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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1998.
REGISTRATION NO. 333-21949
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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SAFELITE GLASS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation)
7536
(Primary Standard Industrial
Classification Code Number)
13-3386709
(IRS Employer
Identification No.)
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)
------------------------
JOHN F. BARLOW
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)
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WITH COPY TO:
CHARLES W. ROBINS, ESQ.
HUTCHINS, WHEELER & DITTMAR
A PROFESSIONAL CORPORATION
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-6600
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
9 7/8 Series B Senior Subordinated Notes Due 2006..... $100,000,000 $1,000 $100,000,000 $30,303
</TABLE>
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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.
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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 REGISTRATION STATEMENT 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 OCTOBER 2, 1998
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, as amended by the First Supplemental
Indenture dated as of December 12, 1997 and the Second Supplemental Indenture
dated as of December 18, 1997. 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 , 1998, unless
extended, at the Company's discretion, for up to an additional sixty days (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.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 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.
THE DATE OF THIS PROSPECTUS IS , 1998
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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 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 the 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, among the Company, SGC Franchising Corp. (a former
subsidiary of the Company) and Fleet National Bank, as trustee, as amended by
the First Supplemental Indenture dated as of December 12, 1997, between the
Company and State Street Bank and Trust Company, as successor trustee to Fleet
National Bank (the "Trustee"), and the Second Supplemental Indenture dated as of
December 18, 1997, among the Company, the Subsidiary Guarantors (as defined
therein, and each a former subsidiary of the Company) and the 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.
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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 COMPANY. 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 COMPANY SINCE THE DATE HEREOF.
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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
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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. Unless otherwise referred to
herein or the context otherwise requires, references to "Vistar" shall mean
Vistar, Inc., an Illinois corporation, and its consolidated subsidiaries. Unless
otherwise indicated, all references to fiscal years up to and including 1997 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 size
and 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 automotive glass replacement and repair
services in the United States. The Company installed approximately 1.7 million
replacement units in 1997 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 service centers, mobile vans, centralized telephone/dispatch centers and its
network of independent automotive glass replacement and repair providers. 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 automotive 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, has provided the Company with a significant
competitive advantage in the insurance segment of the market. Since 1993, the
Company's management believes that it has significantly increased its leading
market share in this segment, resulting in improved financial performance as
demonstrated by compounded annual growth in sales through 1997 of 10% to $483.3
million. During the same period, operating income improved from an operating
loss of $6.4 million in 1993 to $25.8 million of operating income in 1997.
Adjusted EBITDA (as defined) for the same period grew from $22.0 million to
$49.6 million, a compounded annual growth rate of 22%. Sales, operating income
and adjusted EBITDA for the three months ended April 4, 1998 were $213.8
million, $4.9 million and $18.2 million, respectively. Sales, operating income
and adjusted EBITDA for the three months ended July 4, 1998 were $241.1 million,
$18.5 million and $29.0 million, respectively. See "Summary Historical and Pro
Forma Financial Information."
On December 19, 1997, Safelite completed a merger with Vistar whereby
Vistar was merged with and into the Company, with the Company as the surviving
corporation (the "Vistar Merger"). The Vistar Merger was accounted for as a
purchase. Accordingly, the operations of Vistar are included in the Company's
financial statements from December 19, 1997 forward. Prior to the Vistar Merger,
Vistar was the second largest provider of automotive glass replacement and
repair services in the United States. Vistar was created on February 29, 1996 by
the merger of Windshields America Inc., a wholly owned subsidiary of Belron
(USA) BV (together with its affiliates hereinafter referred to as "Belron"), and
Globe Glass and Mirror Company. Vistar installed or repaired approximately 1.6
million units in its fiscal year ended March 31, 1997 for insurance companies,
commercial fleet leasing and rental car companies, car dealerships and body
shops, government agencies and individual consumers. Vistar provided these
installation services through its 356 service centers and approximately 1,000
mobile vans and its network
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of independent automotive glass replacement and repair providers. Vistar net
sales and operating income were $413.5 and $8.8 million, respectively, for its
fiscal year ended March 31, 1997 and $339.5 million and a loss of $8.2 million,
respectively, for the nine months ended December 19, 1997. See
"Transactions -- The Vistar Transactions." At July 4, 1998, the combined
companies had two manufacturing facilities, 74 warehouses, 47 centralized
telephone/dispatch centers, approximately 2,000 mobile vans and 717 service
center locations across the United States.
The automotive glass replacement and repair industry in 1997 was an
estimated $3.0 billion market, representing the installation of approximately
12.5 million replacement units. The replacement and repair of automotive 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,
increases in the number of miles driven and increases in the price of
replacement automotive glass. This price increase principally reflects the
increased size and design complexity of automotive glass. Such growth has been
fairly consistent year to year, with some variations resulting primarily from
fluctuations in weather conditions.
The automotive glass replacement and repair industry is highly fragmented
with approximately 20,000 competitors. Safelite is the industry leader with an
estimated overall market share of approximately 23% and the leading market share
in the insurance segment of the market. Since the early 1990s, the industry has
been consolidating as evidenced by an increase in market share for the top three
industry participants from an estimated 24% in 1992 to an estimated 35% in 1997
and a decline in market share for small "mom and pop" providers from an
estimated 70% to an estimated 55% during the same period.
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 automotive glass claims. For
insurance companies, automotive 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 automotive glass replacement and repair
industry. The Company operates service centers in all of the top 100
Metropolitan Statistical Areas ("MSAs") in the United States. 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 replacement
and repair providers, achieves over 90% coverage. Safelite has the largest
number of service center locations and the largest network of independent
automotive glass replacement and repair providers in the United States.
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 automotive
glass repair and replacement services on a nationwide basis.
Strong, Established Relationships with Major Insurance Companies. Safelite
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
influence approximately 55% of all repairs and replacements in the United
States. Safelite has entered into Total Customer Solution ("TCS") arrangements
with approximately 25 of those insurers including Farmers Insurance Group,
United Services Automobile Association, Prudential Insurance Company of America,
and Safeco Corporation. Under a TCS arrangement, Safelite typically serves as
one of a few recommended automotive 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 Safelite's
approximately 45 TCS arrangements, those with Allstate, Nationwide Mutual
Insurance Company, GEICO,
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Liberty Mutual Insurance Company, Travelers Group, CNA Insurance Group,
Metropolitan Property and Casualty Insurance Company and National General
Insurance are also Master Provider ("MP") relationships. Under an MP program,
Safelite acts as the administrator of an insurance company's automotive glass
claims. 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 TCS 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. Safelite has a 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. Management believes the Vistar Merger, coupled with the
worldwide industry experience of Belron, the partial owner of Safelite, will
significantly enhance the overall cost advantage Safelite enjoyed prior to the
Vistar Merger.
