described below. The
Company's failure to comply with this covenant shall constitute an Event of
Default described in clause (iii) and not in clause (ii) under "Events of
Default" below.
Within 30 days following the date upon which the Change of Control
Triggering Event occurred, the Company must send, by first class mail, a notice
to each Holder, with a copy to the Trustee, which notice shall govern the terms
of the Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third business day prior to the Change of
Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of the Company's
assets as such phrase is defined in the Revised Model Business Corporation Act.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise definition of the phrase under
applicable law. Accordingly, 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 assets of the Company, and
therefore it may be unclear as to whether a Change of Control has occurred and
whether the Holders have the right to require the Company to repurchase such
Notes.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control
Triggering Event. Restrictions in the Indenture described herein on the ability
of the Company and its Restricted Subsidiaries to incur additional Indebtedness,
to grant Liens on their properties, to make Restricted Payments and to make
Asset Sales may also make more difficult or discourage a takeover of the
Company, whether favored or opposed by the management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that the
Company or the acquiring party will have sufficient financial resources to
effect such redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more difficult
or discourage any leveraged buyout of the Company or any of its Subsidiaries by
the management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the
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provisions of any securities laws or regulations conflict with the "Change of
Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
(a) declare or pay any dividend or make any distribution (other than dividends
or distributions payable in Qualified Capital Stock) on or in respect of shares
of Capital Stock of the Company to holders of such Capital Stock, (b) purchase,
redeem or otherwise acquire or retire for value any Capital Stock of the Company
or any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, other than the exchange of such Capital Stock for Qualified
Capital Stock, or (c) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (a), (b) and (c) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing, (ii) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments made
subsequent to the Issue Date shall exceed the sum of: (w) 50% of the cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company earned subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs (the "Reference
Date") (treating such period as a single accounting period); plus (x) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock of
the Company (including Capital Stock issued upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness); plus (y) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding any net cash proceeds
from such equity contribution to the extent used to redeem Notes in accordance
with the optional redemption provisions of the Notes); plus (z) to the extent
that any Investment (other than a Permitted Investment) that was made after the
Issue Date is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash received with respect to such sale, liquidation or
repayment of such Investment (less the cost of such sale, liquidation or
repayment, if any) and (B) the initial amount of such Investment.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Event of Default shall have
occurred and be continuing as a consequence thereof, the acquisition of any
shares of Capital Stock of the Company, either (i) solely in exchange for shares
of Qualified Capital Stock of the Company, or (ii) through the application of
net proceeds of a substantially concurrent sale (other than to a Subsidiary of
the Company) of shares of Qualified Capital Stock of the Company; (3) payments
for the purpose of and in an amount equal to the amount required to permit the
Company to redeem or repurchase shares of its Capital Stock or options in
respect thereof, in each case in connection with the repurchase provisions under
employee stock option or stock purchase agreements or other agreements to
compensate management employees; provided that such redemptions or repurchases
pursuant to this clause (3) shall not exceed $2 million (which amount shall be
increased by the amount of any cash proceeds to the Company from (x) sales of
its Capital Stock to management employees subsequent to the Issue Date and (y)
any "key-man" life insurance policies which are used to make such redemptions or
repurchases) in the aggregate; (4) the payment of fees
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and compensation as permitted under clause (i) of paragraph (b) of the
"Transactions with Affiliates" covenant; (5) so long as no Default or Event of
Default shall have occurred and be continuing, payments not to exceed $100,000
in the aggregate, to enable the Company to make payments to holders of its
Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (6)
repurchases of Capital Stock deemed to occur upon the exercise of stock options
if such Capital Stock represents a portion of the exercise price thereof; and
(7) payments made on the Issue Date pursuant to the Recapitalization Agreement.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, (a) amounts expended (to the extent such expenditure is in the form
of cash or other property other than Qualified Capital Stock) pursuant to
clauses (1), (2) and (3) of this paragraph shall be included in such
calculation, provided that such expenditures pursuant to clause (3) shall not be
included to the extent of cash proceeds received by the Company from any "key
man" life insurance policies and (b) amounts expended pursuant to clause (4),
(5), (6), and (7) shall be excluded from such calculation.
The Indenture will not permit the payment of dividends in respect of the 8%
Preferred Stock unless: (i) the Company elects to redeem the 8% Preferred Stock
upon the occurrence of a Redemption Event or (ii) the Company exercises its
optional right to redeem the 8% Preferred Stock on or after December 15, 2001;
provided that the payment of such dividends will only be permitted if such
payment is in compliance with the other provisions of the "Limitation on
Restricted Payments" convenant.
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor may
incur Indebtedness if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate; provided, however, that for a transaction or
series of related transactions with an aggregate value of $2 million or more, at
the Company's option (i) such determination shall be made in good faith by a
majority of the disinterested members of the Board of the Directors of the
Company or (ii) the Board of Directors of the Company or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received a favorable
opinion from a nationally recognized investment banking firm that such Affiliate
Transaction is on terms not materially less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate; provided, further,
that for a transaction or series of related transactions with an aggregate value
of $5 million or more, the Board of Directors of the Company shall have received
a favorable opinion from a nationally recognized investment banking firm that
such Affiliate Transaction is on terms not materially less favorable than those
that might reasonably have been obtained in a comparable transaction at such
time on an arm's-length basis from a Person that is not an Affiliate.
(b) The foregoing restrictions shall not apply to (i) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary of the Company as
determined in good faith by the Company's Board of Directors or senior
management; (ii) transactions exclusively between or among the Company and any
of its Wholly Owned Restricted Subsidiaries or exclusively between or among such
Wholly Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture; (iii) transactions effected as
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part of a Qualified Receivables Transaction; (iv) any agreement as in effect as
of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is not
more disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; and (v) Restricted Payments permitted
by the Indenture.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date and any
extensions, renewals or replacements thereof; (B) Liens securing Senior
Indebtedness and Guarantor Senior Indebtedness; (C) Liens securing the Notes and
the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary
on assets of any Subsidiary of the Company; (E) Liens securing Indebtedness
which is incurred to refinance Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (F) Permitted
Liens.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the Company
nor any Subsidiary Guarantor will incur or suffer to exist Indebtedness that is
senior in right of payment to the Notes or such Subsidiary Guarantor's Guarantee
and subordinate in right of payment to any other Indebtedness of the Company or
such Subsidiary Guarantor, as the case may be.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on or
in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Restricted
Subsidiary of the Company; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture; (3) non-assignment provisions of any contract or any lease
entered into in the ordinary course of business; (4) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to the
Company or any Restricted Subsidiary of the Company, or the properties or assets
of any such Person, other than the Person or the properties or assets of the
Person so acquired; (5) agreements existing on the Issue Date (including,
without limitation, the Bank Credit Agreement and the Recapitalization
Agreement); (6) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien; (7)
restrictions imposed by any agreement to sell assets permitted under the
Indenture to any Person pending the closing of such sale; (8) any agreement or
instrument governing Capital Stock of any Person that is acquired after the
Issue Date; (9) Indebtedness or other contractual requirements of a Receivables
Entity in connection with a Qualified Receivables Transaction; provided that
such restrictions apply only to such Receivables Entity; or (10) an agreement
effecting a refinancing, replacement or substitution of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4) or
(5) above; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such refinancing, replacement or substitution
agreement are no less favorable to the Company or the Holders in any material
respect as determined by the Board of Directors of the Company than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit
any Person (other than the Company or a Wholly Owned
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Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or a series of related transactions, consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person or Persons
unless (i) either (A) the Company shall be the survivor of such merger or
consolidation or (B) the surviving Person is a corporation existing under the
laws of the United States, any state thereof or the District of Columbia and
such surviving Person shall expressly assume all the obligations of the Company
under the Notes and the Indenture; (ii) immediately after giving effect to such
transaction (on a pro forma basis, including any Indebtedness incurred or
anticipated to be incurred in connection with such transaction and including
adjustments that are (i) directly attributable to such transaction and (ii)
factually supportable), the Company or the surviving Person is able to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant; (iii) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be incurred
in connection with the Transactions), no Default or Event of Default shall have
occurred and be continuing; (iv) each Subsidiary Guarantor, unless it is the
other party to the Transactions, shall have by supplemental indenture confirmed
that after consummation of such transaction its Guarantee shall apply, as such
Guarantee applied on the date it was granted under the Indenture to the
obligations of the Company under the Indenture and the Notes, to the obligations
of the Company or such Person, as the case may be, under the Indenture and the
Notes; and (v) the Company has delivered to the Trustee an officers' certificate
and opinion of counsel, each stating that such consolidation, merger or transfer
complies with the Indenture, that the surviving Person agrees to be bound
thereby, and that all conditions precedent in the Indenture relating to such
transaction have been satisfied. For purposes of the foregoing, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company. Notwithstanding the foregoing clauses (ii) and (iii) of the
preceding sentence, (a) any Restricted Subsidiary of the Company may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (b) the Company may merge with an Affiliate incorporated solely for
the purpose of reincorporating the Company in another jurisdiction.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity had
been named as such; provided that solely for purposes of computing amounts
described in clause (iii) of the first paragraph of the covenant "Limitation on
Restricted Payments" above, any such surviving entity to the Company shall only
be deemed to have succeeded to and be substituted for the Company with respect
to periods subsequent to the effective time of such merger, consolidation,
combination or transfer of assets.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of its Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales" or as otherwise provided in the Indenture) will
not, and the Company will not cause or permit any Subsidiary Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Subsidiary Guarantor unless: (i) the entity formed by or surviving any
such consolidation or merger (if other than the Subsidiary Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) such entity assumes by
supplemental indenture all of the obligations of the Subsidiary Guarantor on the
Guarantee; (iii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom, on a pro forma basis, including adjustments that
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are (i) directly attributable to such transaction and (ii) factually
supportable, the Company could satisfy the provisions of clause (ii) of the
first paragraph of this covenant.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or such Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents and is received at the time of
such disposition; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or such Restricted
Subsidiary's Guarantee, if any) that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or any such Restricted Subsidiary into cash or Cash Equivalents
(to the extent of the cash or Cash Equivalents received) shall be deemed to be
cash for purposes of this provision; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof
either (A) to prepay any Senior Indebtedness or Guarantor Senior Indebtedness
and, in the case of any Senior Indebtedness under any revolving credit facility,
effect a permanent reduction in the availability under such revolving credit
facility, (B) to reinvest in Productive Assets, or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the immediately preceding
sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of
Net Cash Proceeds which have not been applied on or before such Net Proceeds
Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of
the immediately preceding sentence (each a "Net Proceeds Offer Amount") shall be
applied by the Company or such Restricted Subsidiary to make an offer to
purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment
Date") not less than 30 nor more than 45 days following the applicable Net
Proceeds Offer Trigger Date, from all Holders on a pro rata basis that amount of
Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the Notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase; provided, however, that if at any time
any non-cash consideration received by the Company or any Restricted Subsidiary
of the Company, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$5 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and its Restricted Subsidiaries aggregates at least $5 million, at which time
the Company or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $5 million or more shall be deemed to be a
"Net Proceeds Offer Trigger Date").
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets and (ii) such
Asset Sale is for at least fair market value (as determined in good faith by the
Company's Board
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of Directors); provided that any consideration not constituting Productive
Assets received by the Company or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted to be consummated under this paragraph
shall constitute Net Cash Proceeds and shall be subject to the provisions of the
two preceding paragraphs; provided, that at the time of entering into such
transaction or immediately after giving effect thereto, no Default or Event of
Default shall have occurred or be continuing or would occur as a consequence
thereof.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law. To the extent that the aggregate amount of Notes tendered
pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the
Company may use any remaining Net Proceeds Offer Amount for general corporate
purposes. Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer
Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Future Guarantees. The Company will not permit any of its Restricted
Subsidiaries, directly or indirectly, to incur, guarantee or secure through the
granting of Liens the payment of the Bank Indebtedness or any refunding or
refinancing thereof, in each case unless such Restricted Subsidiary, the Company
and the Trustee execute and deliver a supplemental indenture evidencing such
Restricted Subsidiary's Guarantee, such Guarantee to be a senior subordinated
unsecured obligation of such Restricted Subsidiary. Neither the Company nor any
such Subsidiary Guarantor shall be required to make a notation on the Notes or
the Guarantees to reflect any such subsequent Guarantee. Nothing in this
covenant shall be construed to permit any Restricted Subsidiary of the Company
to incur Indebtedness otherwise prohibited by the "Limitation on Incurrence of
Additional Indebtedness" covenant. Thereafter, such Restricted Subsidiary shall
be a Subsidiary Guarantor for all purposes of the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, related or ancillary
to the businesses in which the Company and its Restricted Subsidiaries are
engaged on the Issue Date.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due and
payable and the default continues for a period of 30 days (whether or not such
payment shall be prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Notes, when such principal becomes
due and payable, at maturity, upon redemption or otherwise (including the
failure to make a payment to purchase Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer) (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture); (iii) a default in
the observance or performance of any other covenant or agreement contained in
the Indenture which default continues for a period of 30 days after the Company
receives written notice specifying the default (and demanding that such default
be remedied) from the Trustee or the Holders of at least 25% of the outstanding
principal amount of the Notes; (iv) the failure to pay at final maturity (giving
effect to any applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the
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Company or any Restricted Subsidiary (other than a Receivables Entity) of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness in default for failure
to pay principal at final maturity or which has been accelerated, aggregates $10
million or more at any time; (v) one or more judgments in an aggregate amount in
excess of $10 million shall have been rendered against the Company or any of its
Significant Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become final
and non-appealable, and in the event such judgment is covered by insurance, an
enforcement proceeding has been commenced by any creditor upon such judgment
which is not promptly stayed; (vi) certain events of bankruptcy affecting the
Company or any of its Significant Subsidiaries; and (vii) any of the Guarantees
of the Subsidiary Guarantors that are also Significant Subsidiaries of the
Company ceases to be in full force and effect or any of such Guarantees is
declared to be null and void and unenforceable or any of such Guarantees is
found to be invalid or any of such Subsidiary Guarantors denies its liability
under its Guarantee (other than by reason of release of such Subsidiary
Guarantor in accordance with the terms of the Indenture).
Upon the happening of any Event of Default specified in the Indenture, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration", and the
same shall become immediately due and payable. If an Event of Default with
respect to bankruptcy proceedings of the Company occurs and is continuing, then
such amount shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holder of Notes.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) or (vii) of the
description above of Events of Default, the Trustee shall have received an
officers' certificate and an opinion of counsel that such Event of Default has
been cured or waived. The holders of a majority in principal amount of the Notes
may waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Notes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
shall have any liability for any obligations of the Company under the Notes or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (i) the rights of
holders of the Notes to receive payments in respect of the principal of,
premium, if any, and interest on the Notes when
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such payments are due, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payments,
(iii) the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
with respect to the Indenture resulting from the incurrence of Indebtedness, all
or a portion of which will be used to defease the Notes concurrently with such
incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company 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 over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness of the
Company other than the Notes and (B) assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the deposit and
that no Holder of the Notes is an insider of the Company, 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; and (ix) certain other customary conditions
precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost,
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stolen or destroyed Notes which have been replaced or paid and 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) have been delivered to the Trustee for cancellation or (b) all Notes
not theretofore delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be deposited with
the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Notes to
the date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums payable
under the Indenture by the Company; and (iii) the Company has delivered to the
Trustee an officers' certificate and an opinion of counsel stating that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders of the Notes, may amend the Indenture for
certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not, in the opinion of the Trustee,
adversely affect the rights of any of the Holders in any material respect. In
formulating its opinion on such matters, the Trustee will be entitled to rely on
such evidence as it deems appropriate, including, without limitation, solely on
an opinion of counsel. Other modifications and amendments of the Indenture may
be made with the consent of the Holders of a majority in principal amount of the
then outstanding Notes issued under the Indenture, except that, without the
consent of each holder of the Notes affected thereby, no amendment may: (i)
reduce the amount of Notes whose holders must consent to an amendment; (ii)
reduce the rate of or change or have the effect of changing the time for payment
of interest, including defaulted interest, on any Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Notes payable in money other than that stated in the Notes; (v) make any change
in provisions of the Indenture protecting the right of each holder of a Note to
receive payment of principal of and interest on such Note on or after the due
date thereof or to bring suit to enforce such payment, or permitting holders of
a majority in principal amount of the Notes to waive Defaults or Events of
Default (other than Defaults or Events of Default with respect to the payment of
principal of or interest on the Notes); (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control Triggering Event or make
and consummate a Net Proceeds Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect thereto;
(vii) modify the subordination provisions (including the related definitions) of
the Indenture to adversely affect the holders of Notes in any material respect;
or (viii) release any Subsidiary Guarantor that is a Significant Subsidiary of
the Company from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the terms of the Indenture.
ADDITIONAL INFORMATION
The Indenture provides that the Company will deliver to the Trustee within
15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company and
the Subsidiary Guarantors will also comply with the other provisions of TIA sec.
314(a).
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the definition of other terms
used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness (i) of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or (ii) assumed in connection with the acquisition of assets from
such Person, in each case whether or not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition. Acquired Indebtedness shall be
deemed to have been incurred, with respect to clause (i) of the preceding
sentence, on the date such Person becomes a Restricted Subsidiary of the Company
and, with respect to clause (ii) of the preceding sentence, on the date of
consummation of such acquisition of assets.
"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Company. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding the foregoing, no Person (other than the Company or
any Subsidiary of the Company) in whom a Receivables Entity makes an Investment
in connection with a Qualified Receivables Transaction shall be deemed to be an
Affiliate of the Company or any of its Subsidiaries solely by reason of such
Investment.