Management believes that Safelite is the only full-scale vertically
integrated automotive glass replacement company in the U.S. The Company produces
approximately 65% of its windshield needs at its two manufacturing plants in
Enfield, North Carolina and Wichita, Kansas. Safelite produces only high-volume
windshield models, manufacturing 550 of the total 2,800 active windshield parts
available in the industry. Safelite determines which windshield models to
produce by assessing the sales trends and estimating future windshield demand
after a new automobile model has been on the market for approximately one year.
The Company then designs selected windshield models through a process of reverse
engineering.
The Company uses a three tiered distribution system to better serve its
customers and minimize its inventory levels. Two central distribution facilities
are located at the Company's manufacturing facilities in Enfield, North Carolina
and Wichita, Kansas. These central distribution facilities send inventory to the
Company's 74 regional warehouses (27 free-standing warehouses and 47 co-located
with the Company's Central Telephone Units). These facilities can then quickly
and accurately stock the service centers and vans in their local markets on an
as-needed basis.
Every Safelite employee participates in some form of incentive compensation
plan which rewards productivity and/or profitability of the Company. The
Company's management estimates that its performance incentive program has
increased productivity of its installation associates from 2.5 installations per
day in 1991 to 4.0 per day in 1997 (while the industry averaged an estimated 3.0
installations per day and Vistar's installation associates averaged
approximately 3.2 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 handle all aspects of an insured automotive glass claim effectively
and cost efficiently, from the initial phone call placed by the insured
policyholder to the automatic billing of an 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 automotive 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. 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
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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. These reports include information to
which the insurance companies otherwise do not have access, 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.
STRATEGIES FOR GROWTH
Expand and Enhance Relationships with Insurance Companies. The Company's
principal business strategy is to increase its share in the segment of the
automotive glass replacement and repair market influenced by insurance companies
by expanding the breadth and depth of its existing relationships. The Company
currently provides its replacement and repair services to the policyholders of
virtually every major automotive insurance company in the U.S. The Company
focuses its marketing and sales strategy on adding new insurance relationships
and increasing its share of business with its existing insurance clients.
Management believes that as it processes greater proportions of an
insurance company's replacement and repair claims, it can continue to reduce
related loss expenses and administrative costs for the insurance company, while
improving policyholder satisfaction through faster, more reliable and consistent
installation service.
The Company continually strives to enhance the value it provides to
insurance company clients while improving profitability through increased market
share. Recent examples include (i) implementation of a Repair First Network to
help improve repair performance, (ii) development of on-line call center
scheduling capability for faster, more efficient policyholder service and (iii)
creation of a SmartPay process under which insurance companies pay only
"reasonable and customary" prices for glass claims serviced by non-program
providers.
Expand Nationwide Coverage. Following the elimination of duplicative
service center locations resulting from the Vistar Merger, the Company plans to
continue expanding the breadth and depth of its nationwide network by
selectively acquiring regional automotive glass replacement and repair
businesses and opening new service center locations. The Company believes that
it can enhance its sales and results through the integration of well-targeted
acquisitions into Safelite's nationwide network. In addition, the Company
expects to open 5 to 10 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 additional
outsourcing services to insurance and fleet companies for items such as
pre-insurance vehicle inspection, towing referral, post-collision rental car
referral, after hours loss reporting and residential glass claims processing.
These services are characterized by significant administrative burdens, high
processing costs and low dollar loss values like the automotive glass
replacement and repair service that the Company otherwise provides to insurance
and fleet companies efficiently and cost-effectively. The Company is evaluating
plans to offer these services as a natural extension of its core automotive
glass business.
The Company maintains its executive headquarters at 1105 Schrock Road,
Columbus, Ohio 43229, telephone (614) 842-3000.
SUMMARY OF THE TRANSACTIONS
THE THL TRANSACTIONS
Prior to December 20, 1996, the Company was a subsidiary of LSNWY Corp.
("LSNWY"), and an indirect subsidiary of Lear Siegler Holdings Corp. ("Lear
Siegler"). Pursuant to a Recapitalization Agreement and a Plan of Merger and
Stock Purchase Agreement (the "Agreement") dated November 8,
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1996, the Company completed a series of related transactions on December 20,
1996 (collectively, the "THL Transactions"), whereby Thomas H. Lee Equity Fund
III, L.P., certain affiliates of Thomas H. Lee Company and certain other
investors (collectively, "THL"), acquired for $58.7 million, approximately 88%
of the Company's voting stock and, for approximately $58.2 million, all of the
outstanding shares of the Company's 8% Cumulative Preferred Stock. Certain
existing stockholders, including management of the Company, retained ownership
of approximately 12% of the Company's voting stock. The Agreement also provided
for Safelite's acquisition (through a newly formed subsidiary) of substantially
all of the outstanding common stock of Lear Siegler, its former parent. See
"Transactions -- The THL Transactions."
SALE OF LEAR SIEGLER
On September 12, 1997, the Company sold all of the issued and outstanding
shares of the capital stock (the "Lear Siegler Stock") of Lear Siegler to BPLSI
Investment Company, a Delaware corporation (the "Purchaser") owned by James F.
Matthews, the former President of Lear Siegler. The purchase price for the Lear
Siegler Stock was $100,000 in cash and a Promissory Note delivered by the
Purchaser to the Company. The operations of Lear Siegler, a former industrial
conglomerate whose subsidiaries manufactured a range of products, were never an
integral part of the Company's automotive glass replacement and repair business.
The Company believes that the sale of Lear Siegler has enabled the Company
to focus on its core business. See "Transactions -- Sale of Lear Siegler."
THE CONSENT SOLICITATION
On November 28, 1997, the Company commenced a solicitation of consents (the
"Consent Solicitation"), from the holders of the Initial Notes, to certain
amendments to the Indenture (the "Indenture Amendments") to be effected through
execution of a First Supplemental Indenture. The purpose of the Indenture
Amendments was, among other things, to permit the Company to make the
Distribution (as defined below) and increase the amount of its senior bank
indebtedness in connection with the Distribution and, thereafter, in connection
with the operation of the combined companies following the merger of Vistar with
and into the Company, as contemplated by the Merger Agreement entered into on
October 10, 1997 between the Company and Vistar (the "Vistar Merger Agreement").