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; provided, however,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $1 million, (ii) the sale, lease,
conveyance, disposition or other transfer of all or substantially all of the
assets of the Company as permitted under "Merger, Consolidation and Sale of
Assets," (iii) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in connection
with the compromise or collection thereof, (iv) the factoring of accounts
receivable arising in the ordinary course of business pursuant to arrangements
customary in the industry, (v) the licensing of intellectual property, (vi)
disposals or replacements of obsolete equipment in the ordinary course of
business, (vii) the sale, lease, conveyance, disposition or other transfer by
the Company or any Restricted Subsidiary of assets or property to one or more
Wholly Owned Restricted Subsidiaries in connection with Investments permitted
under the "Limitations on Restricted Payments" covenant, (viii) sales of
accounts receivable and related assets of the type specified in the definition
of "Qualified Receivables Transaction" to a Receivables Entity for the fair
market value thereof, including cash in an amount at least equal to 75% of the
book value thereof as determined in accordance with GAAP, and (ix) transfers of
accounts receivable and related assets of the type specified in the definition
of "Qualified Receivables Transaction" (or a fractional undivided interest
therein) by a Receivables Entity in
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a Qualified Receivables Transaction. For the purposes of clause (viii), Purchase
Money Notes shall be deemed to be cash.
"Bank Credit Agreement" means the Credit Agreement to be dated as of the
Issue Date, among the Company, the other borrowers thereto from time to time, if
any, the lenders party thereto from time to time and The Chase Manhattan Bank,
as agent, together with the related documents thereto (including, without
limitation, any guarantee agreements, promissory notes and collateral
documents), in each case as such agreements may be amended, supplemented or
otherwise modified from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid or extended from time to time (whether with the
original agents and lenders or other agents and lenders or otherwise, and
whether provided under the original Bank Credit Agreement or other credit
agreements or otherwise).
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of the Bank
Credit Agreement and any related notes, collateral documents, letters of credit
and guarantees, including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or any Restricted Subsidiary of the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of corporate stock, including each class of common stock and
preferred stock of such Person and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances (or, with respect to foreign
banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $200 million; (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons (other than the Principal or
its Related Parties) for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for
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the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Principal or its Related Parties) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Change of Control Triggering Event" means the occurrence of a Change of
Control and the failure of the Notes to have a Minimum Rating on the 30th day
after the occurrence of such Change of Control.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period, (B) Consolidated Interest Expense and (C) Consolidated
Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof) occurring during the Four Quarter Period or
at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period, (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA (including
any pro forma expense and cost reductions that are (i) directly attributable to
such transaction and (ii) factually supportable) attributable to the assets
which are the subject of the Asset Acquisition or Asset Sale during the Four
Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness or Acquired
Indebtedness) occurred on the first day of the Four Quarter Period, (iii) with
respect to any such Four Quarter Period commencing prior to the
Recapitalization, the Recapitalization (including any pro forma expense and cost
reductions related thereto that are (i) directly attributable to such
transaction and (ii) factually supportable) shall be deemed to have taken place
on the first day of such Four Quarter Period and (iv) any asset sales or asset
acquisitions (including any Consolidated EBITDA (including any pro forma expense
and cost reductions that are (i) directly attributable to such transaction and
(ii) factually supportable) attributable to the assets which are the subject of
the asset acquisition or asset sale during the Four Quarter Period) that have
been made by any Person that has become a Restricted Subsidiary of the Company
or has been merged with or into the Company or any Restricted Subsidiary of the
Company during the Four Quarter Period or at any time subsequent to the last day
of the Four Quarter Period and on or prior to the Transaction Date that would
have constituted Asset Sales or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary of the Company or
subsequent to such Person's merger into the Company, as if such asset sale or
asset acquisition (including the incurrence, assumption or liability for any
Indebtedness or Acquired Indebtedness in connection therewith) occurred on the
first day of the Four Quarter Period; provided that to the extent that clause
(ii) or (iv) of this sentence requires that pro forma effect be given to an
asset sale or asset acquisition, such pro forma
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calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed for which financial information is
available. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(excluding amortization or write-off of debt issuance costs in connection with
the Transactions) plus (ii) the product of (x) the amount of all dividend
payments on any series of Preferred Stock of such Person (other than dividends
paid in Qualified Capital Stock) 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.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (i) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries, including the net costs associated with
Interest Swap Obligations, for such period determined on a consolidated basis in
conformity with GAAP, and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) gains and losses from Asset
Sales (without regard to the $1 million limitation set forth in the definition
thereof) or abandonments or reserves relating thereto and the related tax
effects according to GAAP and an increase in the valuation allowance relating to
deferred tax assets recorded in the fourth quarter of 1996 attributable to the
Transactions, (b) gains and losses due solely to fluctuations in currency values
and the related tax effects according to GAAP, (c) items classified as
extraordinary, unusual or nonrecurring gains and losses, and the related tax
effects according to GAAP, (d) the net income (or loss) of any Person acquired
in a pooling of interests transaction accrued prior to the date it becomes a
Restricted Subsidiary of the Company or is merged or consolidated with the
Company or any Restricted Subsidiary of the Company, (e) the net income of any
Restricted Subsidiary of the Company to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by contract, operation of law or otherwise, (f) only for purposes
of clause (iii) (w) of the first paragraph of the "Limitation on Restricted
Payments" covenant, any amounts included pursuant to clause (iii) (z) of the
first paragraph of such covenant, (g) the net loss of any Person other than a
Restricted Subsidiary of the Company, (h) the net income of any Person, other
than a Restricted Subsidiary, except to the extent of cash dividends or
distributions paid to the Company or a Restricted Subsidiary of the Company by
such Person unless, in the case of a Restricted Subsidiary of the Company who
receives such dividends or distributions, such Restricted Subsidiary is subject
to clause (e) above, (i) one time non-
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cash compensation charges, including any arising from existing stock options
resulting from any merger or recapitalization transaction, (j) bonus payments to
be paid to senior management of the Company in connection with the Transactions
in an aggregate amount (together with the bonus payments made under clause (k))
not to exceed $7.0 million and (k) bonus payments to be paid to senior
management following the Closing (but no later than February 28, 1997) in an
aggregate amount not to exceed $400,000 and, together with the amounts paid
under clause (j) not to exceed $7.0 million in the aggregate.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges which
require an accrual of or a reserve for cash charges for any future period).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date, (ii) was nominated for election or elected to such
Board of Directors with, or whose election to such Board of Directors was
approved by, 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 any designee of the Principal or its Affiliates or was
nominated by the Principal or its Affiliates or any designees of the Principals
or their Affiliates on the Board of Directors.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $25
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness or another writing as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Capital Stock" means that portion of 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 (other than an
event which would constitute a Change of Control Triggering Event), 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 sole option of the holder thereof (except, in
each case, upon the occurrence of a Change of Control Triggering Event) on or
prior to the final maturity date of the Notes.
"fair market value" means, unless otherwise specified, with respect to any
asset or property, the price which could be negotiated in an arm's-length, free
market transaction, for cash, between a willing seller and a willing and able
buyer, neither of whom is under undue pressure or compulsion to complete the
Transactions. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall be evidenced by a
resolution of the Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including, without limitation, 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.
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"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, (i) any Indebtedness of such Subsidiary Guarantor under the Bank
Credit Agreement or in respect of Bank Indebtedness and (ii) all Indebtedness of
such Subsidiary Guarantor, including in the case of both (i) and (ii) interest
thereon (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to such Subsidiary Guarantor whether
or not a claim for post-filing interest is allowed in such proceedings), whether
outstanding on the Issue Date or thereafter incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is expressly provided that such obligations are not superior in right of payment
to the Guarantee of such Subsidiary Guarantor; provided, however, that Guarantor
Senior Indebtedness shall not include (1) any obligation of such Subsidiary
Guarantor to a Subsidiary of such Subsidiary Guarantor or to any Subsidiary of
the Company, (2) any liability for Federal, state, local or other taxes owed or
owing by such Subsidiary Guarantor, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness of such Subsidiary Guarantor which is expressly subordinate in
right of payment to any other Indebtedness of such Subsidiary Guarantor, (5) any
obligations with respect to any Capital Stock or (6) that portion of any
indebtedness incurred in violation of the "Limitation on Incurrence of
Additional Indebtedness" covenant (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (6) if the
holder(s) of such obligation or their representative and the Trustee shall have
received an Officers' Certificate of such Subsidiary Guarantor to the effect
that the incurrence of such Indebtedness does not (or, in the case of revolving
credit Indebtedness, that the incurrence of the entire committed amount thereof
at the date on which the initial borrowing thereunder is made would not) violate
such provisions of the Indenture).
"Indebtedness" means with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business), (v) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below, (vii) all
obligations of any other Person of the type referred to in clauses (i) through
(vi) which are secured by any lien on any property or asset of such Person but
which obligations are not assumed by such Person, the amount of such obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the obligation so secured, (viii) all obligations under
currency swap agreements and interest swap agreements of such Person and (ix)
all Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, (x) the "maximum fixed repurchase price" of any Disqualified Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital Stock
and (y) any transfer of accounts receivable or other assets which constitute a
sale for purposes of GAAP shall not constitute Indebtedness hereunder.
"Interest Swap Obligations" means the obligations of any Person, pursuant
to any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount.
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"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) 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 by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) 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, reduced by the payment of dividends or distributions
(including tax sharing payments) in connection with such Investment or any other
amounts received in respect of such Investment; provided that no such payment of
dividends or distributions or receipt of any such other amounts shall reduce the
amount of any Investment if such payment of dividends or distributions or
receipt of any such amounts would be included in Consolidated Net Income. If the
Company or any Restricted Subsidiary of the Company sells or otherwise disposes
of any Common Stock of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, 100% (or 80% in the case of
clause (ix) of the definition of "Permitted Investments") of the outstanding
Common Stock of such Restricted Subsidiary, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the fair
market value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Minimum Rating" means either (i) a rating of at least BBB- (or equivalent
successor rating) by S&P and (ii) a rating of at least Baa3 (or equivalent
successor rating) by Moody's.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Subsidiaries from such Asset Sale net of (a) out-of-
pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Senior Indebtedness that is required
to be repaid in connection with such Asset Sale, (d) any portion of cash
proceeds which the Company determines in good faith should be reserved for
post-closing adjustments, it being understood and agreed that on the day that
all such post-closing adjustments have been determined, the amount (if any) by
which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by the Company or any of its Subsidiaries shall
constitute Net Cash Proceeds on such date; provided that, in the case of the
sale by the Company of an asset constituting an Investment (other than a
Permitted Investment), the "Net Cash Proceeds" in respect of such Asset Sale
shall not include the lesser of (x) the cash received with respect to such Asset
Sale and (y) the initial amount of such Investment, less, in the case of clause
(y), all amounts (up to an amount not to exceed the initial amount of such
Investment) received by the
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Company with respect to such Investment, whether by dividend, sale, liquidation
or repayment, in each case prior to the date of such Asset Sale.
"Permitted Indebtedness" means, without duplication, (i) the Notes and the
Guarantees, (ii) Indebtedness incurred pursuant to the Bank Credit Agreement in
an aggregate principal amount at any time outstanding not to exceed $180 million
(A) less the aggregate amount of Indebtedness of a Receivables Entity in a
Qualified Receivables Transaction, (B) less the amount of all mandatory
principal payments actually made by the Company in respect of term loans
thereunder (excluding (1) any such payments to the extent refinanced at the time
of payment under a replaced Bank Credit Agreement and (2) any such payments
relating to the Sale of Excluded Assets in an aggregate amount not to exceed $30
million) and (C) in the case of a revolving facility, reduced by any required
permanent repayments (which are accompanied by a corresponding permanent
commitment reduction) thereunder, (iii) other Indebtedness of the Company and
its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount
of any scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon, (iv) Interest Swap Obligations of the
Company or any of its Restricted Subsidiaries covering Indebtedness of the
Company or any of its Restricted Subsidiaries; provided that any Indebtedness to
which any such Interest Swap Obligations correspond is otherwise permitted to be
incurred under the Indenture; provided, further, that such Interest Swap
Obligations are entered into, in the judgment of the Company, to protect the
Company and its Restricted Subsidiaries from fluctuation in interest rates on
their respective outstanding Indebtedness, (v) Indebtedness under Currency
Agreements, (vi) intercompany Indebtedness owed by the Company to any Wholly
Owned Restricted Subsidiary of the Company or by any Restricted Subsidiary of
the Company to the Company or any Wholly Owned Restricted Subsidiary of the
Company, (vii) Acquired Indebtedness of the Company or any Restricted Subsidiary
of the Company to the extent the Company could have incurred such Indebtedness
in accordance with the "Limitation on Incurrence of Additional Indebtedness"
covenant on the date such Indebtedness became Acquired Indebtedness; provided
that, in the case of Acquired Indebtedness of a Restricted Subsidiary of the
Company, such Acquired Indebtedness was not incurred in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
of the Company, (viii) guarantees by the Company and its Wholly Owned Restricted
Subsidiaries of each other's Indebtedness; provided that such Indebtedness is
permitted to be incurred under the Indenture, including, with respect to
guarantees by Wholly Owned Restricted Subsidiaries of the Company, the covenant
entitled "Future Guarantees," (ix) Indebtedness arising from the honoring by a
bank or other financial institution of a check, draft or other similar
instrument inadvertently drawn against insufficient funds in the ordinary course
of business; provided that such Indebtedness is extinguished within five
business days of its incurrence, (x) any refinancing, modification, replacement,
renewal, restatement, refunding, deferral, extension, substitution, supplement,
reissuance or resale of existing or future Indebtedness, including any
additional Indebtedness incurred to pay interest or premiums required by the
instruments governing such existing or future Indebtedness as in effect at the
time of issuance thereof ("Required Premiums") and fees in connection therewith;
provided that any such event shall not (1) result in an increase in the
aggregate principal amount of Permitted Indebtedness (except to the extent such
increase is a result of a simultaneous incurrence of additional Indebtedness (A)
to pay Required Premiums and related fees or (B) otherwise permitted to be
incurred under the Indenture) of the Company and its Restricted Subsidiaries and
(2) create Indebtedness with a Weighted Average Life to Maturity at the time
such Indebtedness is incurred that is less than the Weighted Average Life to
Maturity at such time of the Indebtedness being refinanced, modified, replaced,
renewed, restated, refunded, deferred, extended, substituted, supplemented,
reissued or resold (except that this subclause (2) will not apply in the event
the Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, substituted, supplemented, reissued or resold was
originally incurred in reliance upon clause (vi) or (xvi) of this definition);
provided that no Restricted Subsidiary of the Company that is not a Subsidiary
Guarantor may refinance any Indebtedness pursuant to this clause (x) other than
its own Indebtedness, (xi) Indebtedness (including Capitalized Lease
Obligations) incurred by the Company or any of its Restricted Subsidiaries to
finance the purchase, lease or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the Capital
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Stock of any Person owning such assets) in an aggregate principal amount
outstanding not to exceed $5 million at the time of any incurrence thereof
(which amount may, but need not, be incurred in whole or in part under the Bank
Credit Agreement), (xii) the incurrence by a Receivables Entity of Indebtedness
in a Qualified Receivables Transaction that is not recourse to the Company or
any Subsidiary of the Company (except for Standard Securitization Undertakings),
(xiii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or self-insurance,
or other Indebtedness with respect to reimbursement type obligations regarding
workers' compensation claims, (xiv) Indebtedness arising from agreements of the
Company or a Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition, provided that the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition, (xv) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary of
the Company in the ordinary course of business, and (xvi) additional
Indebtedness of the Company and its Restricted Subsidiaries in an aggregate
principal amount not to exceed $10 million at any one time outstanding (which
amount may, but need not, be incurred in whole or in part under the Bank Credit
Agreement).
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Wholly Owned Restricted Subsidiary
of the Company (whether existing on the Issue Date or created thereafter) and
Investments in the Company by any Restricted Subsidiary of the Company; provided
that, in the case of an Investment by the Company or any Restricted Subsidiary
of the Company in any Wholly Owned Restricted Subsidiary of the Company, such
Wholly Owned Restricted Subsidiary is not restricted from making dividends or
similar distributions by contract, operation of law or otherwise; (ii) cash and
Cash Equivalents; (iii) Investments existing on the Issue Date and Investments
made on the Issue Date pursuant to the Recapitalization Agreement; (iv) loans
and advances to employees and officers of the Company and its Restricted
Subsidiaries not in excess of $1 million at any one time outstanding; (v)
accounts receivable created or acquired in the ordinary course of business; (vi)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and otherwise
in compliance with the Indenture; (vii) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) guarantees by the Company or any of its Restricted
Subsidiaries of Indebtedness otherwise permitted to be incurred by the Company
or any of its Restricted Subsidiaries under the Indenture; (ix) Investments by
the Company or any Restricted Subsidiary of the Company in a Person, if as a
result of such Investment (A) such Person becomes a Wholly-Owned Restricted
Subsidiary of the Company or (B) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys all or substantially all of
its assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company; (x) additional Investments having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (x) that are at the time outstanding, not exceeding $2 million at the
time of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value), plus an amount equal to (A) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date of Qualified Capital
Stock of the Company (including Qualified Capital Stock issued upon the
conversion of convertible Indebtedness or in exchange for outstanding
Indebtedness or as capital contributions to the Company (other than from a
Subsidiary)) and (B) without duplication of any amounts included in clause
(x)(A) above, 100% of the aggregate net cash proceeds of any equity contribution
received by the Company from a holder of the Company's Capital Stock, that in
the case of
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amounts described in clause (x)(A) or (x)(B) are applied by the Company within
180 days after receipt, to make additional Permitted Investments under this
clause (x) (such additional Permitted Investments being referred to collectively
as "Stock Permitted Investments"); (xi) any Investment by the Company or a
Wholly Owned Subsidiary of the Company in a Receivables Entity or any Investment
by a Receivables Entity in any other Person in connection with a Qualified
Receivables Transaction; provided that any Investment in a Receivables Entity is
in the form of a Purchase Money Note or an equity interest; (xii) Investments
received by the Company or its Restricted Subsidiaries as consideration for
asset sales, including Asset Sales; provided in the case of an Asset Sale, such
Asset Sale is effected in compliance with the "Limitation on Asset Sales"
covenant. Any net cash proceeds that are used by the Company or any of its
Restricted Subsidiaries to make Stock Permitted Investments pursuant to clause
(x) of this definition shall not be included in subclauses(x) and (y) of clause
(iii) of the first paragraph of the covenant described under the caption
"Certain Covenants -- Limitation on Restricted Payments."