See "-- The Vistar Merger." On December 12, 1997, the Company successfully
completed the Consent Solicitation, having received the requisite consents to
the Indenture Amendments from the holders of the Initial Notes. Upon
consummation of the Distribution, the Company made consent payments aggregating
$5.0 million ($50.00 for each $1,000.00 principal amount of Initial Notes then
outstanding).
THE VISTAR TRANSACTIONS
On December 19, 1997, the Company completed the Vistar Merger with the
Company as the surviving corporation. Prior to the Vistar Merger, the Company
declared and paid a dividend on its outstanding shares of Class A Common Stock
in the aggregate amount of approximately $67.2 million and declared and paid a
dividend on its outstanding shares of 8% Cumulative Preferred Stock equal to the
accrued and unpaid dividends thereon in the aggregate amount of approximately
$4.8 million (collectively, the "Dividend"), and redeemed all outstanding shares
of its 8% Cumulative Preferred Stock at an aggregate redemption price of $58.2
million (the "Redemption" and, together with the Dividend, the "Distribution").
Subsequent to the Distribution and prior to consummation of the Vistar Merger,
the Company effected a 1 for 3 reverse stock split (the "Stock Split") of its
Class A Common Stock, which was reclassified as Class A Voting Common Stock, and
reclassified its authorized class of Class B Common Stock as Class B Non-Voting
Stock, and declared and paid a dividend on each share of Class A Voting Stock
outstanding after the Stock Split in the form of two shares of Class B
Non-Voting Stock. The Company also authorized the creation of a new series of
preferred stock, designated as Non-Voting 8% Preferred Stock ("Non-Voting
Preferred Stock").
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7
<PAGE> 9
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The aggregate consideration received by the holders of Vistar's outstanding
capital stock (the "Vistar Shareholders") in the Vistar Merger consisted of
1,690,101 shares of Class A Voting Stock, 6,959,771 shares of Class B Non-Voting
Stock, 40,000 shares of Non-Voting Preferred Stock ($40 million aggregate
liquidation preference) and $65 million cash (collectively, the "Merger
Consideration"). As a result of the Vistar Merger, the holders of the Company's
outstanding capital stock immediately prior to the Vistar Merger (the "Safelite
Shareholders") retained ownership of 50.5% of the outstanding Class A Voting
Stock and became the owners of approximately 33% of the outstanding Class B
Non-Voting Stock (including shares subject to exercisable options to acquire
Class B Non-Voting Stock) and the Vistar Shareholders became the owners of 49.5%
of the outstanding Class A Voting Stock, approximately 67% of the outstanding
Class B Non-Voting Stock and 100% of the outstanding Non-Voting Preferred Stock.
In connection with the consummation of the Vistar Merger and related
transactions (the "Vistar Transactions"), the Company refinanced its then
existing credit facilities (the "1996 Credit Facilities"). The new credit
facilities (the "Bank Credit Agreement") consist of (a) a term loan facility in
an aggregate principal amount of $350.0 million (the "Term Loan Facility") 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 $100.0 million (the "Revolving Credit Facility" and, together
with the Term Loan Facility, the "Senior Credit Facilities"). See "Description
of Other Indebtedness." The Indenture provides that the Company must cause any
Restricted Subsidiary that guarantees the Company's indebtedness under the Bank
Credit Agreement to execute and deliver a supplemental indenture pursuant to
which such Restricted Subsidiary shall agree to be bound by the Indenture as a
Subsidiary Guarantor. Immediately prior to the Vistar Merger, the Company had no
subsidiaries. Upon consummation of the Vistar Merger, the Company had three
subsidiaries, each of which was a Restricted Subsidiary and guaranteed payment
of the Company's indebtedness under the Bank Credit Agreement and, as a
Subsidiary Guarantor, executed and delivered the Second Supplemental Indenture
dated as of December 18, 1997. On [ ], 1998, each of the Company's
three subsidiaries was merged with and into Safelite Glass Corp., with Safelite
Glass Corp. as the surviving corporation and, therefore, the Company no longer
has any subsidiaries and there are no current Subsidiary Guarantors of the
Company's obligations under the Notes.
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. The Exchange Notes
will be issued under the Indenture governing
the Initial Notes as amended by the First
Supplemental Indenture dated December 12, 1997
and the Second Supplemental Indenture dated as
of December 18, 1997 (the "Indenture").
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8
<PAGE> 10
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Interest Payments............. Interest on the Exchange Notes shall accrue
from June 15, 1998 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 , 1998, unless
extended, at the Company's discretion, for up
to an additional sixty days.
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 Company to consummate the
Exchange Offer is subject to certain
conditions. See "The Exchange
Offer -- Conditions to the Exchange Offer." The
Company reserves the right to terminate or
amend the Exchange Offer at any time prior to
the Expiration Date upon the occurrence of any
such condition.
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 Company 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 Company, Chase Securities
Inc., BT Securities Corporation and Smith
Barney Inc. (collectively, the "Initial
Purchasers") and, accordingly, the Company will
have no further obligations to pay an increased
rate of interest 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
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9
<PAGE> 11
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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
Terms capitalized but not defined below have the meanings ascribed to them
in "Description of 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 Bank
Credit Agreement. As of July 4, 1998, the
aggregate indebtedness that would have become
due upon the occurrence of a Change of Control
Triggering Event under the Indenture and a
default under the Bank Credit Agreement was
$497.4 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
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10
<PAGE> 12
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Subordinated Indebtedness of the Company and
will rank senior to all future subordinated
indebtedness of the Company. The Exchange Notes
will also be effectively subordinated to all
secured indebtedness of either the Company or
any of its subsidiaries (including indebtedness
under the Bank Credit Agreement) to the extent
of the value of the assets securing such
indebtedness. As of July 4, 1998, the Company
had approximately $408.2 million of Senior
Indebtedness (excluding $14.2 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 $67.6 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 July 4,
1998, 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.
Guarantees.................... The Indenture provides that any Restricted
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. The
Company currently has no subsidiaries.
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
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11
<PAGE> 13
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designated for trading in the PORTAL 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.
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12
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following Summary Historical and Pro Forma Financial Information sets
forth financial data of Safelite for each of the five fiscal years during the
period ended January 3, 1998 and for the three months ended March 29, 1997,
April 4, 1998, June 28, 1997 and July 4, 1998. The statement of operations data
set forth below with respect to fiscal years ended December 30, 1995, December
28, 1996 and January 3, 1998 and the three months ended April 4, 1998 and the
balance sheet data at December 28, 1996, January 3, 1998 and April 4, 1998 are
derived from the consolidated financial statements included elsewhere in this
Prospectus which have been audited by Deloitte & Touche LLP, independent public
accountants. The data provided for the three months ended March 29, 1997, June
28, 1997 and July 4, 1998 are derived from unaudited consolidated financial
statements and include in the opinion of management, all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the data for
such periods. Interim results for the three months ended July 4, 1998 are not
necessarily indicative of results that can be expected in future periods. The
pro forma consolidated financial data have been derived from the Unaudited Pro
Forma Statement of Operations (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 had the
Vistar Transactions and the sale of Lear Siegler 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 Statement of Operations" and the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
--------------------------------------------------- THREE MONTHS ENDED
PRO -----------------------------------------
FORMA MARCH 29, APRIL 4, JUNE 28, JULY 4,
1993 1994 1995 1996 1997 1997 1997 1998 1997 1998
------ ------ ------ ------ ------ ------ --------- -------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................... $328.3 $357.4 $372.1 $438.3 $483.3 $879.8 $107.8 $ 213.8 $129.1 $ 241.1
Cost of sales.................. 229.7 246.1 261.7 299.6 331.7 679.8 75.8 155.5 85.0 170.7
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Gross profit................... 98.6 111.3 110.4 138.7 151.6 200.0 32.0 58.3 44.1 70.4
Selling, general &
administrative expenses...... 100.4 90.8 93.5 107.3 111.8 186.7 26.0 46.5 29.4 47.4
Other operating expenses(2).... -- 21.1 -- 7.6 5.7 8.1 -- 3.1 -- 1.0
Loss on sale of Lear Siegler... -- -- -- -- 5.4 5.4 -- -- -- --
Restructuring expense(3)....... 4.6 -- 6.3 -- 2.9 2.9 -- 3.8 -- 3.5
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) from
operations................... (6.4) (0.6) 10.6 23.8 25.8 (3.1) 6.0 4.9 14.7 18.5
Interest expense............... (15.5) (4.5) (6.0) (6.7) (27.5) (44.5) (6.3) (10.9) (6.3) (11.2)
Interest income................ 0.3 2.2 2.9 2.1 1.3 1.5 0.3 0.1 0.2 0.1
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) from continuing
operations before income
taxes, minority interest and
extraordinary items.......... (21.6) (2.9) 7.5 19.2 (0.4) (46.1) 0.0 (5.9) 8.6 7.4
Income tax benefit
(provision)(4)............... 0.3 (0.2) (0.1) 17.6 6.8 21.8 (0.1) 1.6 (3.5) (4.0)
Minority interest.............. 0.1 (2.7) (1.1) (10.2) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------- ------ -------
Income (loss) from continuing
operations before
extraordinary items.......... (21.2) (5.8) 6.3 26.6 6.4 $(24.3) (0.1) (4.3) 5.1 3.4
======
Discontinued operations(5)..... (43.2) -- -- 1.7 -- -- -- -- --
Extraordinary loss(6).......... -- (1.5) -- (0.5) (2.8) -- -- -- --
------ ------ ------ ------ ------ ------
Net income (loss).............. $(64.4) $ (7.3) $ 6.3 $ 27.8 $ 3.6 $ (0.1) $ (4.3) $ 5.1 $ 3.4
====== ====== ====== ====== ====== ====== ======= ====== =======
OTHER FINANCIAL DATA:
EBITDA(7)(8)................... $ 10.2 $ 6.6 $ 24.5 $ 31.8 $ 37.4 $ 8.0 $ 15.1 $ 16.8 $ 28.0
EBITDA margin.................. 3.1% 1.8% 6.6% 7.3% 7.7% 7.4% 7.1% 13.0% 11.6%
Adjusted EBITDA(8)(9).......... $ 22.0 $ 29.1 $ 25.5 $ 42.6 $ 49.6 $ 8.7 $ 18.2 $ 17.4 $ 29.0
Cash flows from operating
activities................... (10.3) 6.5 (10.1) 0.1 2.4 (16.7) (15.6) 13.6 (1.8)
Cash flows from investing
activities................... 153.2 (24.1) (34.7) 21.5 (85.4) (4.3) (5.2) (2.8) (4.2)
Cash flows from financing
activities................... (115.4) 28.9 5.2 (4.2) 59.2 6.3 23.7 (9.0) 4.6
Depreciation and
amortization................. 12.0 7.2 7.6 8.0 8.7 2.0 6.4 2.1 6.0
Capital expenditures........... 7.7 14.2 12.0 12.8 13.9 4.2 2.4 2.8 4.3
Ratio of earnings to fixed
charges(10).................. -- -- 1.4x 2.0x -- -- 1.0x -- 1.7x 1.4x
BALANCE SHEET DATA:
Working capital................ $ 41.0 $ 41.9 $ 58.1 $ 56.6 $ 29.8 $ 56.6 $ 40.3 $ 59.5 $ 53.2
Total assets................... 169.8 193.7 188.3 216.2 558.1 204.0 576.4 204.2 575.2
Total indebtedness............. 35.0 63.8 69.0 263.7 479.9 270.0 503.6 261.1 508.2
Stockholders' equity
(deficit).................... 7.7 0.2 (0.6) (128.5) (46.9) (128.6) (48.4) (123.5) (45.0)
</TABLE>
- ---------------
(1) Prior to 1998, the Company's fiscal year ended on the Saturday closest to
December 31 of each year. On May 18, 1998, the Company changed its fiscal
year to the Saturday closest to March 31.
(2) Other operating expenses in 1994 are comprised of a $2.5 million one-time
charge recorded by the Company to conform its method of accounting to
Statement of Position (SOP) No. 93-7, "Reporting on Advertising
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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 are comprised of management transaction
bonuses related to the THL Transaction of $6.9 million and estimated costs
(primarily severance) of $0.7 million to exit the activities of Lear
Siegler. Other operating expenses in 1997 include $1.0 million of
management transaction bonuses, $3.0 million related to acceleration of
vesting of certain management stock options and $0.5 million related to
forgiveness of certain officer loans made in connection with the Vistar
Merger. Also included in other operating expenses in 1997 are costs related
to obtaining bondholder consent to the Vistar Merger of $1.2 million. Other
operating expenses of $3.1 million and $1.0 million in the three month
periods ended April 4, 1998 and July 4, 1998, respectively, consist of
costs associated with the integration of corporate systems, moving,
relocation and other expenses associated with the Vistar Merger. See Notes
1, 2, 4 and 10 to the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Pro forma results for 1997 also include $2.4 million in
one-time integration costs incurred by Vistar in connection with the merger
between Windshields and Globe. See "Unaudited Pro Forma Statement of
Operations."