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related
purchase money Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and assets
so acquired and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
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(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in reliance on
clause (vii) of the definition of Permitted Indebtedness; provided that
such Liens do not extend to or cover any property or assets of the Company
or of any of its Restricted Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted Subsidiary of
the Company;
(xiv) Liens on assets transferred to a Receivables Entity or on assets
of a Receivables Entity, in either case incurred in connection with a
Qualified Receivables Transaction;
(xv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries;
(xvi) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvii) Liens on property of a Person existing at the time such Person
is acquired by, or such Person is merged into or consolidated or
amalgamated with, the Company or any Restricted Subsidiary of the Company;
provided that such Liens were not created in contemplation of such
acquisition, merger, consolidation or amalgamation and do not extend to any
assets other than those of the Person acquired by, or merged into or
consolidated or amalgamated with, the Company or any Restricted Subsidiary
of the Company.
(xviii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods; and
(xix) Liens existing on the Issue Date, together with any Liens
securing Indebtedness incurred in reliance on clause (x) of the definition
of Permitted Indebtedness in order to refinance the Indebtedness secured by
Liens existing on the Issue Date; provided that the Liens securing the
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principal" means Thomas H. Lee Company.
"Productive Assets" means assets (including Capital Stock) of a kind used
or usable in the businesses of the Company and its Restricted Subsidiaries as,
or related to such business, conducted on the date of the relevant Asset Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Receivables Transaction
to a Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"Qualified Capital Stock" means any stock that is not Disqualified Capital
Stock.
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"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Receivables Entity (in the case of a transfer by the
Company or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Receivables Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable and related assets) which engages in no activities other
than in connection with the financing of accounts receivable and which is
designated by the Board of Directors of the Company (as provided below) as a
Receivables Entity (a) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which (i) is guaranteed by the Company or any
Subsidiary of the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates the Company or any Subsidiary of
the Company in any way other than pursuant to Standard Securitization
Undertakings or (iii) subjects any property or asset of the Company or any
Subsidiary of the Company, directly or indirectly, contingently or otherwise, to
the satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Subsidiary of the
Company has any material contract, agreement, arrangement or understanding other
than on terms no less favorable to the Company or such Subsidiary than those
that might be obtained at the time from Persons that are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable, and (c) to which neither the
Company nor any Subsidiary of the Company has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Directors of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Redemption Event" shall mean (i) an underwritten initial public offering
of the common stock of the Company or (ii) a Change of Control.
"Related Party" means Thomas H. Lee Company and any Affiliate of Thomas H.
Lee Company.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale of Excluded Assets" means an individual Asset Sale which results in
net proceeds of no less than $10 million and relates exclusively to property,
plant and equipment existing on the Issue Date, together with improvements,
repairs, modifications and additions thereon in the ordinary course of business.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc. and its successors.
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"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means (i) the Bank Indebtedness and (ii) all
Indebtedness of the Company, including interest thereon (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or any Restricted Subsidiary of the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), whether outstanding on the Issue Date or thereafter incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is expressly provided that such obligations are not
superior in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary of the Company, (2) any liability for Federal, state, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness of the Company which is expressly subordinate in right of payment
to any other Indebtedness of the Company, including any Senior Subordinated
Indebtedness and any Subordinated Obligations, (5) any obligations with respect
to any Capital Stock or (6) that portion of any Indebtedness incurred in
violation of the Indenture provisions set forth under "Limitation on Incurrence
of Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holders(s) of
such obligation 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 (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of the
Indenture).
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes and is not by its express terms subordinate in
right of payment to any Indebtedness of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means, as of any date of determination, for any
Person, each Restricted Subsidiary of such Person which (i) for the most recent
fiscal year of such Person accounted for more than 10% of consolidated revenues
or consolidated net income of such Person or (ii) as at the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of such Person.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable transaction.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) which is expressly
subordinate in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
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Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation and treating all Indebtedness of such Unrestricted Subsidiary
as being incurred on such date, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than directors' qualifying shares or an immaterial amount of shares required to
be owned by other Persons pursuant to applicable law) are owned by such Person
or any Wholly Owned Restricted Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. The Exchange Notes initially will each be represented by a
single, permanent global certificate in definitive, fully registered form (the
"Global Note") and will be deposited with the Trustee as custodian for DTC and
registered in the name of a nominee of DTC.
The Global Note. Upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the respective principal amount
of Exchange Notes, of the individual beneficial interests represented by such
global securities to the respective accounts of persons who have accounts with
such depositary. Such accounts initially will be designated by or on behalf of
the Initial Purchasers. Ownership of beneficial interests in the Global Note
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of that
ownership will be effected only through records maintained by DTC or its nominee
(with respect to interests of participants) and the records of participants
(with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner of
an interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, premium (if any) and interest on, the Global
Note, will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any paying agent will have
any responsibility or liability for any aspect of the records relating to or
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payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by 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 payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a certificated note for any reason,
including to sell Exchange Notes to persons in states which require physical
delivery of such Exchange Notes, or to pledge such Exchange Notes, such holder
must transfer its interest in the Global Note, in accordance with the normal
procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it 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 Note is credited
and only in respect of such portion of the aggregate principal amount of
Exchange Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Exchange
Notes, DTC will exchange the Global Note for certificated notes, which it will
distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
issuer 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 that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue
as a depositary for the Global Note and a successor depositary is not appointed
by the Issuer within 90 days, Certificated Notes will be issued in exchange for
the Global Note.
DESCRIPTION OF THE INITIAL NOTES
The terms of the Initial Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Exchange Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Initial Notes are not freely transferable by holders thereof and
were issued subject to certain covenants regarding registration as provided
therein and in the Exchange and Registration Rights Agreement (which covenants
will, except as provided therein, terminate and be of no further force or effect
upon completion of this Exchange Offer). See "Exchange and Registration Rights
Agreement."
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Company and the Initial Purchasers entered into the Exchange and
Registration Rights Agreement prior to the issuance of the Exchange Notes
offered hereby. Pursuant to the Exchange and Registration Rights Agreement, the
Company agreed to (i) file with the Commission on or prior to 60 days after the
date of issuance of the Initial Notes (the "Issue Date") a registration
statement on Form S-1 or Form S-4, if the use of such forms is then available
(the "Exchange Offer Registration Statement"), relating to a registered exchange
offer (the "Exchange Offer") for the Initial Notes under the Securities Act and
(ii) use its reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 135 days
after the Issue Date. As soon as practicable after the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the holders of
the Notes who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Initial
Notes for the Exchange Notes, identical in all material respects to the Initial
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions) that would be registered under the Securities Act. The
Company will keep the Exchange Offer open for not less than 30 days (or longer,
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Initial Notes. If (i) applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer as contemplated thereby or (ii) any holder either (A) is not eligible to
participate in the Exchange Offer or (B) participates in the Exchange Offer and
does not receive freely transferrable Exchange Notes in exchange for tendered
Initial Notes, the Company will file with the Commission a shelf registration
statement (the "Shelf Registration Statement") to cover resales of Transfer
Restricted Securities by such holders who satisfy certain conditions relating
to, among other things, the provision of information in connection with the
Shelf Registration Statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each Initial Note until (i) the date on which such
Initial Note has been exchanged for a freely transferable Exchange Note in the
Exchange Offer, (ii) the date on which such Initial Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iii) the date on which such Initial Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.
The Company has agreed to use its reasonable best efforts to have the
Exchange Offer Registration Statement and, if applicable, a Shelf Registration
Statement (each a "Registration Statement") declared effective by the Commission
as promptly as practicable after the filing thereof. Unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will commence
the Exchange Offer and will use its best efforts to consummate the Exchange
Offer as promptly as practicable, but in any event prior to 165 days after the
Issue Date. If applicable, the Company will use its best efforts to keep the
Shelf Registration Statement effective for a period of three years after the
Issue Date, subject to certain exceptions, including suspending the
effectiveness thereof for certain valid business reasons. If (i) the applicable
Registration Statement is not filed with the Commission on or prior to 60 days
after the Issue Date, (ii) the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, is not declared effective
within 135 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 45 days after
publication of the change in law or interpretation), (iii) the Exchange Offer is
not consummated on or prior to 165 days after the Issue Date, or (iv) the Shelf
Registration Statement is filed and declared effective within 135 days after the
Issue Date (or in the case of a Shelf Registration Statement required to be
filed in response to a change in law or the applicable interpretations of
Commission's staff, if later, within 45 days after publication of the change in
law or interpretation), but shall thereafter cease to be effective (at any time
that the Company is obligated to maintain the effectiveness thereof) without
being succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company will generally be obligated to pay
liquidated damages to each holder of Transfer Restricted Securities, during the
period of such Registration Default, in an amount equal to $0.192 per week per
$1,000 principal amount of the Initial Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed or declared effective,
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the Exchange Offer is consummated or the Shelf Registration Statement again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to holders in the same manner as interest payments on the Initial Notes on
semi-annual payment dates which correspond to interest payment dates for the
Initial Notes. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that the
Company (i) shall make available for a period of 90 days after the consummation
of the Exchange Offer a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such
Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer
(including the expenses of one counsel to the holders of the Initial Notes) and
will indemnify certain holders of the Initial Notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act, and will be bound by the provisions of the
Exchange and Registration Rights Agreement (including certain indemnification
rights and obligations).
Each holder of the Initial Notes that wishes to exchange such Initial Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii) it
has no arrangement with any person to participate in the distribution of the
Exchange Notes and (iii) it is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
If a holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If a holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
Holders of the Initial Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer, and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their Initial
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding liquidated damages set forth in the preceding paragraphs. A
holder who sells Initial Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Exchange and
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations).
For so long as the Initial Notes are outstanding, the Company will continue
to provide to holders of the Notes and to prospective purchasers of the Initial
Notes the information required by paragraph (d)(4) of Rule 144A under the
Securities Act ("Rule 144A"). The Company will provide a copy of the Exchange
and Registration Rights Agreement to prospective purchasers of Initial Notes
identified to the Company by an Initial Purchaser upon request.
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement.
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INCOME TAX CONSIDERATIONS
Holders of the Notes should consult their own tax advisors with respect to
their particular circumstances and with respect to the effects of state, local
or foreign tax laws to which they may be subject.
The Company believes, based upon the opinion of Hutchins, Wheeler &
Dittmar, A Professional Corporation, that the following summary fairly describes
the material United States federal income tax consequences expected to apply to
the exchange of Initial Notes for Exchange Notes and the ownership and
disposition of Exchange Notes under currently applicable law. The discussion
does not cover all aspects of federal taxation that may be relevant to, or the
actual tax effect that any of the matters described herein will have on,
particular holders, and does not address state, local, foreign or other tax
laws. Further, the federal income tax treatment of a holder of the Initial Notes
and the Exchange Notes may vary depending on the holder's particular situation.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, taxpayers subject to the alternative
minimum tax and foreign persons) may be subject to special rules not discussed
below. The description assumes that holders of the Initial Notes and the
Exchange Notes will hold the Initial Notes and the Exchange Notes as "capital
assets" (generally, property held for investment purposes) within the meaning of
Section 1221 of the Code.
THE EXCHANGE
An exchange of Initial Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Initial Notes. As
a result, no federal income tax consequences will result to holders exchanging
Initial Notes for Exchange Notes.
THE EXCHANGE NOTES
Interest Payments on the Exchange Notes. The Initial Notes were not issued
with original issue discount. The stated interest on the Initial Notes and
Exchange Notes should be considered to be "qualified stated interest" and,
therefore, will be includible in a holder's gross income (except to the extent
attributable to accrued interest at the time of purchase) as ordinary income for
federal income tax purposes in accordance with a holder's tax method of
accounting.
Tax Basis. A holder's adjusted tax basis (determined by taking into
account accrued interest at the time of purchase) in an Exchange Note received
in exchange for an Initial Note will equal the cost of the Initial Note to such
holder, increased by the amounts of market discount previously included in
income by the holder and reduced by any principal payments received by such
holder with respect to the Exchange Notes and by amortized bond premium. A
holder's adjusted tax basis in an Exchange Note purchased by such holder will be
equal to the price paid for such an Exchange Note (determined by taking into
account accrued interest at the time of purchase), increased by market discount
previously included in income by the holder and reduced by any principal
payments received by such holder with respect to an Exchange Note and by
amortized bond premium. See "Market Discount and Bond Premium" below.
Sale, Exchange or Retirement. Upon the sale, exchange or retirement of an
Exchange Note, a holder will recognize taxable gain or loss, if any, equal to
the difference between the amount realized on the sale, exchange or retirement
and such holder's adjusted tax basis in such Exchange Note. Such gain or loss
will be a capital gain or loss (except to the extent of any accrued market
discount), and will be a long-term capital gain or loss if the Exchange Note has
been held for more than one year at the time of such sale, exchange or
retirement.
Market Discount and Bond Premium. Holders should be aware that the market
discount provisions of the Code may affect the Exchange Notes. These rules
generally provide that a holder who purchases Exchange Notes for an amount which
is less than their principal amount will be considered to have purchased the
Exchange Notes at a "market discount" equal to the amount of such difference.
Such holder will be required to treat any gain realized upon the disposition of
the Exchange Note as interest
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income to the extent of the market discount that is treated as having accrued
during the period that such holder held such Exchange Note, unless an election
is made to include such market discount in income on a current basis. A holder
of an Exchange Note who acquires the Exchange Note at a market discount and who
does not elect to include market discount in income on a current basis may also
be required to defer the deduction of a portion of the interest on any
indebtedness incurred or continued to purchase or carry the Exchange Note until
the holder disposes of such Exchange Note in a taxable transaction.
If a holder's tax basis in an Exchange Note immediately after acquisition
exceeds the stated redemption price at maturity of such Exchange Note, such
holder may be eligible to elect to deduct such excess as amortizable bond
premium pursuant to Section 171 of the Code.
Purchasers of the Exchange Notes should consult their own tax advisors as
to the application to such purchasers of the market discount and bond premium
rules.
HOLDERS OF THE INITIAL NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING OR
DISPOSING OF THE INITIAL NOTES AND THE EXCHANGE NOTES, INCLUDING THE APPLICATION
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND POSSIBLE FUTURE CHANGES IN
SUCH FEDERAL TAX LAWS.
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PLAN OF DISTRIBUTION
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. This
Prospectus, as it may be amended or supplemented from time to time, may be
issued by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Initial Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until 1997, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
brokerdealer and/or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the Notes (including any brokerdealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
Safelite by Hutchins, Wheeler & Dittmar, A Professional Corporation, Boston,
Massachusetts.
INDEPENDENT AUDITORS
The consolidated balance sheets of Safelite Glass Corp. and its
subsidiaries as of December 30, 1995 and December 28, 1996 and the consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 28, 1996 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
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<PAGE> 101
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF SAFELITE GLASS CORP. AND SUBSIDIARIES:
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets -- December 30, 1995 and December 28, 1996................ F-3
Consolidated Statements of Operations -- Years Ended December 31, 1994, December 30,
1995 and December 28, 1996.......................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) -- December 31, 1994,
December 30, 1995 and December 28, 1996............................................. F-5
Consolidated Statements of Cash Flows -- Years Ended December 31, 1994, December 30,
1995 and December 28, 1996.......................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
Note: As Lear Siegler is now a wholly-owned subsidiary of Safelite, no separate
audited historical financial statements have been provided.
F-1
<PAGE> 102
INDEPENDENT AUDITORS' REPORT
Safelite Glass Corp.:
We have audited the accompanying consolidated balance sheets of Safelite
Glass Corp. and subsidiaries ("Company") as of December 30, 1995 and December
28, 1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1994, December
30, 1995 and December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 30,
1995 and December 28, 1996, and the results of their operations and their cash
flows for the years ended December 31, 1994, December 30, 1995 and December 28,
1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 12, 1997
F-2
<PAGE> 103
SAFELITE GLASS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................................... $ 13,782 $ 31,188
Short-term investments........................................................ 34,654 --
Accounts receivable, net...................................................... 32,026 29,647
Refundable taxes.............................................................. 7,600
Inventories................................................................... 40,150 42,454
Prepaid expenses.............................................................. 2,511 6,684
Deferred income taxes......................................................... 1,980
--------- ---------
Total current assets.................................................... 123,123 119,553
PROPERTY, PLANT AND EQUIPMENT -- Net............................................ 39,361 40,119
INTANGIBLE ASSETS -- Net........................................................ 21,151 17,832
OTHER ASSETS.................................................................... 4,627 18,970
DEFERRED INCOME TAXES........................................................... 19,772
--------- ---------
TOTAL ASSETS............................................................ $ 188,262 $ 216,246
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 19,426 $ 23,703
Current portion -- long-term debt............................................. 7,500 5,418
Accrued expenses:
Payroll and related items................................................... 5,800 17,359
Self-insurance reserves..................................................... 6,788 9,086
Taxes....................................................................... 12,301 6,376
Legal....................................................................... 3,312 702
Restructuring............................................................... 1,497 561
Other....................................................................... 8,418 5,647
--------- ---------
Total current liabilities............................................... 65,042 68,852
LONG-TERM DEBT -- Less current portion.......................................... 61,500 258,322
OTHER LONG-TERM LIABILITIES:
Self-insurance reserves....................................................... 6,425 6,512
Pension....................................................................... 6,957 7,733
Restructuring................................................................. 3,601 1,128
Taxes......................................................................... 40,524 --
Other......................................................................... 578 2,231
--------- ---------
Total other long-term liabilities....................................... 58,085 17,604
MINORITY INTEREST............................................................... 4,249 --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock issued, 8%, $100 par value.................................... 54,946
Preferential common stock issued, $0.01 par value............................. 32
Class A common stock issued, $.01 par value................................... 11 53
Class B common stock issued; $.01 par value................................... 1 1
Additional paid-in capital.................................................... 393,567 185,672
Accumulated deficit........................................................... (384,329) (356,555)
Other......................................................................... (9,896) (12,649)
--------- ---------
Total stockholders' deficit............................................. (614) (128,532)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT..................................... $ 188,262 $ 216,246
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 104
SAFELITE GLASS CORP. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
SALES:
Installation and related services............. $298,579 $315,642 $380,142
Wholesale..................................... 58,782 56,500 58,183
-------- -------- --------
Total sales........................... 357,361 372,142 438,325
COST OF SALES................................... 246,058 261,693 299,623
-------- -------- --------
GROSS MARGIN.................................... 111,303 110,449 138,702
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.... 90,830 93,486 107,350
RESTRUCTURING EXPENSES.......................... 6,311
OTHER OPERATING EXPENSES........................ 21,115 7,558
-------- -------- --------
OPERATING INCOME (LOSS)......................... (642) 10,652 23,794
INTEREST EXPENSE................................ 4,474 6,000 6,726
INTEREST INCOME................................. 2,237 2,890 2,094
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX (PROVISION) BENEFIT AND MINORITY
INTEREST...................................... (2,879) 7,542 19,162
INCOME TAX (PROVISION) BENEFIT.................. (200) (157) 17,605
MINORITY INTEREST............................... (2,704) (1,059) (10,199)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS........ (5,783) 6,326 26,568
DISCONTINUED OPERATIONS......................... 1,706
EXTRAORDINARY ITEM -- Early extinguishment of
debt.......................................... (1,517) (500)
-------- -------- --------
NET INCOME (LOSS)............................... $ (7,300) $ 6,326 $ 27,774
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 105
SAFELITE GLASS CORP. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
OTHER
--------------------------------
PREFERENTIAL CLASS A CLASS B ADDITIONAL STOCK MINIMUM
COMMON PREFERRED COMMON COMMON PAID-IN ACCUMULATED TREASURY SUBSCRIPTION PENSION
STOCK STOCK STOCK STOCK CAPITAL DEFICIT STOCK RECEIVABLE LIABILITY TOTAL
------------ --------- ------ ------ ---------- ----------- -------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1994......... $ 32 $ 5 $1 $ 393,711 $(383,355) $(1,243) $(1,453) $ 7,698
Purchase of 2,265
shares of Class
A treasury
stock........... (235) (14) (249)
Net loss.......... (7,300) (7,300)
Issuance of
616,928 shares
of Class A
common stock.... 6 86 525 $(372) 245
Minimum pension
liability
adjustment...... (178) (178)
---- ------- --- -- --------- --------- ------- ----- ------- ---------
BALANCE, DECEMBER
31, 1994........ 32 11 1 393,562 (390,655) (732) (372) (1,631) 216
Purchase of 5,256
shares of Class
A treasury
stock........... 5 (5)
Net income........ 6,326 6,326
Minimum pension
liability
adjustment...... (7,156) (7,156)
---- ------- --- -- --------- --------- ------- ----- ------- ---------
BALANCE, DECEMBER
30, 1995........ 32 11 1 393,567 (384,329) (737) (372) (8,787) (614)
Issuance of
4,209,689 shares
of Class A
common stock net
of issuance
costs........... 42 53,170 53,212
Issuance of
582,498 shares
of preferred
stock net of
issuance
costs........... $54,946 54,946
Redemption of
preferential
common stock.... (32) (293,107) (293,139)
Contributed
capital......... 21,314 21,314
Purchase of
353,557 shares
of Class A
treasury
stock........... (4,720) (4,720)
Exercise of 6,080
stock options... 63 (4) 59
Net income........ 27,774 27,774
Purchase of
minority
interest........ 10,665 10,665
Minimum pension
liability
adjustment...... 1,971 1,971
---- ------- --- -- --------- --------- ------- ----- ------- ---------
BALANCE, DECEMBER
28, 1996........ $ $54,946 $53 $1 $ 185,672 $(356,555) $(5,457) $(376) $(6,816) $(128,532)
==== ======= === == ========= ========= ======= ===== ======= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 106
SAFELITE GLASS CORP. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................ $ (7,300) $ 6,326 $ 27,774
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Effect of change in accounting for advertising costs....... 2,576
Extraordinary item -- early extinguishment of debt......... 1,860 500
Depreciation and amortization.............................. 7,212 7,621 8,031
Income on disposition of assets............................ 167 654 258
Minority interest.......................................... 3,089 862 10,199
Deferred income taxes...................................... (19,715)
Income from discontinued operations........................ (1,706)
Change in operating assets and liabilities:
Accounts receivable...................................... (431) (5,011) 2,379
Inventories.............................................. (2,694) (5,159) (704)
Accounts payable......................................... (5,599) (1,532) 1,834
Accrued expenses......................................... 19,420 (25,939) 1,615
Other.................................................... (11,837) 12,696 (11,179)
Cash flows used in discontinued operations................. (21,604)
-------- -------- --------
Net cash flows provided by (used in) operating
activities........................................... 6,463 (9,482) (2,318)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (14,193) (11,986) (12,843)
Proceeds from sale of assets................................. 398 1,243 87
Acquisition of intangible assets............................. (514) (392)
Purchases of short term investments.......................... (9,804) (47,479) (29,570)
Maturities of short term investments......................... 23,500 64,224
-------- -------- --------
Net cash flows provided by (used in) investing
activities........................................... (24,113) (34,722) 21,506
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Outstanding checks in accounts payable....................... 1,528 (588) 2,443
Issuance of common stock..................................... 245 53,271
Issuance of preferred stock.................................. 54,946
Redemption of preferential common stock...................... (293,139)
Purchase of treasury stock................................... (249) (5) (4,720)
Payments on term loan........................................ (15,000) (7,500) (47,500)
Proceeds from term loan and subordinated debt................ 55,000 250,000
Proceeds from premium financing.............................. 13,740
Payments on revolver......................................... (25,000) (85,725) (25,550)
Borrowings on revolver....................................... 13,800 98,425 4,050
Debt issuance costs.......................................... (1,398) (9,323)
-------- -------- --------
Net cash flows provided by (used in) financing
activities........................................... 28,926 4,607 (1,782)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH................................ 11,276 (39,597) 17,406
CASH AT BEGINNING OF PERIOD.................................... 42,103 53,379 13,782
-------- -------- --------
CASH AT END OF PERIOD.......................................... $ 53,379 $ 13,782 $ 31,188
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest....................................... $ 8,944 $ 6,051 $ 5,127
======== ======== ========
Cash paid for income taxes................................... $ 454 $ 109 $ 350
======== ======== ========
Notes received for capital stock............................. $ 372
========
Contributed capital.......................................... $ 21,314
========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 107
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE INFORMATION)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business Safelite Glass Corp. and subsidiaries (the
"Company") are engaged principally in the manufacture, distribution and
installation of replacement auto glass and related insurance claims processing.
The Company operates throughout the United States. Approximately 87% of the
Company's sales represent installation and related services with the balance
representing sales to wholesale customers.
Basis of Accounting The consolidated financial statements have been
prepared on the basis of generally accepted accounting principles. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation The consolidated financial statements include
the accounts of Safelite Glass Corp. and its wholly-owned subsidiaries, which as
discussed below includes the accounts of Lear Siegler Holdings Corp. ("Lear
Siegler").
As more fully described in Note 2, on December 20, 1996, Lite Acquisition
Corp. was merged with and into Safelite Glass Corp. and Safelite, through a
subsidiary, acquired substantially all of the outstanding common stock of its
ultimate parent, Lear Siegler. These transactions have been accounted for as a
recapitalization of Safelite and in accordance with the provisions of FASB
Technical Bulletin No. 85-5.
Fiscal Year The Company uses a 52 to 53 week fiscal year that ends on the
Saturday nearest December 31. The footnote references to year ends are as
follows: December 31, 1994 ("1994"), December 30, 1995 ("1995") and December 28,
1996 ("1996").
Cash The Company considers all short-term investments which have an
original maturity of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of those
instruments. Outstanding checks of $5,040 and $7,483 as of December 30, 1995 and
December 28, 1996, respectively, are included in accounts payable.
Short-Term Investments Short-term investments, consisting of U.S. treasury
bills maturing within one year are classified as held-to-maturity and are
carried at amortized cost of $34,654 which approximates fair value.
Concentration of Credit Risk Approximately 40% in 1995 and 38% in 1996 of
trade accounts receivable are due from insurance companies in connection with
sales to individual customers. The balance of trade accounts receivable is due
primarily from wholesale and other commercial customers. The number and relative
financial strength of the insurance companies limit the Company's exposure to
credit risk for insurance related receivables. The diversity and wide geographic
dispersion limits the credit risk of receivables from wholesale and other
commercial customers. The Company also performs ongoing credit evaluations of
the financial condition of its wholesale and other commercial customers' which
reduces its exposure to loss. The Company maintains reserves for potential
uncollectible accounts.
Inventories The Company accounts for inventories, which are primarily
finished goods, at the lower of standard cost, which approximates actual cost,
or market, with cost determined utilizing the first in first out method.
Valuation allowances for obsolete and slow moving inventories were $1,115 and
$1,621 at December 30, 1995 and December 28, 1996, respectively.
F-7
<PAGE> 108
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Property, Plant and Equipment Property, plant and equipment are recorded
at cost. Depreciation is provided using the straight-line method over the
following estimated useful lives:
<S> <C>
Buildings and improvements................................... 25 years
Leasehold improvements....................................... 5-10 years
Information technology equipment............................. 3-5 years
Other equipment and furniture................................ 3-7 years
</TABLE>
Intangible Assets Intangible assets consist principally of trademarks and
goodwill which are being amortized using the straight-line method over their
estimated useful lives of five to forty years. At each balance sheet date, a
determination is made by management to ascertain whether intangible assets have
been impaired based on several criteria, including but not limited to, sales
trends, undiscounted projected operating cash flows and other operating factors.
Impairment of Assets In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," effective for fiscal years beginning after December 15, 1995. This standard
requires impairment losses to be recorded for long-lived assets and certain
intangible assets used in operations when an indication of impairment is present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The standard also addresses the
accounting for long-lived assets that are expected to be disposed of. Adoption
of this statement in 1996 did not have a material effect on the financial
statements.
Debt Issue Costs Debt issuance costs are amortized over the life of the
related debt.
Revenue Recognition Revenue from auto glass installation and related
services is recognized when the service is performed. Revenue from the
distribution of auto glass to wholesale customers is recognized when the product
is shipped.
Cost of Sales Cost of sales includes product and distribution costs as
well as installation labor, occupancy and vehicle expenses.
Advertising Costs Prior to 1994, the Company capitalized the cost of
yellow pages phone book advertising and amortized such costs over the twelve
month period following the publication of the yellow pages phone book in which
the advertising appeared. During 1994, the Company changed its method of
accounting for advertising costs to conform with the provisions of Statement of
Position Number 93-7 (SOP 93-7), "Reporting on Advertising Costs." Accordingly,
the Company expenses the costs of yellow pages advertising at the time the
yellow pages phone book is published. The effect of this change was to increase
advertising expense in 1994 by $2,576. Total advertising expense, including the
effect of adopting SOP 93-7, was $7,896, $5,910 and $7,123 in 1994, 1995 and
1996, respectively.
Reclassifications Certain reclassifications have been made to conform
balances with the 1996 presentation.
2. THE TRANSACTIONS
Prior to December 20, 1996, the Company was an indirect subsidiary of Lear
Siegler. The transactions described below, which occurred on December 20, 1996,
were pursuant to a Recapitalization Agreement and Plan of Merger and Stock
Purchase Agreement dated November 8, 1996. As a result of the transactions,
Safelite's preferential common shares were converted into the right to receive
cash. Thomas H. Lee Equity Fund III, L.P. together with certain of its
affiliates and certain other investors (collectively "THL") own 88% of Safelite
common stock and certain existing shareholders, primarily current Safelite
management, own the remaining interest. The Agreement also provided for
Safelite's
F-8
<PAGE> 109
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition (through a newly formed subsidiary) of substantially all of the
outstanding common stock of Lear Siegler, its former parent. Significant
components of the transactions are as follows:
(1) THL acquired 169,000 shares of Safelite Class A common stock from
certain selling shareholders for aggregate consideration of approximately
$2,265. Subsequent to this transaction, all remaining common stock, except
for 626,910 shares of Class A common and 17,991 shares of Class B common
stock owned by existing shareholders (primarily management), were owned by
LSNWY, a wholly-owned subsidiary of Lear Siegler.
(2) THL capitalized Lite Acquisition Corp. with $56,410 of common
equity and $58,250 of preferred equity. Lite Acquisition Corp. was then
merged with and into Safelite with Safelite surviving the merger
("Merger"). Upon effecting the Merger:
(i) each share of Safelite Class A Common Stock outstanding prior
to the Merger was converted into the right to receive $13.40 or, at the
election of the holder thereof, to remain outstanding and unaffected by
the Merger (LSNWY and certain other shareholders and option holders
elected to sell their shares and received in the aggregate $4,154 and
$507, respectively);
(ii) each share of Safelite Class B Common Stock outstanding prior
to the Merger was converted into the right to receive cash equal to
$0.01;
(iii) each share of Safelite Preferential Common Stock outstanding
prior to the Merger was converted into the right to receive cash, the
aggregate amount of which was approximately $293,139;
(iv) each share of Lite Acquisition Corp.'s Common Stock
outstanding prior to the Merger was converted into one share of Safelite
Class A Common Stock; and
(v) each share of Lite Acquisition Corp.'s Preferred Stock
outstanding prior to the Merger was converted into one share of Safelite
8% Preferred Stock.
(3) Immediately following the Merger, the Company borrowed $150,000
under a new senior credit facility, issued $100,000 in senior subordinated
notes and retired $41,875 in existing bank facility debt (see Note 8).
(4) In the final step of the Transactions, Safelite, through a new
wholly-owned subsidiary, L.S. Acquisition Corp., acquired substantially all
of the outstanding capital stock of Lear Siegler (including all shares of
Lear Siegler preference stock) for a demand promissory note with a
principal amount equal to the consideration received by LSNWY in the
Merger, which amount was approximately $297.3 million. Lear Siegler was
merged with and into L.S. Acquisition Corp. with L.S. Acquisition Corp.
surviving the merger and changing its name to Lear Siegler Holdings Corp.,
making Lear Siegler a wholly-owned subsidiary of the Company. On the
closing date of the Transactions, all of the consideration received by
LSNWY in the Merger was distributed to L.S. Acquisition Corp. which was
used to repay the note delivered in connection with the purchase of Lear
Siegler's capital stock.
The Transactions were accounted for as a recapitalization of Safelite and
in accordance with the provisions of FASB Technical Bulletin No. 85-5.
Accordingly, the stock held by the former minority shareholders of Safelite was
treated as if it was acquired by Lear Siegler. The carrying value of the
minority interest exceeded the fair value of the minority shares acquired by
approximately $5,800. Inventory was increased by $1,600 and non-current assets
were reduced by $7,400 to allocate this fair value adjustment.
F-9
<PAGE> 110
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the Transactions, Lear Siegler operated as a holding company whose
principal activity was to oversee its discontinued operations. The Lear Siegler
activities do not provide future benefit to Safelite; thus on December 20, 1996,
management of Safelite adopted a formal plan to exit the activities of Lear
Siegler. Accordingly, severance, lease termination and related costs of $700 to
close Lear Siegler's office located in New Jersey have been accrued in
accordance with Emerging Issues Task Force Statement No. 94-3. This amount is
included in other operating expenses.
In connection with the transactions, certain selling shareholders agreed to
reimburse the Company should the Company be required to pay tax liabilities of
Lear Siegler arising from disputes with various taxing authorities. An escrow
account was established for this purpose. Additional paid-in capital of $21,314,
the amount of tax liabilities recorded by Lear Siegler, was recorded to reflect
the assumption of the tax liabilities by the selling shareholders.
3. RESTRUCTURING EXPENSES
Prior to 1990, the Company grew through acquisitions and internal service
center openings. In 1991, a new management team developed a strategic plan to
focus the Company on its primary insurance customers. The plan called for growth
to be achieved by increasing the Company's share of the auto glass replacement
market through enhanced relationships with insurance companies and other large
volume clients. Automated solutions to address insurance claims processing costs
were and are an integral part of management's marketing strategy.
An additional element of the Company's strategic plan was a
market-by-market review of its distribution and service center configuration,
and the Company's customer service capabilities. The objective was to
restructure local markets as required to maximize service quality and capacity
at lower costs.
During 1993 and 1994, the Company refined its overall market based approach
with the development and testing of centralized Dispatch Command Center/Central
Telephone Units (DCC/CTU). These facilities serve as local market "hubs" which
connect company service centers, vans, central telephone units, warehouses and
distribution centers and provide "real time" data for scheduling, billing, sales
and inventory management. The success of the DCC/CTU concept led the Company in
1995 to restructure its field operations by closing approximately 100 service
centers and reorganizing field management. The 1995 provision for this
restructuring of $6,311 consists principally of planned service center closing
costs of $5,605 and field management reorganization costs of $706.