(3) 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 $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. In
1997, the Company recorded restructuring charges totaling $2.9 million
consisting of $0.4 million for planned closing of Safelite service center
locations and $2.5 million related to Safelite employee severance.
Restructuring charges of $3.8 million for the three months ended April 4,
1998 consisted of $2.5 million for planned closing of approximately 50
Safelite service center locations and $1.3 million related to Safelite
employee severance. Restructuring charges of $3.5 million for the three
months ended July 4, 1998 consisted of $3.1 million for planned closing of
Safelite service centers and $0.4 million related to Safelite employee
severance. See Notes 4 and 5 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 and 1997, the valuation allowance provided
against the Company's deferred tax assets was reduced by $25.9 million and
$3.0 million, respectively. See Note 14 to the Company's Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(5) 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 totaling
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. See Note 16 to the Company's Consolidated Financial
Statements.
(6) In 1994, 1996 and 1997, extraordinary losses of $1.5 million, $0.5 million
and $2.8 million, respectively, were recorded, net of minority interest and
income tax of $0.3 million, $0.3 million and $1.9 million, respectively, as
a result of expensing unamortized loan origination fees related to the
early retirement of the associated debt.
(7) "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 these 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 (loss) or net
income (loss) 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).
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14
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(8) The following is a reconciliation of operating income to EBITDA and
adjusted EBITDA for the period presented:
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
------------------------------------- -----------------------------------------
MARCH 29, APRIL 4, JUNE 28, JULY 4,
1993 1994 1995 1996 1997 1997 1998 1997 1998
----- ----- ----- ----- ----- --------- -------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations........ $(6.4) $(0.6) $10.6 $23.8 $25.8 $6.0 $ 4.9 $14.7 $18.5
Depreciation and amortization........ 12.0 7.2 7.6 8.0 8.7 2.0 6.4 2.1 6.0
Restructuring charges................ 4.6 -- 6.3 -- 2.9 -- 3.8 -- 3.5
----- ----- ----- ----- ----- ---- ----- ----- -----
EBITDA............................... 10.2 6.6 24.5 31.8 37.4 8.0 15.1 16.8 28.0
Other operating expenses............. -- 21.1 -- 7.6 5.7 -- 3.1 -- 1.0
Lear Siegler operating expenses...... 11.8 1.4 1.0 3.2 1.1 0.7 -- 0.6 --
Loss on sale of Lear Siegler......... -- -- -- -- 5.4 -- -- -- --
----- ----- ----- ----- ----- ---- ----- ----- -----
Adjusted EBITDA...................... $22.0 $29.1 $25.5 $42.6 $49.6 $8.7 $18.2 $17.4 $29.0
===== ===== ===== ===== ===== ==== ===== ===== =====
</TABLE>
(9) "Adjusted EBITDA" is defined herein as EBITDA plus other operating
expenses, the operating expenses of Lear Siegler (which has been treated as
an exited activity) and the loss recognized by the Company in connection
with the sale of Lear Siegler. The estimated costs to exit Lear Siegler
activities, consisting primarily of severance costs, were accrued in 1996.
Adjusted EBITDA does not represent funds available for discretionary uses
and should not be considered as an alternative to operating income (loss)
or net income (loss) 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) 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 1993, 1994, 1997, Pro Forma 1997 and
the three months ended April 4, 1998 the deficiency of earnings to fixed
charges was $21.6 million, $2.9 million, $0.4 million, $46.1 million and
$5.9 million, respectively.
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15
<PAGE> 17
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 THL Transactions and the Vistar Transactions, the
Company has significant debt service obligations. As of July 4, 1998 the Company
had aggregate outstanding indebtedness of approximately $508.2 million, of which
$397.4 million represented aggregate outstanding indebtedness under the Bank
Credit Agreement (which amount excludes outstanding letters of credit), and
stockholders' deficit of $45.0 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."
CERTAIN OPERATING CONSIDERATIONS
The Company entered into the Vistar Transactions with the expectation that
the Vistar Merger will benefit the Company. There can be no assurance that the
Company will integrate the businesses and management teams of Safelite and
Vistar successfully or that the Company will achieve desired net cost savings.
The failure to integrate the two companies' operations or management teams
successfully or to achieve such net cost savings would have a material adverse
effect on the Company. In addition, certain third parties who have business
relationships with the Company, such as customers and suppliers, may
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wish to terminate those relationships as a result of the Company's affiliation
with Vistar or Vistar's affiliation with the Company. Although the Company does
not believe that any loss of such business relationships which would have a
material adverse impact on the Company will occur as a result of the Vistar
Merger, there can be no assurance that third parties will not terminate business
relationships with the Company as a result of the Vistar Merger.
COSTS RELATING TO THE VISTAR MERGER
In connection with the Vistar Merger, the Company expects to incur $37
million to $42 million in aggregate costs for severance and the consolidation
and elimination of duplicate facilities. The Company also expects to incur a
total of $5 million to $10 million in calendar 1998 for certain one-time
expenses associated with the integration of corporate systems, temporary service
fees, training, moving, relocation and other costs associated with the Vistar
Merger. Costs related to the Vistar Merger could increase if the Company
encounters difficulties in the integration of the two businesses. There can be
no assurance that the combined company will not incur additional costs, which in
turn could have a material adverse effect on the business, financial condition
or results of operations of the Company. For a discussion of the expected cost
savings incident to the Vistar Merger, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations." These costs and cost savings
have not been reflected in the pro forma adjustments to the Pro Forma
Consolidated Statements of Operations.
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
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 Notes are subordinate and junior in right of payment to all existing
and future Senior Indebtedness of the Company, including indebtedness of the
Company under the Bank Credit Agreement. The Notes are also effectively
subordinated to all secured indebtedness of the Company to the extent of the
value of the assets securing such indebtedness. The obligations under the Bank
Credit Agreement are secured by substantially all of the assets of the Company.