The following summarizes the reserve activity:
<TABLE>
<CAPTION>
1994 1995 1996
---- ------- -------
<S> <C> <C> <C>
Beginning balance...................................... $ 10 $ 0 $ 5,098
Restructuring provision................................ 6,311
Used for intended purpose.............................. (10) (1,213) (3,409)
---- ------- -------
Ending balance......................................... $ 0 $ 5,098 $ 1,689
==== ======= =======
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Trade receivables........................................ $ 34,439 $ 31,748
Less allowance for uncollectible accounts................ (2,413) (2,101)
------- -------
Net...................................................... $ 32,026 $ 29,647
======= =======
</TABLE>
F-10
<PAGE> 111
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The allowance for uncollectible accounts consist of the following:
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 2,623 $ 2,301 $ 2,413
Provision........................................... 926 1,354 1,015
Charge-offs......................................... (1,248) (1,242) (1,327)
------- ------- -------
Balance, end of year................................ $ 2,301 $ 2,413 $ 2,101
======= ======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment consist of the following:
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Land..................................................... $ 4,672 $ 4,672
Buildings and leaseholds................................. 32,151 33,336
Equipment and furniture.................................. 48,953 52,764
-------- --------
Total.......................................... 85,776 90,772
Less accumulated depreciation............................ (46,415) (50,653)
-------- --------
Net...................................................... $ 39,361 $ 40,119
======== ========
</TABLE>
Depreciation expense was $6,472, $6,851 and $7,239 for the years ended
1994, 1995 and 1996, respectively.
6. INTANGIBLE AND OTHER ASSETS
<TABLE>
Intangible assets consist of the following:
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Trademarks............................................... $27,087 $24,168
Goodwill................................................. 487 853
Non-compete agreements................................... 20 46
------- -------
Total.......................................... 27,594 25,067
Less accumulated amortization............................ (6,443) (7,235)
------- -------
Net...................................................... $21,151 $17,832
======= =======
</TABLE>
Amortization expense in 1994, 1995 and 1996 was $740, $770 and $792,
respectively.
7. LEASES
The Company leases many of its vehicles and service center locations under
operating leases. Most of the service center location leases provide renewal
options.
F-11
<PAGE> 112
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Future minimum rental commitments under non-cancelable operating leases for
facilities (including closed service centers), vehicles and equipment at
December 28, 1996 are as follows:
<CAPTION>
AMOUNT
-------
<S> <C>
Year:
1997........................................................ $20,255
1998........................................................ 16,443
1999........................................................ 12,132
2000........................................................ 8,915
2001........................................................ 2,723
Thereafter.................................................. 2,814
-------
Total............................................... $63,282
=======
</TABLE>
For 1994, 1995 and 1996, rent expense under all operating leases was
$23,014, $24,028 and $25,180, respectively.
8. LONG-TERM DEBT
Prior to December 20, 1996, the Company could borrow a maximum of $55,000
under term loan provisions and $45,000 under revolving credit loan provisions,
which included letters of credit, subject to certain borrowing base limitations
as defined. The rate of interest on these borrowings was based on the prime rate
or Eurodollar rate, at the Company's option.
In connection with the transactions described in Note 2, the above credit
facility was repaid on December 20, 1996 and replaced with a new credit
facility. The new credit facility, which expires December 2004, consists of (a)
a term loan facility of $150,000, (a $75,000 "Tranche A Term Loan" and a $75,000
"Tranche B Term Loan") and (b) a revolving credit facility, including of letters
of credit, which provides up to a maximum of $30,000. At December 28, 1996, the
Company had not borrowed on its revolving credit line but had $4,871 in letters
of credit outstanding issued primarily in connection with the Company's
self-insurance program (see Note 10). The rate of interest on these borrowings
is based on the prime rate or Eurodollar rate, at the Company's option. At
December 28, 1996, the interest rates in effect were 8.19% and 8.69% on the
Tranche A and Tranche B Term Loans, respectively. A commitment fee of 1/2% per
cent per annum is required on the unused portion of the credit facility.
Borrowing under the new credit facility is collateralized by substantially all
assets of the Company. Certain financial ratios must be maintained and the
Company cannot pay dividends. The facility restricts the Company's ability to,
among other things, incur additional indebtedness including leases, prepay or
amend other debt instruments, make acquisitions or capital expenditures, engage
in mergers or consolidations, or engage in certain transactions with affiliates.
Because the interest rate on this debt fluctuates with prime or the Eurodollar
rate, the carrying amount of the debt approximates fair value.
In connection with the transactions described in Note 2, on December 20,
1996, the Company also issued $100,000 in 9 7/8% Senior Subordinated Notes due
December 15, 2006. The notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company. Upon a change in control
triggering event, as defined, the Company is required to make an offer to
repurchase the notes at 101%. The notes are redeemable at the option of the
Company on or after December 15, 2001 at prices decreasing from 104 15/16 on
December 15, 2001 to par at December 15, 2004. In addition, prior to December
15, 1999, the Company, at its option, may redeem (at 109 7/8) up to $35,000 of
principal with the proceeds of one or more equity offerings.
F-12
<PAGE> 113
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Maturities of the Company's long-term debt are as follows:
<CAPTION>
DECEMBER 28, 1996
------------------------------------------------
SENIOR
DUE DATE FOR TERM SUBORDINATED OTHER
YEAR ENDING: LOANS NOTES (NOTE 10) TOTAL
- ------------ ----- ------------ -------- -----
<S> <C> <C> <C> <C>
1997..................................... $ -- $ 5,418 $ 5,418
1998..................................... 5,375 4,546 9,921
1999..................................... 10,750 3,776 14,526
2000..................................... 15,750 15,750
2001..................................... 20,750 20,750
Thereafter............................... 97,375 $100,000 197,375
-------- -------- ------- --------
Total............................ $150,000 $100,000 $13,740 $263,740
======== ======== ======= ========
</TABLE>
The carrying amount of debt approximates its fair value.
9. CAPITAL STOCK
Effective with the closing of the transactions described in Note 2, the
authorized capital stock of Safelite consists of 10,000,000 shares of Class A
common stock, 50,000 shares of Class B common stock and 1,000,000 shares of 8%
Preferred stock. The Class A common and Class B common stock have one vote per
share. The 8% Preferred stock is not entitled to voting rights, but has a
preference on liquidation of $100 per share plus accrued but unpaid dividends.
Dividends on the 8% Preferred stock accumulate at an annual rate of 8%, with
accumulated unpaid dividends compounding on a semi-annual basis. Cumulative
undeclared preferred stock dividends at December 28, 1996 were $102. The Class A
common stock has certain priorities over Class B common stock with respect to
dividend payments and liquidation preference.
<TABLE>
The following represents the number of shares outstanding and held in
treasury for each class of stock at the respective dates:
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Preferred stock................................... -- -- 582,498
Preferential common stock......................... 3,245,251 3,245,251 --
Class A common stock issued....................... 1,112,918 1,112,918 5,326,935
Class A common stock held in treasury............. 5,256 358,813
Class B common stock issued....................... 50,000 50,000 50,000
Class B common stock held in treasury............. 9,009 9,009 50,000
</TABLE>
The Company has several stock option plans and agreements which provide for
the sale of Class A and Class B common stock to certain key associates,
consultants and members of the Board of Directors. Options vest in periods
ranging from zero to five years and are generally exercisable for a period of
ten years from the date of grant. All options granted have exercise prices which
were not less than fair market value at the date of grant. During 1995, the
Company increased the number of shares authorized for issuance under these plans
from 230,536 shares to 275,536 shares.
In 1994, options of 616,928 Class A common shares were exercised at an
option price of $1 per share. In consideration for these shares, the Company
received $372 in notes receivable and $245 in cash. The notes bear interest at
market rates, as defined, and are due on September 30, 1999.
F-13
<PAGE> 114
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The following table summarizes the stock options available for grant and
outstanding:
<CAPTION>
CLASS A CLASS B
------------------------- -------------------------
OPTIONS PRICE PER OPTIONS PRICE PER
OUTSTANDING SHARE OUTSTANDING SHARE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1994................... 641,274 $1-292 2,750 $1
Exercised.................................. (616,928) 1
Forfeited.................................. (4,144)
-------- ------ ------ --
Balance, December 31, 1994................. 20,202 $1-292 2,750 1
Granted.................................... 42,133 $ 3
Forfeited.................................. (3,353)
-------- ------ ------ --
Balance, December 30, 1995................. 58,982 $3-292 2,750 1
Granted.................................... 13,138 $ 3
Exercised.................................. (6,080) $ 3
Forfeited.................................. (11,262) (2,750)
-------- ------ ------ --
Balance, December 28, 1996................. 54,778 $3-292
======== ======= ====== ==
</TABLE>
The following information is as of December 28, 1996:
<TABLE>
<S> <C>
Options currently exercisable..................................... 6,701
=======
Options available for future grant................................ 186,439
=======
Aggregate exercise price.......................................... $ 2,379
=======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123) which became effective in 1996. While the Statement
defines and encourages the use of a fair value based method of accounting for
employee stock options and similar equity instruments, it permits plans to
continue using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (APB-25), "Accounting for Stock
Issued to Employees." The Company has elected to continue to account for
stock-based compensation using APB-25. For options granted in 1995 and 1996, the
fair value of the options, based on accounting prescribed in SFAS 123, is
nominal and the pro forma effect on net income is immaterial.
10. COMMITMENTS AND CONTINGENCIES
For certain of its worker's compensation, automobile, product and associate
health care liabilities, the Company is self-insured, subject to certain
stop-loss coverage. The estimated costs of reported claims and of
incurred-but-not-reported claims are accrued, generally using actuarial
estimates based on claims history. The amount the Company will ultimately incur
for these liabilities could differ from these estimates.
During 1996, the Company purchased insurance to cover Safelite's remaining
workers' compensation, automobile and product liabilities for the period July 1,
1989 through December 31, 1994. The Company no longer has any liability for
these contingencies, therefore, the self-insured accrual for this period has
been removed from the financial statements. No gain or loss was recognized as a
result of this transaction. During 1996, the Company also purchased workers'
compensation, automobile and product liability coverage for the period December
20, 1996 through December 31, 1999. The cost of this insurance was partially
financed by $13,740 in premium financing, payable in monthly installments,
including interest of 6.67% to 6.99%, of $514 in 1997 and $416 in 1998 and 1999.
Under the terms of the
F-14
<PAGE> 115
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financing, if the Company cancels its insurance policies for any reason,
corresponding unearned premium refunds would be applied directly against the
outstanding principal balance. At December 28, 1996, the outstanding principal
balance of this premium financing was $13,740.
The Company is involved in various litigation and disputes arising in the
normal course of its business, primarily related to vehicle accidents and human
resource related issues. The Company is also involved in certain environmental
actions brought by the U.S. Environmental Protection Agency and certain state
agencies and, along with other domestic companies, the Company has received a
subpoena to produce documents to a grand jury investigating possible violations
of federal antitrust laws in the automobile glass replacement industry. In
addition, Lear Siegler and its current or former subsidiaries are currently
involved in certain environmental matters related to the former operation of
manufacturing and other facilities and the cleanup of a number of disposal sites
as well as certain asbestos claims arising out of the use or installation of
automotive brakes manufactured by Lear Siegler from the late 1960s through 1987.
The Company has established reserves for environmental and asbestos
contingencies where it is probable that a liability exists and the amount can be
reasonably estimated which, at December 30, 1995 and December 28, 1996, totalled
$1,827 and $3,205, respectively. The ultimate resolution of these matters is not
presently determinable but, in the opinion of management, such resolution is not
expected to have a significant impact on the Company's financial position or
results of operations.
11. SAVINGS AND RETIREMENT PLANS
Safelite Plans:
Safelite maintains a 401(k) savings plan, covering substantially all
associates, that provides basic employer matching contributions of up to 40%
(depending upon the participant's years of service) of the first 4% of each
participant's compensation. Bonus employer contributions up to 50% of the basic
employer contribution are also made depending upon the level of associate
participation in the plan. Safelite contributions were $580, $636 and $762 for
the years 1994, 1995 and 1996, respectively.
Safelite also has a defined benefit plan. The benefits were frozen and
fully vested to participants (substantially all associates of Safelite)
effective June 30, 1993. Benefits under the plan are based on years of service
and the participant's final average earnings at June 30, 1993. Safelite funding
policy is consistent with statutory requirements.
Net periodic pension cost (income) included the following items:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Interest cost on projected benefit obligation............... $ 921 $ 954 $ 1,038
Actual (return) loss on plan assets......................... 286 (2,344) (2,106)
Net amortization and deferral -- gain (loss)................ (1,212) 1,480 1,124
------- ------- -------
Net periodic pension cost (income).......................... $ (5) $ 90 $ 56
======= ======= =======
</TABLE>
F-15
<PAGE> 116
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the defined benefit plan as of the year-end
measurement dates was as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Accumulated and projected benefit obligation (all vested) for
services provided to date....................................... $ 15,105 $ 14,964
Less market value of plan assets.................................. (12,249) (14,319)
-------- --------
Projected benefit obligation in excess of plan assets............. 2,856 645
Unrecognized net loss resulting from past experience different
from that assumed............................................... 3,006 1,227
Adjustment to recognize minimum pension liability................. (3,006) (1,227)
-------- --------
Accrued pension cost.............................................. $ 2,856 $ 645
======== ========
</TABLE>
At December 30, 1995 and December 28, 1996, as required by Statement of
Financial Accounting Standards No. 87, Safelite recorded an additional minimum
pension liability of $3,006 and $1,227, respectively, related to certain
unfunded pension obligations. The corresponding cumulative charge to
stockholders' equity for these amounts at December 30, 1995 and December 28,
1996, net of applicable taxes was $1,804 and $736, respectively.
Plan assets at December 30, 1995 and December 28, 1996 were invested in
common and preferred stock, corporate and U.S. government bonds, and money
market funds.
The significant actuarial assumptions as of the year-end measurement dates
were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Discount rate....................................................... 8.0% 7.0% 7.5%
Expected long-term rate of return on plan assets.................... 8.5% 8.5% 8.5%
</TABLE>
Lear Siegler:
Lear Siegler has a defined benefit pension plan covering certain former
employees of divisions that have been sold. The benefits are based on various
formulas, the principal factors of which are years of service and compensation
during the years immediately preceding retirement. Lear Siegler's funding policy
for these plans is to make the minimum annual contributions required by
applicable regulations.
In the case of business units sold, Lear Siegler ceased future benefit
accruals. For certain business units, benefits accrued through the date of the
sale either have been or will be settled by transferring plan assets to the
respective purchaser's plan or by making distributions to the plan's
participants of these respective business units.
During the year ended December 31, 1994, Lear Siegler recorded curtailment
losses of approximately $572 relating to previously disposed of subsidiaries.
Also, during the year ended December 31, 1994, Lear Siegler recorded expenses of
approximately $11,000 and a settlement loss of approximately $6,226 relating to
plan assets transferred and liabilities assumed by plans sponsored by companies
who previously acquired certain of Lear Siegler's businesses.
F-16
<PAGE> 117
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cost for Lear Siegler's defined benefit plan for the respective periods
includes the following components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefit earned during the period... $ 26 $ 15
Interest cost on the projected benefit
obligation.................................... 8,950 2,265 $ 2,187
Actual return on plan assets.................... 3,286 (1,929) (630)
Net amortization and deferral................... (13,389) (541) (1,618)
------- ------- -------
Net periodic pension income..................... $ (1,127) $ (190) $ (61)
======= ======= =======
</TABLE>
The following table sets forth the plan's funded status at December 30,
1995 and December 28, 1996:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................................... $ 32,771 33,805
-------- --------
Accumulated benefit obligation.................................. 32,780 33,805
-------- --------
Projected benefit obligation.................................... 32,894 33,805
Less market value of plan assets.................................. (28,830) (26,717)
-------- --------
Projected benefit obligation less than plan assets................ 4,064 7,088
Unrecognized net loss............................................. 6,448 10,133
Adjustment to recognize minimum pension liability................. (6,334) (10,133)
-------- --------
Accrued pension cost.............................................. $ 3,950 $ 7,088
======== ========
</TABLE>
The projected benefit obligation assumes a discount rate of 8.0%, 7.0% and
7.5% in 1994, 1995 and 1996, respectively, and a rate of compensation increase
of 5% for each year. The expected long-term rate of return on plan assets is
8.75% in 1994 and 1995 and 8.5% in 1996. Plan assets consist primarily of
corporate debt securities, U.S. government obligations and cash equivalents.
At December 30, 1995 and December 28, 1996, Lear Siegler recorded an
additional minimum pension liability of $6,334 and $10,133, respectively,
related to certain unfunded pension obligations. The corresponding cumulative
charge to stockholders' equity for these amounts at December 30, 1995 and
December 28, 1996, net of applicable taxes in 1996, was $6,334 and $6,080,
respectively.
12. INCOME TAXES
Income taxes are provided for the amounts estimated to be payable on tax
returns for the current year. Deferred income taxes are provided for all
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. If
necessary, based upon available evidence, a valuation allowance is provided for
the amount of deferred tax assets that are not expected to be realized.