As of July 4, 1998, the Company had (i) approximately $408.2 million of Senior
Indebtedness (which amount excludes outstanding letters of credit) and (ii)
approximately $52.6 million available under the Revolving Credit Facility (less
$14.2 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
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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." The conversion of the
Company's Class B Non-Voting Stock to Class A Voting Stock could result in a
Change of Control under the Indenture. See "Description of Capital
Stock -- Common Stock."
DEPENDENCE ON CERTAIN CUSTOMERS; POTENTIAL ADVERSE IMPACT OF GOVERNMENT
REGULATION
During fiscal 1997 the Company's five largest customers accounted for
approximately 31% of the Company's sales and no customer accounted for more than
10% of the Company's sales. During the three months ended April 4, 1998 and July
4, 1998, however, the Company's five largest customers accounted for
approximately 32% and 34%, respectively, of the Company's sales, and one of
those customers accounted for 12% and 13%, respectively, of the Company's sales.
The Company is highly dependent on recurring revenues generated by its insurance
company customers and could be adversely affected by changes in such insurance
companies' policies concerning coverage for automotive glass replacement claims.
Failure by insurance companies to cover automotive glass replacement claims or
the imposition of increased deductibles with respect to coverage of automotive
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
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require policyholders to use the Company for automotive 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 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 markets for the Company's products and services 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 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 have market shares estimated to be 8% and 4%. 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, began, in a region by region rollout commencing in
the summer of 1997, to use a competitor to function as its glass claims call
center and bill processing administrator. There can be no assurance that this
arrangement will not have an impact on the Company's business with State Farm.
See "Business -- Competition."
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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 (i) 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 (ii) 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.
PRICING
The price of replacement automotive 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 have generally followed the
wholesale price increases announced by the Original Equipment Manufacturers.
Prices charged in the automotive 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, increases in the design complexity of
automotive glass and increases in the level of claims processing services
associated with insurance-related replacement automotive glass purchases.
NAGS list prices and offsetting discounts from NAGS list prices have
increased significantly over the past five years. The Company has been informed
that NAGS intends to reset its published list prices in early 1999 in order to
bring actual prices charged more in line with published list prices. While the
Company believes that as list prices are reduced, the related percentage
discounts from list price offered by the Company and the Company's competitors
will also be reduced, there can be no assurance that the resetting of NAGS list
prices will not have an adverse effect on the Company.
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 first and fourth
calendar quarters traditionally its slowest periods of activity. This reduced
level of sales in the first and fourth calendar quarters has resulted in a
disproportionate decline in operating income during these quarters 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."
YEAR 2000 COMPLIANCE
The Company relies heavily on computer technologies to operate its
business. As a result, the Company continuously seeks to upgrade and improve its
computer systems in order to provide better service to its customers and to
support the Company's growth. The Company has initiated a program to prepare its
computer systems and applications for the year 2000 date change ("Year 2000").
As part of this program, a team has been assigned to evaluate the nature and
extent of the work required to make the Company's systems, products, electronic
linkages with insurance customers and infrastructure Year 2000 compliant.
A number of projects are either underway or under review with respect to
Year 2000 compliance for the Company's various business systems, the total cost
of which has not yet been determined. While these on-going efforts will involve
additional costs, management believes that the costs will not have a material
adverse effect on the Company's business, results of operations or financial
condition. Year 2000 project costs are difficult to estimate accurately, and
projected costs could change due to technological difficulties, project delays,
and project cost overruns. The inability of the Company to successfully
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complete its Year 2000 compliance project or to maintain computer systems that
meet the Company's and its customers' needs could have an adverse effect on 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 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 1998 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.
LITIGATION
On May 11, 1998, the Company was served with a subpoena requiring that it
produce documents to a grand jury in Dallas, Texas, conducted by the Antitrust
Division of the United States Department of Justice. The documents demanded by
the subpoena relate to the pricing of replacement glass at three service center
locations in the state of Texas. The Company intends to comply fully with the
subpoena. Based on discussions with the Antitrust Division of the United States
Department of Justice, management believes that it is unlikely that the Company
is the target of this investigation. In addition, 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 fines, penalties, damages and costs or,
that if it were liable, that it would not have a material adverse effect on the
Company.
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 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 THL Transactions and the Vistar Merger. The Company does not
maintain key man life insurance on any of its executives. See "Management --
Directors and Executive Officers."
CONCENTRATION OF OWNERSHIP
THL and certain management of the Company own approximately 50.5% of the
outstanding Class A Voting Stock of the Company and 32.0% of the outstanding
Class B Non-Voting Common Stock. Belron owns 49.5% of the Class A Voting Common
Stock and 43.1% of the Class B Non-Voting Common Stock.
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Pursuant to the Shareholders Agreement, as amended entered into in connection
with the Vistar Merger, THL and Belron each have the right to elect half of the
members of the Company's Board of Directors. In addition, the Shareholders
Agreement gives THL the exclusive right for a three year period from the
consummation of the Vistar Merger to require the Company to undertake an initial
public offering and requires that THL approval be obtained for any debt or
equity financing transactions in which the Company is expected to receive net
proceeds in excess of $25 million. See "Transactions -- The Vistar Merger."
Because THL and certain management of the Company own more than 50% of the
outstanding voting common stock of the Company and THL has the exclusive ability
to determine the outcome of fundamental corporate transactions such as
refinancing indebtedness of the Company or causing an initial public offering to
occur, there can be no assurance that the interests of THL and such management
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 THL Transactions. The obligations of the Company
incurred under 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 Company incurred
the indebtedness represented by the Notes, (i) the Company issued the Notes with
the intent of hindering, delaying or defrauding current or future creditors of
the Company, or (ii) the Company received less than reasonably equivalent value
or fair consideration any of such indebtedness or obligation and at the time of
such incurrence: (A) was insolvent or was rendered insolvent by reason of such
incurrence, (B) was engaged or about to engage in a business or transaction for
which its assets constituted unreasonably small capital or (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), 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) (a) was not insolvent rendered insolvent thereby
for purposes of the foregoing standards, (b) was and remains in possession of
sufficient capital to meet its obligations as such obligations mature or become
due and to operate its business effectively and (c) did (and continues to) incur
obligations within its ability to pay such obligations as they mature 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
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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 non-exchanging 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 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 other operating expenses, the operating expenses of Lear
Siegler (which was treated as an exited activity) and the loss recognized by the
Company in connection with the sale of Lear Siegler on September 12, 1997, was
$22.0 million and $29.1 million, respectively, during such years. The Company
also recognized a net loss for the three months ended April 4, 1998. Such loss
resulted principally from restructuring charges and one-time costs associated
with the Vistar Merger. 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 and successfully realizing expected net synergies from
the Vistar Merger. 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 Company 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 Company 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 subject to certain exceptions, including suspending
the effectiveness thereof for certain valid business reasons. In the event that
(i) the Company 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
Company with respect to the foregoing agreement. Following the consummation of
the Exchange Offer, the Company 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 Company 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 Company 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 Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such
24
<PAGE> 26
holder's 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 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 , 1998,
unless the Company, in its sole discretion, extends the period during which the
Exchange Offer is open for up to an additional sixty days, 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 State Street Bank & Trust Company (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.
25
<PAGE> 27
If tendered Initial Notes are registered in the name of the signer of the
Letter of 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 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.
26
<PAGE> 28
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 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 Company and
the issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Company 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
27
<PAGE> 29
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 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 Company, 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.
28
<PAGE> 30
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 threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the 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
State Street Bank and Trust Company 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 Company. 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 Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
29
<PAGE> 31
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 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 Company 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.
30
<PAGE> 32
TRANSACTIONS
THE THL TRANSACTIONS
During 1996, in order to effect the THL Transactions described below, Lite
Acquisition Corp., formed and capitalized by THL, made an approximately $117
million equity investment in Safelite (the "THL Equity Investment"). Pursuant to
the Recapitalization Agreement, Lite Acquisition Corp. was merged with and into
Safelite on December 20, 1996, with Safelite surviving the merger (the "THL
Merger").
Upon completion of the THL 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 THL
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 THL 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 THL Transactions. LSNWY distributed the THL Merger
consideration to a subsidiary of Safelite which repaid the Seller Note.
As part of the THL 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 THL 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.
A summary schematic diagram of the structure of Safelite before the THL
Transactions and the corporate structure of Safelite following the THL
Transactions is set forth below.
[PRE-THL TRANSACTIONS STRUCTURE CHART & POST-THL TRANSACTIONS STRUCTURE CHART]
The Pre-THL Transactions Structure Chart shows the following organizational
structure: Lear Siegler Holdings Corp. as the parent corporation, with LSNWY
Corp. and "Other Lear Siegler Subsidiaries" as direct subsidiaries of Lear
Siegler Holdings Corp., and Safelite Glass Corp. as a direct subsidiary of LSNWY
Corp. The chart also indicates that the pre-THL Transactions stockholders of
Safelite Glass Corp. were LSNWY Corp. and other stockholders (including
management), as described in more detail in the text following the chart.
The Post-THL Transactions Structure Chart shows the following organizational
structure: Safelite Glass Corp. as the parent corporation, with L.S. Aquisition
Corp. as a direct subsidiary of Safelite Glass Corp., Lear Siegler Holdings
Corp. as a direct subsidiary of L.S. Acquisition Corp., and LSNWY Corp. and
"Other Lear Siegler Subsidiaries" as direct subsidiaries of Lear Siegler
Holdings Corp. The chart also indicates that the post-THL Transactions
stockholders of Safelite Glass Corp. were THL and certain other stockholders
(including management), as described in more detail in the text following the
chart.
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<PAGE> 33
Prior to the THL 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 THL Transactions occurred in three steps, each described below.
In the first step of the THL 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 THL 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 THL Transactions, comprise the $116.9
million THL Equity Investment). Lite Acquisition Corp. then merged with and into
Safelite, with Safelite surviving the THL Merger. Immediately following the THL
Merger, the Company borrowed $150.0 million pursuant to the 1996 Credit
Facilities and consummated the Offering of the Initial Notes, from which it
received approximately $97.0 million. Upon effectiveness of the THL 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 THL 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 THL 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 THL Merger was converted into the right to receive cash equal to $.01;
(iii) each share of Safelite Preferential Common Stock outstanding
prior to the THL 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 THL 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 THL Merger was converted into one share of Safelite 8%
Preferred Stock.
Safelite was then 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 THL 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 THL 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 THL Transactions, all of
the consideration received by LSNWY in the THL Merger was distributed to L.S.
Acquisition Corp. and 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 held a direct equity
investment in Safelite and other stockholders of Safelite, primarily management,
retained their existing interest in Safelite. The Company believed that this
resulting structure accurately reflected the Company's operations, which consist
32
<PAGE> 34
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.
The sources and uses of funds for the THL 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 a
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.
SALE OF LEAR SIEGLER
On September 12, 1997, the Company sold all of the issued and outstanding
shares of the capital stock of Lear Siegler (the "Lear Siegler Stock") to BPLSI
Investment Company, a Delaware corporation (the "Purchaser"), pursuant to a
Stock Purchase Agreement by and among Lear Siegler, the Company, the Purchaser,
and James F. Matthews, the former President of Lear Siegler and the sole
stockholder of the Purchaser. The purchase price for the Lear Siegler Stock was
$100,000 in cash and a Promissory Note delivered by the Purchaser to the
Company. The Promissory Note is not for a fixed dollar amount but instead
provides that the Purchaser must pay to the Company an amount equal to 50% of
the net proceeds realized, directly or indirectly, by Lear Siegler from the
liquidation or other disposition, if any, of the assets belonging to Lear
Siegler or its direct or indirect subsidiaries which were seized by the Cuban
government when Fidel Castro came to power, or from settlement of any claims
relating thereto (the "Cuban Assets"). Due to certain restrictions in the
acquisition documents governing the THL Transactions, it is not expected that
the Purchaser will be able to make any payment under the Promissory Note until
June 21, 2003. Also, due to the wholly-contingent nature of the ability of Lear
Siegler or any of its subsidiaries to realize any proceeds from the liquidation
or other disposition of any of the Cuban Assets,
33
<PAGE> 35
there can be no assurance that the Purchaser will make any payments to the
Company under the Promissory Note. Accordingly, the Company has recorded the
Promissory Note at a net book value of zero, and recorded a loss of $5.4 million
in the year ended January 3, 1998 related to the sale of Lear Siegler.
The operations of Lear Siegler, a former industrial conglomerate whose
subsidiaries manufactured a range of products, were never an integral part of
the Company's automotive glass replacement and repair business. The Company
believes that the sale of Lear Siegler will enable the Company to focus on its
core business.