F-17
<PAGE> 118
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax (provision) benefit before discontinued
operations and extraordinary item are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- --------
<S> <C> <C> <C>
Current......................................................... $200 $157 $ 2,110
Deferred........................................................ (19,715)
---- ---- --------
Total........................................................... $200 $157 $(17,605)
==== ==== ========
</TABLE>
The income tax provision or benefit differs from the amounts determined by
applying the statutory income tax rate as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Income taxes at statutory rate............................. $(1,008) $ 2,640 $ 6,706
Reduction in valuation allowance........................... (2,000) (25,894)
State income taxes......................................... 750 312 958
Other...................................................... 458 (795) 625
------- ------- --------
Provision (benefit) for income taxes....................... $ 200 $ 157 $(17,605)
======= ======= ========
</TABLE>
Items comprising the Company's net deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 35,496 $ 32,035
Differences between book and tax basis of inventories.......... 3,144 2,530
Reserves not currently deductible.............................. 24,964 17,406
Pension........................................................ 1,202 4,547
Other.......................................................... 198 2,738
Valuation allowance............................................ (62,076) (36,182)
-------- --------
Total.................................................. 2,928 23,074
-------- --------
Deferred tax liabilities:
Difference between book and tax basis of property, plant and
equipment................................................... 1,398 1,322
Other.......................................................... 1,530
-------- --------
Total.................................................. 2,928 1,322
-------- --------
Net deferred tax asset........................................... $ 0 $ 21,752
======== ========
</TABLE>
A valuation allowance reduces the amount of deferred tax assets that
management believes more likely than not will not be recognized. The valuation
allowance is based on available information at the balance sheet date including
historical earnings and other factors which may impact the Company's ability to
realize the tax benefits.
At December 30, 1995, a valuation allowance of $62,076 was recorded which
reduced the net deferred taxes to zero. Based upon the Company's historical,
current and expected pre-tax earnings, including adjustments and limitations
resulting from the transactions described in Note 2, management believes it is
more likely than not that the Company will realize the benefit of a portion of
its existing deductible temporary differences. Accordingly, the valuation
allowance was reduced in 1996.
F-18
<PAGE> 119
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 28, 1996, the Company had net operating loss carryforwards for
federal income tax purposes totaling approximately $79 million which expire
through 2006.
13. EXTRAORDINARY ITEM
During 1994 and 1996, the Company recorded an extraordinary loss of $1,517
and $500 net of minority interest of $343 in 1994 and net of income tax benefit
of $344 in 1996, respectively, as a result of expensing unamortized loan
origination fees related to the early retirement of the associated debt.
14. DISCONTINUED OPERATIONS
In 1996, the Company recorded income from discontinued operations of
$1,706. This income was primarily the result of resolving, in 1996, various
liability and tax issues associated with operating units of Lear Siegler which
were discontinued in prior years. The following summarizes the significant
items:
<TABLE>
<S> <C>
Settlement of liability issues................................... $(25,500)
Adjustment of state tax contingencies............................ 19,606
Tax refund....................................................... 7,600
------
$ 1,706
======
</TABLE>
15. LEAR SIEGLER
The following financial information represents the balance sheet of Lear
Siegler Holdings Corp. and Subsidiaries on a stand alone basis as of December
28, 1996.
LEAR SIEGLER HOLDINGS CORP.
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28,
1996
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 18,099
Refundable income taxes.................................... 7,600
Prepaid expenses........................................... 823
-------
Total current assets............................... 26,522
Other assets................................................. 2,499
-------
Total assets................................................. $ 29,021
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable........................................... $ 300
Accrued expenses........................................... 11,571
-------
Total current liabilities.......................... 11,871
Other long-term liabilities.................................. 11,323
-------
Total liabilities.................................. 23,194
Stockholder's equity......................................... 5,827
-------
Total Liabilities and Stockholder's Equity................... $ 29,021
=======
</TABLE>
F-19
<PAGE> 120
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS OFFERING MEMORANDUM NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 14
The Exchange Offer............................... 22
The Transactions................................. 29
Unaudited Pro Forma Financial Data............... 32
Selected Consolidated Financial Data............. 36
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 38
Business......................................... 44
Management....................................... 55
Security Ownership of Certain Beneficial Owners
and Management................................. 60
Certain Relationships and Related
Transactions................................... 61
Description of Capital Stock..................... 62
Description of Other Indebtedness................ 64
Description of Exchange Notes.................... 66
Description of the Initial Notes................. 94
Exchange and Registration Rights
Agreement...................................... 95
Income Tax Considerations........................ 97
Plan of Distribution............................. 99
Legal Matters.................................... 99
Independent Auditors............................. 99
Index to Financial Statements.................... F-1
</TABLE>
PROSPECTUS
$100,000,000
SAFELITE GLASS CORP.
9 7/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2006
SAFELITE LOGO
, 1997
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
(a) A corporation may 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 (other than an action by or in the right of the corporation)
by reason of the fact that he 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 him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he 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 reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he 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) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect to 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 of Chancery or 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 the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections (a) and (b)
of this section. Such determination shall be made (1) by a majority vote of
the board of directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or, if such directors so direct, by independent legal counsel in
a written opinion, or (3) by the shareholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the
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<PAGE> 122
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the corporation as authorized in
this section. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any,
as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of shareholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to the corporation shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to other enterprises
shall include employee benefit plans; references to fines shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to serving at the request of the corporation shall
include any service as a director, officer, employee, or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner not opposed to the best interests of the
corporation as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Company's By-Laws (Exhibit 3.2) provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by Delaware
law.
The Company maintains insurance with respect to, among other things, the
liabilities that may arise under the statutory provisions referred to above. The
directors and officers of the Company also are insured against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, which might be incurred by them in such capacities and against which they
are not indemnified by the Company.
II-2
<PAGE> 123
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. Unless otherwise indicated, all Exhibits have been previously
filed.
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended.
4.1 Indenture dated as of December 20, 1996 between the Company and Fleet National
Bank, as Trustee.
5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation regarding
legality of the securities being registered.
8* Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation regarding tax
matters.
10.1 Recapitalization Agreement and Plan of Merger and Stock Purchase Agreement, dated
as of November 8, 1996, by and among Lear Siegler Holdings Corp., The LS Selling
Stockholders (as defined therein), the Company, LSNWY Corp., LS Acquisition Corp.
and Lite Acquisition Corp.
10.2 Credit Agreement, dated as of December 20, 1996, by and among the Company, various
lending institutions, The Chase Manhattan Bank, Bankers Trust Company and Goldman
Sachs Credit Partners L.P.
10.3 Employment Agreement, dated as of December 20, 1996, by and between the Company
and Garen K. Staglin.
10.4 Employment Agreement, dated as of December 20, 1996, by and between the Company
and John F. Barlow.
10.5 Employment Agreement, dated as of December 20, 1996, by and between the Company
and Douglas A. Herron.
10.6 Employment Agreement, dated January 2, 1996, by and between the Company and Poe A.
Timmons.
10.7 Safelite Glass Corp. Non-Qualified Restated Employee Stock Option Plan.
10.8* Safelite Glass Corp. 1996 Stock Option Plan.
10.9 Management Agreement, dated as of December 20, 1996, by and between the Company
and Thomas H. Lee Company.
10.10 Safelite Glass Corp. Stockholders' Agreement, dated as of December 20, 1996, among
the Company and the stockholders named therein.
10.11 Pledge Agreement, dated as of December 20, 1996, made by the Company in favor of
The Chase Manhattan Bank, as Collateral Agent.
12.1* Computation of the Ratio of Earnings to Fixed Charges for the Company.
21.1 List of subsidiaries of the Company.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
Exhibit 5.1).
24.1 Powers of Attorney (contained on the signature page hereto).
25.1** Statement on Form T-1 of the eligibility of the Trustee.
27.1 Financial Data Schedule.
99.1* Letter of Transmittal.
99.2* Notice of Guaranteed Delivery.
99.3* Form of Exchange Agent Agreement between the Company and Fleet National Bank.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules.
II-3
<PAGE> 124
Schedules other than those listed above have been omitted since the
information is not applicable, not required or is included in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned registrant hereby undertakes as follows: that 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
issuer 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.
(a)(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 (sec.230.415 of this chapter),
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 of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(a)(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) 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.
(c) 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.
(d) The undersigned registrant hereby undertakes:
(d)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement.
(i) To include any prospectus require by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (sec.230,424(b) of this
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<PAGE> 125
chapter) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution information in the registration statement;
(d)(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d)(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
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<PAGE> 126
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, STATE OF OHIO,
ON THE 11 DAY OF APRIL 1997.
SAFELITE GLASS CORP.
By: /s/ GAREN K. STAGLIN
------------------------------------
GAREN K. STAGLIN
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------------- ------------------
<C> <S> <C>
/s/ GAREN K. STAGLIN Director, Chairman of the Board April 11, 1997
- ----------------------------------- and Chief Executive Officer
Garen K. Staglin (principal executive officer)
/s/ JOHN F. BARLOW Director, President and Chief April 11, 1997
- ----------------------------------- Operating Officer
John F. Barlow
/s/ DOUGLAS A. HERRON Senior Vice President, Treasurer April 11, 1997
- ----------------------------------- and Chief Financial Officer
Douglas A. Herron (principal financial and
accounting officer)
/s/ ANTHONY J. DINOVI Director April 11, 1997
- -----------------------------------
Anthony J. DiNovi
* Director April 11, 1997
- -----------------------------------
Seth W. Lawry
* Director April 11, 1997
- -----------------------------------
Morton Meyerson
* Director April 11, 1997
- -----------------------------------
Scott M. Sperling
/s/ ANTHONY J. DINOVI
*By:
- -----------------------------------
Anthony J. DiNovi
as Attorney-in-Fact
</TABLE>
II-6
<PAGE> 1
Exhibit 5.1
April 11, 1997
Safelite Glass Corp.
1105 Schrock Road
Columbus, OH 43216-2000
Ladies and Gentlemen:
We have acted as counsel to Safelite Glass Corp., a Delaware
corporation (the "Company"), in connection with the offer to exchange under the
Securities Act of 1933, as amended, $1,000 in principal amount of 9 7/8% Series
B Senior Subordinated Notes due 2006 (the "Exchange Notes") for each $1,000 in
principal amount of outstanding 9 7/8% Senior Subordinated Notes due 2006, up
to an aggregate of $100,000,000, pursuant to a Registration Statement on Form
S-4 (File No. 333-21949) filed with the Securities and Exchange Commission (the
"Registration Statement"). The Exchange Notes are being issued pursuant to an
Indenture in the form filed as an Exhibit to the Registration Statement (the
"Indenture").
As such counsel, we have examined (i) certain corporate records of the
Company, including its Certificate of Incorporation, as amended, its Bylaws,
stock records and minutes of meetings of its stockholders and Board of
Directors; (ii) a Certificate of the Secretary of the State of Delaware as to
the legal existence of the Company; and (iii) such other documents as we have
deemed necessary as a basis for the opinions hereinafter expressed.
Based upon the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly
existing under the laws of the State of Delaware.
2. The Exchange Notes, when issued under the circumstances
contemplated in the Indenture, (a) will have been duly and
validly issued by the Company, with all requisite authority
and action; and (b) will be the legal, valid and binding
obligations of the Company.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
<PAGE> 1
Exhibit 8
April 11, 1997
Safelite Glass Corp.
1105 Schrock Road
Columbus, OH 43216-2000
Ladies and Gentlemen:
We have acted as counsel to Safelite Glass Corp., a Delaware
corporation (the "Company"), in connection with the offer to exchange under the
Securities Act of 1933, as amended, $1,000 in principal amount of 9 7/8% Series
B Senior Subordinated Notes due 2006 (the "Exchange Notes") for each $1,000 in
principal amount of outstanding 9 7/8% Senior Subordinated Notes due 2006 (the
"Initial Notes"), up to an aggregate of $100,000,000, pursuant to a Registration
Statement on Form S-4 (File No. 333-21949) filed with the Securities and
Exchange Commission (the "Registration Statement"). The Exchange Notes are
being issued pursuant to an Indenture in the form filed as an Exhibit to the
Registration Statement.
As such counsel, we have examined such documents as we have deemed
necessary as a basis for the opinions hereinafter expressed. Based upon the
foregoing, and having regard for such legal considerations as we deem relevant,
we are of the opinion that the description under the heading "Income Tax
Considerations" in the Registration Statement fairly describes, subject to the
assumptions and qualifications set forth therein, the material United States
federal income tax consequences to holders of the Initial Notes and the
Exchange Notes resulting from the exchange of the Initial Notes for the
Exchange Notes and the ownership and disposition of the Exchange Notes under
currently applicable law.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement, and to the reference to us under the heading "Income
Tax Considerations" therein.
Very truly yours,
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
<PAGE> 1
Exhibit 10.8
SAFELITE GLASS CORP.
1996 STOCK OPTION PLAN
1. Purpose of the Plan.
This stock option plan (the "Plan") is intended to encourage ownership
of the stock of Safelite Glass Corp. (the "Company") by employees of the Company
and its subsidiaries, to induce qualified personnel to enter and remain in the
employ of the Company or its subsidiaries and otherwise to provide additional
incentive for optionees to promote the success of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or
Treasury shares of the common stock, $0.01 par value, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed one
hundred seventy five thousand (175,000) shares, subject to adjustment as
provided in Section 12 hereof.
(b) If an option granted hereunder shall expire or terminate for any
reason without having vested fully or having been exercised in full, the
unvested and/or unpurchased shares subject thereto shall again be available for
subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan
may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
3. Administration of the Plan.
At the discretion of the Company's Board of Directors, the Plan shall
be administered either (i) by the full Board of Directors of the Company or (ii)
by a committee (the
<PAGE> 2
"Committee") consisting of two or more members of the Company's Board of
Directors. In the event the full Board of Directors is the administrator of the
Plan, references herein to the Committee shall be deemed to include the full
Board of Directors. The Board of Directors may from time to time appoint a
member or members of the Committee in substitution for or in addition to the
member or members then in office and may fill vacancies on the Committee however
caused. The Committee shall choose one of its members as Chairman and shall hold
meetings at such times and places as it shall deem advisable. A majority of the
members of the Committee shall constitute a quorum and any action may be taken
by a majority of those present and voting at any meeting.
Any action may also be taken without the necessity of a meeting by a
written instrument signed by a majority of the Committee. The decision of the
Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Committee shall have
the authority to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement or Award agreement granted hereunder in the
manner and to the extent it shall deem expedient to carry the Plan into effect
and shall be the sole and final judge of such expediency. No Committee member
shall be liable for any action or determination made in good faith.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of
the Board of Directors and may be designated as either incentive stock options
meeting the requirements of
- 2 -
<PAGE> 3
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options which are not intended to meet the requirements of such
Section 422 of the Code, the designation to be in the sole discretion of the
Board of Directors. The Plan shall be administered by the Board of Directors in
such manner as to permit options to qualify as incentive stock options under the
Code.
5. Eligibility.
Options designated as incentive stock options shall be granted only to
key employees (including officers and directors who are also employees) of the
Company or any of its subsidiaries, including subsidiaries who become such after
adoption of the Plan. Options designated as non-qualified options may be granted
to officers, key employees and non-employee directors of the Company or of any
of its subsidiaries. "Subsidiary" or "subsidiaries" shall be as defined in
Section 424 of the Code and the Treasury Regulations promulgated thereunder (the
"Regulations").
The Committee shall, from time to time, at its sole discretion, select
from such eligible individuals those to whom options shall be granted and shall
determine the number of shares to be subject to each option. In determining the
eligibility of an individual to be granted an option, as well as in determining
the number of shares to be granted to any individual, the Board of Directors in
its sole discretion shall take into account the position and responsibilities of
the individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Board of Directors may deem relevant.
- 3 -
<PAGE> 4
No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock representing more than 10% of the voting
power or more than 10% of the value of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall be controlling. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.
The maximum number of shares of the Company's Common Stock with respect
to which an option or options may be granted to any employee in any calendar
year shall not exceed seventy five thousand (75,000) shares, taking into account
shares subject to options granted and terminated, or repriced, during such
calendar year.
6. Option Agreement.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Board of Directors, provided that options designated as incentive stock
options shall meet all of the conditions for incentive stock options as defined
in Section 422 of the Code. The date of grant of an option shall be as
determined by the Board of Directors. More than one option may be granted to an
individual.
- 4 -
<PAGE> 5
7. Option Price.
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be as determined by the
Board of Directors, but in no event shall the option price of a non-qualified
stock option be less than 50% of the fair market value of such Common Stock at
the time the option is granted, as determined by the Board of Directors. The
option price or prices of shares of the Company's Common Stock for incentive
stock options shall be the fair market value of such Common Stock at the time
the option is granted as determined by the Board of Directors in accordance with
the Regulations promulgated under Section 422 of the Code. If such shares are
then listed on any national securities exchange, the fair market value shall be
the mean between the high and low sales prices, if any, on the largest such
exchange on the business day immediately preceding the date of the grant of the
option or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the shares are not then listed on any such exchange, the
fair market value of such shares shall be the mean between the high and low
sales prices, if any, as reported in the National Association of Securities
Dealers Automated Quotation National Market ("NASDAQ/NM") for the business day
immediately preceding the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant in accordance with Treasury Regulations Section 25.2512-2. If the shares
are not then either listed on any such exchange or quoted in NASDAQ/NM, the fair
market value shall be the
- 5 -
<PAGE> 6
mean between the average of the "Bid" and the average of the "Ask" prices, if
any, as reported in the National Daily Quotation Service for the business day
immediately preceding the date of the grant of the option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Treasury Regulations Section 25.2512-2. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board of Directors.
8. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price, as determined by the Board of Directors, by delivery of (i) cash
or a check payable to the order of the Company in an amount equal to the
exercise price of such options, (ii) shares of Common Stock of the Company owned
by the optionee having a fair market value equal in amount to the exercise price
of the options being exercised, (iii) any combination of (i) and (ii), provided,
however, that payment of the exercise price by delivery of shares of Common
Stock of the Company owned by such optionee may be made only if such payment
does not result in a charge to earnings for financial accounting purposes as
determined by the Board of Directors or (iv) payment may also be made by
delivery of a properly executed exercise notice to the Company, together with a
copy of irrevocable instruments to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price. The fair market
value of any shares of the Company's Common Stock which may be delivered upon
exercise of an option shall be determined by the Board of Directors in
accordance with Section 7 hereof.
- 6 -
<PAGE> 7
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, after five (5) but not more than
ten (10) business days from the date of receipt of the notice by the Company, as
shall be designated in such notice, or at such time, place and manner as may be
agreed upon by the Company and the person or persons exercising the option. Upon
exercise of the option and payment as provided above, the optionee shall become
a shareholder of the Company as to the Shares acquired upon such exercise.
9. Exercise of Options.
Except as otherwise determined from time to time by the Board of
Directors, options granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, not be exercisable during the first twelve (12) months after
the date of grant. Thereafter, options shall become exercisable as to
twenty-five percent (25%) of the shares covered thereby upon the expiration of
twelve (12) months after the date of grant and as to an additional 2.08333% upon
the expiration of each month during the next three (3) succeeding twelve (12)
month periods.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be
- 7 -
<PAGE> 8
exercisable, on a cumulative basis, until the expiration of the exercise period.
No partial exercise may be made for less than one hundred (100) full shares of
Common Stock.
Notwithstanding the foregoing, the Board of Directors may in its
discretion (i) specifically provide for another time or times of exercise or
(ii) accelerate the exercisability of any option subject to such terms and
conditions as the Board of Directors deems necessary and appropriate.
10. Term of Options; Exercisability.
(a) Term.
(1) Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
herein provided.
(2) Except as otherwise provided in this Section 10, an option
granted to any employee optionee who ceases to be an employee of the Company or
one of its subsidiaries shall terminate immediately on the date such optionee
ceases to be an employee of the Company or one of its subsidiaries, or on the
date on which the option expires by its terms, whichever occurs first.
(3) If such termination of employment is because the optionee
has become permanently disabled (within the meaning of Section 22(e)(3) of the
Code), such option shall terminate on the last day of the third month from the
date such optionee ceases to be an employee, or on the date on which the option
expires by its terms, whichever occurs first.
(4) In the event of the death of any optionee, any option
granted to such optionee shall terminate on the last day of the sixth month from
the date of death, or on the date on which the option expires by its terms,
whichever occurs first.
- 8 -
<PAGE> 9
(5) If an optionee ceases to be an employee of the Company or
one of its subsidiaries due to a termination of such employment by the Company
without "Cause", as such term is defined in the particular employment agreement
with such optionee, any option granted to such optionee shall terminate on the
last day of the second month from the date of such termination, or on the date
on which the option expires by its terms, whichever occurs first.
(6) Notwithstanding subparagraphs (2), (3), (4) and (5) above,
the Board of Directors shall have the authority to extend the expiration date of
any outstanding option in circumstances in which it deems such action to be
appropriate, provided that no such extension shall extend the term of an option
beyond the date on which the option would have expired if no termination of the
optionee's employment had occurred.
(b) Exercisability; Vesting. An option granted to an employee optionee
who ceases to be an employee of the Company or one of its subsidiaries shall be
exercisable only to the extent that the right to purchase shares under such
option has accrued, is vested and is in effect on the date such optionee ceases
to be an employee of the Company or one of its subsidiaries.
11. Options Not Transferable.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him. Any option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the option is granted, or upon any attempted assignment or
transfer, except as herein provided, including without limitation any purported
assignment,
- 9 -
<PAGE> 10
whether voluntary or by operation of law, pledge, hypothecation or other
disposition, attachment, divorce, trustee process or similar process, whether
legal or equitable, upon such option.
12. Recapitalizations, Reorganizations and the Like.
(a) In the event that the outstanding shares of the Common Stock of the
Company are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Board of Directors
in its sole discretion, in the case of any (i) sale or conveyance to another
entity of all or substantially all of the property and assets of the Company,
including, without limitation, by way of merger or consolidation, or (ii) Change
in Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Board of Directors may
- 10 -
<PAGE> 11
cancel all outstanding options in exchange for consideration in cash or in kind
which consideration in both cases shall be equal in value to the value of those
shares of stock or other securities the optionee would have received had the
option been exercised (to the extent then exercisable) and no disposition of the
shares acquired upon such exercise been made prior to such sale, conveyance or
Change in Control, less the option price therefor. Upon receipt of such
consideration by the optionee, his or her option shall immediately terminate and
be of no further force and effect. The value of the stock or other securities
the optionee would have received if the option had been exercised shall be
determined in good faith by the Board of Directors of the Company, and in the
case of shares of the Common Stock of the Company, in accordance with the
provisions of Section 7 hereof. The Board of Directors shall also have the power
and right to accelerate the exercisability of any options, notwithstanding any
limitations in this Plan or in the Agreement upon such a sale, conveyance or
Change in Control. Upon such acceleration, any options or portion thereof
originally designated as incentive stock options that no longer qualify as
incentive stock options under Section 422 of the Code as a result of such
acceleration shall be redesignated as non-qualified stock options. A "Change in
Control" shall be deemed to have occurred if any person, or any two or more
persons acting as a group, and all affiliates of such person or persons, who
prior to such time owned less than ten percent (10%) of the then outstanding
Common Stock of the Company, shall acquire, whether by purchase, exchange,
tender offer, merger, consolidation or otherwise, such additional shares of the
Company's Common Stock in one or more transactions, or series of transactions,
such that following such transaction or transactions, such person or group and
- 11 -
<PAGE> 12
affiliates beneficially own fifty percent (50%) or more of the Company's Common
Stock outstanding.
(c) Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with the Company or any of its subsidiaries)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise his or her option to the extent then exercisable.
(d) No fraction of a share shall be purchasable or deliverable upon the
exercise of any option, but in the event any adjustment hereunder of the number
of shares covered by the option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
13. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in any
way with the right of the Company (or any subsidiary), subject to the terms of
any separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined by the Board of
Directors at the time.
14. Withholding.
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan shall be subject to the option holder's
satisfaction of all applicable Federal,
- 12 -
<PAGE> 13
state and local income, excise, employment and any other tax withholding
requirements. On or after the date of the first registration of an equity
security of the Company under Section 12 of the Securities Exchange Act of 1934
(the "1934 Act"), if an optionee is an officer of the Company within the meaning
of Section 16 of the 1934 Act, such optionee may elect to pay such withholding
tax obligations in accordance with rules prescribed by the Board of Directors by
having the Company withhold shares of Common Stock having a value equal to the
amount required to be withheld. The value of the shares to be withheld shall
equal the fair market value of the shares on the day the option is exercised as
determined by the Board of Directors. The following provisions shall apply to
such elections by persons who are directors or officers of the Company within
the meaning of Section 16(b) of the 1934 Act: (i) if an optionee has received
multiple options, a separate election must be made for each option; (ii) the
election may be a "standing election," i.e., upon making an election, a fixed
date need not be set for the exercise of the option to which the election
relates; (iii) the election will be subject to the approval or disapproval of
the Board of Directors, which approval or disapproval may be given at any time
after the election to which it relates; (iv) the election may not be made within
six months following the date of grant of the option to which it relates; (v)
the election must be made six months prior to the date the option is exercised,
or both the election and exercise must be made in the ten-day "window period"
beginning on the third day following the release of the Company's quarterly or
annual summary statement of sales and earnings; and (vi) an election may be
revoked, or may be reinstituted after a revocation, only upon six months' prior
notice.
15. Restrictions on Issue of Shares.
- 13 -
<PAGE> 14
(a) Notwithstanding the provisions of Section 8, the Company may delay
the issuance of shares covered by the exercise of an option and the delivery of
a certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has
been exercised are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state securities acts now
in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an
opinion, which opinion shall not be unreasonably conditioned or withheld, that
such shares are exempt from registration and qualification under applicable
Federal and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
16. Purchase for Investment; Rights of Holder on Subsequent
Registration.
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to
- 14 -
<PAGE> 15
counsel for the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the Securities Act of 1933, or any other applicable law, and
that if shares are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued. In the event that the Company shall,
nevertheless, deem it necessary or desirable to register under the Securities
Act of 1933 or other applicable statutes any shares with respect to which an
option shall have been exercised, or to qualify any such shares for exemption
from the Securities Act of 1933 or other applicable statutes, then the Company
may take such action and may require from each optionee such information in
writing for use in any registration statement, supplementary registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors and controlling persons from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
17. Loans.
- 15 -
<PAGE> 16
The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable Federal and state
laws and regulations regarding such loans must be met.
18. Modification of Outstanding Options.
The Board of Directors may authorize the amendment of any outstanding
option with the consent of the optionee when and subject to such conditions as
are deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
19. Approval of Stockholders.
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company present, or
represented, and entitled to vote at a duly held stockholders' meeting, or by
written consent of the stockholders as provided for under applicable state law,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Board of Directors may grant options under the
Plan prior to such approval, but any such option shall become effective as of
the date of grant only upon such approval and, accordingly, no such option may
be exercisable prior to such approval.
20. Termination and Amendment.
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 20, the Board of
Directors may not, without the approval of the
- 16 -
<PAGE> 17
stockholders of the Company obtained in the manner stated in Section 19,
increase the maximum number of shares for which options may be granted or change
the designation of the class of persons eligible to receive options under the
Plan, or make any other change in the Plan which requires stockholder approval
under applicable law or regulations, including any approval requirement which is
a prerequisite for exemptive relief under Section 16 of the 1934 Act. The Board
of Directors may terminate, amend or modify any outstanding option without the
consent of the option holder, provided, however, that, except as provided in
Section 12, without the consent of the optionee, the Board of Directors shall
not change the number of shares subject to an option, nor the exercise price
thereof, nor extend the term of such option.
21. Compliance with Rule 16b-3.
It is intended that the provisions of the Plan and any option granted
thereunder to a person subject to the reporting requirements of Section 16(a) of
the 1934 Act shall comply in all respects with the terms and conditions of Rule
16b-3 under the 1934 Act, or any successor provisions. Any agreement granting
options shall contain such provisions as are necessary or appropriate to assure
such compliance. To the extent that any provision hereof is found not to be in
compliance with such Rule, such provision shall be deemed to be modified so as
to be in compliance with such Rule, or if such modification is not possible,
shall be deemed to be null and void, as it relates to a recipient subject to
Section 16(a) of the 1934 Act.
22. Reservation of Stock.
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
- 17 -
<PAGE> 18
23. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
24. Notices.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
APPROVED BY BOARD OF DIRECTORS: _______________________________
APPROVED BY SHAREHOLDERS: _______________________________
- 18 -
<PAGE> 1
EXHIBIT 12.1
SAFELITE GLASS CORP.
RATIO OF EARNINGS
TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
FISCAL YEAR (1)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
EARNINGS & LOSSES:
PRE-TAX INCOME (LOSS) FROM CONTINUING
OPERATIONS ($63.2) ($21.6) ($2.9) $7.5 $19.2 $ 1.4
INTEREST EXPENSE 41.4 15.5 4.5 6.0 6.7 24.5
PORTION OF RENTAL EXPENSE REPRESENTATIVE
OF AN INTEREST FACTOR 12.5 11.0 11.5 12.0 12.5 12.5
------ ------ ----- ---- ----- -----
TOTAL EARNINGS (LOSSES) ($9.3) $4.9 $13.1 $25.5 $38.4 $38.4
====== ====== ===== ===== ===== =====
FIXED CHARGES:
INTEREST EXPENSE $41.4 $15.5 $4.5 $6.0 $6.7 $24.5
PORTION OF RENTAL EXPENSE REPRESENTATIVE
OF AN INTEREST FACTOR 12.5 11.0 11.5 12.0 12.5 12.5
------ ------ ----- ----- ----- -----
TOTAL FIXED CHARGES $53.9 $26.5 $16.0 $18.0 $19.2 $37.0
====== ====== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED CHARGES -- -- -- 1.4X 2.0X 1.0X
</TABLE>
(1) THE COMPANY'S FISCAL YEAR ENDS ON THE SATURDAY CLOSEST TO DECEMBER 31 OF
EACH YEAR.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-21949 of Safelite Glass Corp. on Form S-4 of our report dated
February 12, 1997 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the headings "Summary
Historical and Pro Forma Financial Information," "Selected Consolidated
Financial Data" and "Independent Auditors" in such Prospectus.
DELOITTE & TOUCHE LLP
Dayton, Ohio
April 11, 1997
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
FOR
OFFER FOR ALL OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
SAFELITE GLASS CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON __________, 1997 (THE "EXPIRATION DATE")
UNLESS EXTENDED BY SAFELITE GLASS CORP.
The Exchange Agent
for the Exchange Offer
FLEET NATIONAL BANK
By Registered or Certified Mail: By Overnight Courier:
Fleet National Bank Fleet National Bank
P.O. Box 1440 150 Windsor Street
Hartford, CT 06143 Hartford, CT 06120
Attn: Claire Young Attn: Claire Young
Mail Stop CT/OP/T06D Mail Stop CT/OP/T06D
By Hand: By Facsimile:
Fleet National Bank Fleet National Bank
One Talcott Plaza, 5th floor (860) 986-7908
Hartford, CT 06120 Confirm by telephone:
Attn: Claire Young (800) 666-6431
Mail Stop CT/OP/T06D
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via a facsimile transmission to a
number other than set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus dated
____________, 1997 (the "Prospectus") of Safelite Glass Corp. (the "Company"),
and this Letter of Transmittal (the "Letter of Transmittal"), which together
describe the Company's offer (the "Exchange Offer") to exchange $1,000 in
principal amount of 9 7/8% Series B Senior Notes due 2006 (the "Exchange Notes")
for each $1,000 in principal amount of outstanding 9 7/8% Senior Subordinated
Notes due 2006 (the "Initial Notes"). The terms of the Exchange Notes are
substantially identical in all respects (including principal amount, interest
rate and maturity) to the terms of the Initial Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (except as provided herein or in the
Prospectus) and are issued without any covenant upon the Company regarding
registration.
<PAGE> 2
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
A holder that is a participant in the Depository Trust Company's system
may utilize the Depository Trust Company's Automated Tender Offer Program to
tender Initial Notes.
List below the Initial Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the Certificate Numbers and
Principal Amounts should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF INITIAL NOTES TENDERED HEREWITH
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered Certificate Aggregate Principal Principal Amount
Holder(s) (Please fill in) Number(s)* Amount Represented by Tendered*
Initial Notes
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Total
</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have
tendered the full aggregate amount represented by such Initial
Notes. See Instruction 2.
This Letter of Transmittal is to be used either if certificates of
Initial Notes are to be forwarded herewith or if delivery of Initial Notes is to
be made by book-entry transfer to an account maintained by the Exchange Agent at
The Depository Trust Company, pursuant to the procedures set forth in "The
Exchange Offer -- How To Tender" in the Prospectus. Delivery of documents to a
book-entry transfer facility does not constitute delivery to the Exchange Agent.
2
<PAGE> 3
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date may tender their Initial Notes
according to the guaranteed procedure set forth in the Prospectus under the
caption "The Exchange Offer How To Tender."
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_________________________________________
/ / The Depository Trust Company
Account Number________________________________________________________
Transaction Code Number_______________________________________________
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)__________________________________________
Name of Eligible Institution that Guaranteed Delivery_________________
If Delivered by Book-Entry Transfer:
Account Number________________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name__________________________________________________________________
Address:______________________________________________________________
______________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of the Initial Notes. Subject to, and effective upon, the acceptance for
exchange of the Initial Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Initial Notes. The undersigned hereby
irrevocably constitutes (with full knowledge that said Exchange Agent acts as
the Agent of the Company in connection with the Exchange Offer) to cause the
Initial Notes to be assigned, transferred and exchanged. The
3
<PAGE> 4
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Initial Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Initial Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Initial Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of tendered
Initial Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any and all validly tendered Initial Notes by the Company and
the issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Company of its obligations under the Registration Rights
Agreement (as defined in the Prospectus) and that the Company shall have no
further obligations or liabilities thereunder.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company), as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Initial Notes tendered hereby and, in such event, the Initial Notes not
exchanged will be returned to the undersigned at the address above.
By tendering, each holder of Initial Notes represents that Exchange
Notes acquired in the exchange will be obtained in the ordinary course of such
holder's business, that such holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that such
holder is not an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act of 1933, as amended (the "Act"). If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of Exchange Notes. If the undersigned is
a broker-dealer that will receive Exchange Notes for its own account in exchange
for Initial Notes it represents that the Initial Notes to be exchanged for
Exchange Notes were acquired as a result of market-making activities or other
trading activities and it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Any holder of
Initial Notes using the Exchange Offer to participate in a distribution of the
Exchange Notes (i) cannot rely on the position of the staff of the Commission
enunciated in its interpretive letter with respect to Exxon Capital Holdings
Corporation (available May 13, 1988) or similar letters issued to third parties
and (ii) must comply with the registration and prospectus requirements of the
Act in connection with a secondary resale transaction.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Initial Notes may be
withdrawn at any time prior to the Expiration Date.
Certificates for all Exchange Notes delivered in exchange for tendered
Initial Notes and any Initial Notes delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
4
<PAGE> 5
TENDERING HOLDER(S) SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Holder(s)
Dated:___________________, 1997
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) of Initial Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s):_______________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT)
Capacity (full title):_________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No.____________________________________________________
Taxpayer Identification No.____________________________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED - SEE INSTRUCTION 3)
Authorized Signature___________________________________________________________
Name___________________________________________________________________________
Title__________________________________________________________________________
Address________________________________________________________________________
Name of Firm___________________________________________________________________
Area Code and Telephone No.____________________________________________________
Dated:______________________________, 1997
- --------------------------------------------------------------------------------
5
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITION OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Initial Notes or confirmation
of any book-entry transfer to the Exchange Agent's account at a book-entry
transfer facility of Initial Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date (as defined in the Prospectus).
THE METHOD OF DELIVER OF THIS LETTER OF TRANSMITTAL, THE INITIAL NOTES
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
BE USED.
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other required documents to the Exchange
Agent on or prior to the Expiration Date or comply with book-entry transfer
procedures on a timely basis may tender their Initial Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "The Exchange
Offer -- How to Tender." Pursuant to such procedure: (i) such tender must be
made by or through an Eligible Institution (as defined in the prospectus); (ii)
on or prior to the Expiration Date the Exchange Agent must have received from
such Eligible Institution a letter, telex, telegram or facsimile transmission
setting forth the name and address of the tendering holder, the names in which
such Initial Notes are registered, and, if possible, the certificate numbers of
the Initial Notes to be tendered and a guarantee that within five New York Stock
Exchange Trading days after the date of execution of such letter, telegram or
facsimile transmission by the Eligible Institution, the Initial Notes, in proper
form for transfer (or a confirmation of book-entry transfer of such Initial
Notes into the Exchange Agent's account at the book-entry transfer facility),
will be delivered by such Eligible Institution, the Initial Notes, in proper
form for transfer (or a confirmation of book-entry transfer of such Initial
Notes, in proper form for transfer (or a confirmation of book-entry transfer of
such Initial Notes into the Exchange Agent's account at the book-entry transfer
of such Initial Notes into the Exchange Agent's account at a book-entry transfer
facility) as well as this Letter of Transmittal and all other documents required
by this Letter of Transmittal, must be received by the Exchange Agent within
five New York Stock Exchange trading days after the date of execution of such
letter, telex, telegram or facsimile transmission, as all provided in the
Prospectus under the caption "The Exchange Offer -- How to Tender."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Initial Notes of exchange.
2. PARTIAL TENDERS: WITHDRAWALS.
If less than the entire principal amount of Initial Notes evidenced by
a submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Initial Notes submitted but
not tendered will be sent to such holder as soon as practicable after the
Expiration Date. All Initial Notes to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated.
Initial Notes tendered pursuant to the Exchange Offer may be withdrawn
at anytime prior to the Expiration Date. For a withdrawal to be effective, a
written, telegraphic, telex or facsimile transmission notice of withdrawal must
be timely received by the Exchange Agent. Any such notice of withdrawal must
specify the person named in
6
<PAGE> 7
the Letter of Transmittal as having tendered Initial Notes to be withdrawn, the
certificate numbers of the Initial Notes to be withdrawn, the principal amount
of Initial Notes delivered for exchange, a statement that such holder is
withdrawing his or her election to have such Initial Notes exchanged, and the
name of the registered holder of such Initial Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accepted by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Initial Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Initial Notes promptly following
receipt of notice of withdrawal. If Initial Notes have been tendered pursuant to
the procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Initial Notes or otherwise comply with the
book-entry transfer facility's procedures.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of
the Initial Notes tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alteration or any
change whatsoever.
If any of the Initial Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Initial Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Initial Notes registered in different names are
tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Initial Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include a
book-entry transfer facility whose name appears on a security listing as the
owner of the Initial Notes) of Initial Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Initial Notes listed, such Initial Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the registered
holder, in either case signed exactly as the name or names of the registered
holder or holders appear(s) on the Initial Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Initial Notes are tendered: (i) by a
registered holder of such Initial Notes; or (ii) for the account of an Eligible
Institution.
7
<PAGE> 8
4. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfers and exchange of Initial Notes to it or its order pursuant to the
Exchange Offer. If a transfer tax is imposed for any reason other than the
transfer and exchange of Initial Notes to the Company or its order pursuant to
the Exchange Offer, the amount of any such transfer taxes (whether imposed on
the registered holder or any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exception therefrom
is not submitted herewith the amount of such transfer taxes will be billed
directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or in part,
any of the conditions to the Exchange Offer set forth in the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES.
Any holder whose Initial Notes have been mutilated, lost, stolen or
destroyed, should contact the Exchange Agent at the address indicated below for
further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth on
the first page of this Letter of Transmittal. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance or additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Company at 1105 Schrock Road, 7th Floor, P.O. Box 2000, Columbus, OH 43216.
Attention: Poe A. Timmons (telephone: (614) 842-3325).
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES OF INITIAL NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND
ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
8
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
OFFER FOR ALL OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2006
IN EXCHANGE FOR
9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
OF
SAFELITE GLASS CORP.
Registered holders of outstanding 9 7/8% Senior Subordinated Notes due
2006 (the "Initial Notes") who wish to tender their Initial Notes in exchange
for a like principal amount of 9 7/8% Series B Senior Subordinated Notes due
2006 (the "Exchange Notes") and whose Initial Notes are not immediately
available or who cannot deliver their Initial Notes and Letter of Transmittal
(and any other documents required by the Letter of Transmittal) to Fleet
National Bank (the "Exchange Agent") prior to the Expiration Date, may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission or mail to the Exchange Agent, See "The Exchange Offer -- How to
Tender" in the Prospectus.
The Exchange Agent
for the Exchange Offer is:
FLEET NATIONAL BANK
By Registered or Certified Mail: By Overnight Courier:
Fleet National Bank Fleet National Bank
P.O. Box 1440 150 Windsor Street
Hartford, CT 06143 Hartford, CT 06120
Attn: Claire Young Attn: Claire Young
Mail Stop CT/OP/T06D Mail Stop CT/OP/T06D
By Hand: By Facsimile:
Fleet National Bank Fleet National Bank
One Talcott Plaza, 5th floor (860) 986-7908
Hartford, CT 06120 Confirm by telephone:
Attn: Claire Young (800) 666-6431
Mail Stop CT/OP/T06D
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via a facsimile transmission to a
number other than set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instructions thereto, such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders the principal amounts of Initial Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated ___________, 1997 of Safelite Glass Corp. (the "Prospectus"),
receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
Name and address of registered holder as it appears on Certificate number(s) of Initial Principal Amount of Initial
the privately placed 9 7/8% Senior Subordinated Notes Notes transmitted Notes Transmitted
due 2006, ("Initial Notes")
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE FOLLOWING MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the Initial Notes,
together with a properly completed and duly executed Letter of Transmittal
within five New York Stock Exchange, Inc. trading days after the date of
execution of this Notice of Guaranteed Delivery.
Name of Firm:__________________________ ___________________________________
(Authorized Signature)
Address:_______________________________ Title:_____________________________
_______________________________________ Name:______________________________
(Zip Code)
Area Code and Telephone Number:
Date:______________________________
_______________________________________
NOTE: DO NOT SEND INITIAL NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY, INITIAL NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
Exhibit 99.3
EXCHANGE AGENT AGREEMENT
Dated as of April ___, 1997
Fleet National Bank
Mail Stop: MA OF DO5M
One Federal Street
Boston, MA 02110-2010
Ladies and Gentlemen:
Pursuant to the provisions of the Offer (the "Exchange Offer") for all of
the outstanding 9 7/8% Senior Subordinated Notes due 2006 (the "Initial Notes")
of Safelite Glass Corp., a Delaware corporation (the "Company"), in exchange for
9 7/8% Series B Senior Subordinated Notes due 2006 (the "Exchange Notes"), all
of the Company's issued and outstanding Initial Notes accepted for tender of
exchange (the "Exchange") prior to 5:00 p.m. New York time on __________, 1997,
unless extended, for the Company's Exchange Notes will be exchanged pursuant to
the terms and conditions of the Exchange Offer. The Exchange Offer is being made
pursuant to a prospectus (the "Prospectus") included in the Company's
registration statement on Form S-4 (File No. __________) (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC"). The
term "Expiration Date" shall mean the date on which the Exchange Offer, as it
may be extended, shall expire. Upon receipt and execution of this letter and
confirmation of the arrangements herein set forth, Fleet National Bank will act
as the Exchange Agent for the Exchange (the "Exchange Agent"). A copy of the
Prospectus is attached hereto as Exhibit A.
A copy of the form of the letter of transmittal, including the related
notice of guaranteed delivery (the "Letters of Transmittal"), to be used by the
holders of record of the Initial Notes (the "Holders") to surrender their
Initial Notes in order to receive the Exchange Notes pursuant to the Exchange is
attached hereto as Exhibit B.
The Company hereby appoints you to act as Exchange Agent in connection with
the Exchange. In carrying out your duties as Exchange Agent, you are to act in
accordance with the following:
1. You are to mail the Prospectus and the Letters of Transmittal to all of
the Holders on the day that you are notified in writing by the Company that the
Registration Statement has become effective under the Securities Act of 1933, as
amended, and to make subsequent mailings
<PAGE> 2
thereof to persons who become Holders prior to the Expiration Date as may from
time to time be requested by the Company.
2. You are to examine the Letters of Transmittal and the Initial Notes and
other documents delivered or mailed to you, by or for the Holders, prior to the
Exchange Date, to ascertain whether (i) the Letters of Transmittal are properly
executed and completed in accordance with the instructions set forth therein,
(ii) the Initial Notes are in proper form for transfer and (iii) all other
documents submitted to you are in proper form. In each case where a Letter of
Transmittal or other document has been improperly executed or completed or, for
any other reason, is not in proper form, or some other irregularity exists, you
are authorized to endeavor to take such action as you consider appropriate to
notify the tenderer of such irregularity and as to the appropriate means of
resolving the same. Determination of questions as to the proper completion or
execution of the Letters of Transmittal, or as to the proper form for transfer
of the Initial Notes or as to any other irregularity in connection with the
submission of Letters of Transmittal and/or Initial Notes and other documents in
connection with the Exchange, shall be made by officers of the Company evidenced
by their written instructions or oral direction confirmed by facsimile. Any
determination made by the Company on such questions shall be final and binding.
As Exchange Agent, you are entitled to rely on any determination by the Company
as described above and shall be fully protected and indemnified in such
reliance.
3. Tender of the Initial Notes may be made only as set forth in the Letter
of Transmittal. Notwithstanding the foregoing, tenders which the Company shall
approve in writing as having been properly tendered shall be considered to be
properly tendered. Letters of Transmittal shall be recorded by you as to the
date and time of receipt and shall be preserved and retained by you. Exchange
Notes are to be issued in exchange for the Initial Notes pursuant to the
Exchange only (i) against deposit with you of the Initial Notes, together with
executed Letters of Transmittal and any other documents required by the Exchange
Offer on each business day from the execution hereof up to the Expiration Date
or (ii) in the event the holder is a participant in the Depository Trust Company
("DTC") system, by the utilization of DTC's Automated Tender Offer Program
("ATOP") and any evidence required by the Exchange Offer on each business day
from the execution hereof up to the Expiration Date.
4. Upon the oral or written request of the Company (with written
confirmation of such oral request thereafter), you will transmit by telephone,
and promptly thereafter confirm in writing to (i) Poe A. Timmons, Controller
(telephone (614) 842-3325) and (ii) Steven M. Peck, Esq., Hutchins, Wheeler &
Dittmar, A Professional Corporation, counsel to the Company (telephone (617)
951-6644) or such other persons as the Company may reasonably request, the
aggregate number of the Initial Notes tendered to you and the number of the
Initial Notes properly tendered that day. Furthermore, you shall transmit copies
of all Agents Messages (as defined in the Letter of Transmittal) received in
connection with ATOP to the aforementioned persons as they are received. In
addition, you will also inform the aforementioned persons, upon oral request
made from time to time (with written confirmation of such request thereafter)
prior to the Expiration Date, of such information as they or any of them may
reasonably request.
- 2 -
<PAGE> 3
5. Upon the terms and subject to the conditions of the Exchange Offer,
delivery of Exchange Notes to be issued in exchange for accepted Initial Notes
will be made by you promptly after acceptance of the tendered Initial Notes.
6. If any Holder shall report to you that his/her failure to surrender
Initial Notes registered in his/her name is due to the loss, misplacement or
destruction of a certificate or certificates, you shall request such Holder (i)
to furnish to the Exchange Agent an affidavit of loss and, if required by the
Company, a corporate bond of indemnity in an amount and evidenced by such
certificate or certificates of a surety, as may be satisfactory to you and the
Company, and (ii) to execute and deliver an agreement to indemnify the Company
and you in such form as is acceptable to you and the Company. The obligees to be
named in each such indemnity bond shall include the Company and you. You shall
report to the Company the names of all Holders who claim that their Initial
Notes have been lost, misplaced or destroyed and the principal amount of such
Initial Notes.
7. As soon as practicable after you mail or deliver to an Initial Holder the
Exchange Notes that such Holder may be entitled to receive, you shall arrange
for cancellation of the Initial Notes submitted to you or returned by DTC in
connection with ATOP. Such Notes shall be forwarded to Fleet National Bank, as
trustee (the "Trustee") under the Indenture dated as of December 20, 1996
governing the Initial Notes, for cancellation and retirement as you are
instructed by the Company (or a representative designated by the Company).
8. For your services as the Exchange Agent hereunder, the Company shall pay
you in accordance with the schedule of fees attached hereto as Exhibit C. The
Company also will reimburse you for your reasonable out-of-pocket expenses
(including but not limited to counsel fees not previously paid to you as set
forth in Exhibit C) in connection with your services promptly after submission
to the Company of itemized statements.
9. As the Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or in the Exhibits attached hereto or as may
be subsequently requested in writing of you by the Company and agreed to by
you in writing with respect to the Exchange;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, accuracy, sufficiency, value or
genuineness of any of the Company's Holder record information, any Initial
Notes deposited with you hereunder or any Exchange Notes, any Letters of
Transmittal or other documents prepared by the Company in connection with
the Exchange Offer or any signatures or endorsements other than your own,
and will not be required to and will make no representations as to the
validity, value or genuineness of the Exchange Offer;
- 3 -
<PAGE> 4
(c) shall not be obligated to take any legal action hereunder which
might in your judgment involve any expenses or liability unless you shall
have been furnished with an indemnity reasonably satisfactory to you;
(d) may rely on and shall be fully protected and indemnified as
provided in paragraph 10 hereof in acting in reliance upon any certificate,
instrument, opinion, notice, letter, telegram, facsimile or other document
or security delivered to you and reasonably believed by you to be genuine
and to have been signed by the proper party or parties;
(e) may rely on and shall be fully protected and indemnified as
provided in paragraph 10 hereof in acting upon the written or oral
instructions with respect to any matter relating to your acting as Exchange
Agent specifically covered by this Agreement or supplementing or qualifying
any such action of any officer or agent of the Company or such other person
or persons as may be designated or whom you reasonably believe has been
designated by the Company;
(f) may consult with counsel satisfactory to you, including counsel
for the Company, and the opinion or advice of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by you hereunder in good faith and in accordance with
the opinion or advice of such counsel;
(g) shall not at any time advise any person as to the wisdom of the
Exchange or as to the market value or decline or appreciation in market
value of any Initial Notes or Exchange Notes; and
(h) shall not be liable for anything which you may do or refrain
from doing in connection with this letter except for your gross negligence,
willful misconduct or bad faith.
10. The Company covenants and agrees to indemnify and hold harmless Fleet
National Bank and its officers, directors, employees, agents and affiliates
(collectively, the "Indemnified Parties" and each an "Indemnified Party") and
hold each Indemnified Party harmless against any loss, liability or reasonable
expense of any nature (including reasonable legal and other fees and expenses)
incurred in connection with the administration of the duties of the Indemnified
Parties hereunder; provided, however, that no Indemnified Party shall be
indemnified against any such loss, liability or expense arising out of such
party's gross negligence or bad faith. In no event shall you be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if you have been advised of
the likelihood of such loss or damage and regardless of the form of action. To
the extent stated below, the Company shall not be liable under this indemnity
with respect to any claim against any Indemnified Party unless the Company shall
be notified by such Indemnified Party by letter, or by cable, telex or
telecopier confirmed by letter, of the written assertion of a claim against such
Indemnified Party, or of any action commenced against such Indemnified Party,
promptly after but in any event within 10 days of the date such Indemnified
Party shall have received any such written assertion
- 4 -
<PAGE> 5
of a claim or shall have been served with a summons, or other legal process,
giving information as to the nature and basis of the claim, but failure so to
notify the Company shall not relieve the Company of any liability which it may
have otherwise than on account of this Agreement or hereunder except such
liability which is a direct result of such Indemnified Party's failure to notify
promptly. The Company shall be entitled to participate at its own expense in the
defense against any such claim or legal action. If such Indemnified Party in
such notice so directs, the Company shall assume the defense of any suit brought
to enforce any such claim. If such Indemnified Party does not so direct the
Company but elects not to defend any such claim or legal action or if such
Indemnified Party has elected to defend any such claim or legal action but is
not, in the reasonable judgment of the Company, diligently pursuing such
defense, then the Company may elect to assume the defense of any suit brought to
enforce any such claim. In the event the Company assumes the defense, the
Company shall not be liable for any fees and expenses thereafter incurred by
such Indemnified Party's counsel, except for any reasonable fees and expenses of
such Indemnified Party's counsel incurred in representing such Indemnified Party
that are necessary and appropriate as a result of the need to have separate
representation because of a conflict of interest between such Indemnified Party
and the Company. You shall not enter into a settlement or other compromise with
respect to any indemnified loss, liability or expense without the prior written
consent of the Company, which shall not be unreasonably withheld or delayed.
11. This Agreement and your appointment as the Exchange Agent shall be
construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts and shall inure to the benefit of, and the obligations created
hereby shall be binding upon, the successors and assigns of the parties hereto.
This Agreement may not be modified orally. Any inconsistency between this
Agreement and the Letter of Transmittal, as they may from time to time be
supplemented or amended, shall be resolved in favor of the latter, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent.
* * * *
- 5 -
<PAGE> 6
Please acknowledge receipt of this letter and confirm the arrangements
herein provided by signing and returning the enclosed copy.
Very truly yours,
SAFELITE GLASS CORP.
By:_____________________________________
Name:
Title:
Accepted and Agreed to:
FLEET NATIONAL BANK
Exchange Agent
By:_________________________________
Name:
Title:
- 6 -