THE CONSENT SOLICITATION
On November 28, 1997, the Company commenced a solicitation of consents (the
"Consent Solicitation"), from the holders of the Initial Notes, to certain
amendments to the Indenture (the "Indenture Amendments") to be effected through
execution of a First Supplemental Indenture. The purpose of the Indenture
Amendments was, among other things, to permit the Company to make the
Distribution (as defined below) and increase the amount of its senior bank
indebtedness in connection with the Distribution and, thereafter, in connection
with the Vistar Merger as contemplated by the Merger Agreement entered into on
October 10, 1997 between the Company and Vistar (the "Vistar Merger Agreement").
See "-- The Vistar Merger." On December 12, 1997, the Company successfully
completed the Consent Solicitation, having received the requisite consents to
the Indenture Amendments from the holders of the Initial Notes. Upon
consummation of the Distribution, the Company made consent payments aggregating
$5.0 million ($50.00 for each $1,000.00 principal amount of Initial Notes then
outstanding).
THE VISTAR TRANSACTIONS
On December 19, 1997, pursuant to the Vistar Merger Agreement, the Company
completed the Vistar Merger, whereby Vistar was merged with and into the
Company, with the Company as the surviving corporation. Prior to the Vistar
Merger, the Company declared and paid a dividend on its outstanding shares of
Class A Common Stock in the aggregate amount of approximately $67.2 million and
declared and paid a dividend on its outstanding shares of 8% Cumulative
Preferred Stock equal to the accrued and unpaid dividends thereon in the
aggregate amount of approximately $4.7 million (collectively, the "Dividend"),
and the Company redeemed all outstanding shares of its 8% Cumulative Preferred
Stock at an aggregate redemption price of $58.2 million (the "Redemption" and,
together with the Dividend, the "Distribution"). Subsequent to the Distribution
and prior to consummation of the Vistar Merger, the Company effected a 1 for 3
reverse stock split (the "Stock Split") of its Class A Common Stock, which was
reclassified as Class A Voting Common Stock ("Class A Voting Stock"),
reclassified its currently authorized class of Class B Common Stock as Class B
Non-Voting Common Stock ("Class B Non-Voting Stock"), and declared and paid a
dividend on each share of Class A Voting Stock outstanding after the Stock Split
in the form of two shares of Class B Non-Voting Stock. The Company also
authorized the creation of a new series of preferred stock, designated as
Non-Voting 8% Preferred Stock (the "Non-Voting Preferred Stock"). As a result of
restrictions contained in the Indenture, dividends are not payable in respect of
the Non-Voting Preferred Stock unless such payment is in compliance with the
"Limitation on Restricted Payments" covenant contained in the Indenture. The
Non-Voting Preferred Stock is not mandatorily redeemable. Unlike the 8%
Cumulative Preferred Stock, however, the Non-Voting Preferred Stock will be
redeemable by the Company, at its option, at any time (provided that the Company
is in compliance with the "Limitation on Restricted Payments" covenant in the
Indenture). See "Description of Capital Stock -- Preferred Stock."
Upon consummation of the Vistar Merger, the holders of Vistar's outstanding
capital stock immediately prior to the Vistar Merger (the "Vistar Shareholders")
received in exchange for all of the outstanding capital stock of Vistar prior to
the Vistar Merger an aggregate of 1,690,101 shares of Class A Voting Stock,
6,959,771 shares of Class B Non-Voting Stock, 40,000 shares of Non-Voting
Preferred Stock ($40 million aggregate liquidation preference) and $65 million
cash (collectively, the "Merger
34
<PAGE> 36
Consideration"). As a result of the Vistar Merger, the holders of the Company's
outstanding capital stock immediately prior to the Vistar Merger (the "Safelite
Shareholders") retained ownership of 50.5% of the outstanding Class A Voting
Stock and became the owners of approximately 33% of the outstanding Class B
Non-Voting Stock (including shares subject to exercisable options to acquire
Class B Non-Voting Stock) and the Vistar Shareholders became the owners of 49.5%
of the outstanding Class A Voting Stock, approximately 67% of the outstanding
Class B Non-Voting Stock and 100% of the outstanding Non-Voting Preferred Stock.
See "Security Ownership of Certain Beneficial Owners and Management." The Class
B Non-Voting Stock may convert into Class A Voting Stock under certain
circumstances. See "Description of Capital Stock -- Common Stock."
In connection with the Vistar Merger, substantially all of the Safelite
Shareholders and all of the Vistar Shareholders entered into a Shareholders
Agreement (the "Shareholders Agreement") which established certain rights and
restrictions with respect to the management of the Company and transfers of the
Class A Voting Stock and the Class B Non-Voting Stock, and a Registration
Agreement providing for certain rights to cause the Company to register the
Class A Voting Stock and the Class B non-Voting Stock under the Securities Act
of 1933, as amended (the "Securities Act"). The Shareholders Agreement was
amended by Amendment No. 1 to the Shareholders Agreement, dated as of March 26,
1998. Unless otherwise noted, references herein to the Shareholders Agreement
shall mean the Shareholders Agreement, as amended. See "Certain Relationships
and Related Transactions."
35
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations
(the "Unaudited Pro Forma Consolidated Statements of Operations") of the Company
are based on the audited and unaudited financial statements of Safelite and
Vistar which are included elsewhere in this Prospectus, as adjusted to
illustrate the estimated effects of the Vistar Merger and sale of Lear Siegler.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The total purchase
price for Vistar has been allocated to the tangible and intangible assets and
liabilities of Vistar acquired based upon the results of a preliminary
evaluation of their estimated respective values. Steps to complete the
evaluation of the acquired assets and liabilities include a market-by-market
analysis of overlapping field locations and administrative activities. See Note
4 to the Company's Consolidated Financial Statements. It is the Company's
intention, prior to the end of calendar 1998, to complete its evaluation of the
acquired assets and liabilities and, as a result, the allocation of the
acquisition costs among tangible and intangible assets and liabilities acquired
may change. The impact of this change could cause pro forma amortization of
goodwill to increase by as much as $350,000 per year. The Unaudited Pro Forma
Consolidated Statements of Operations and accompanying notes should be read in
conjunction with the historical financial statements of Safelite and other
financial information pertaining to both companies included elsewhere in this
Prospectus including "Vistar Transactions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Unaudited Pro Forma Consolidated Statements of Operations have been
prepared to give effect to the Vistar Merger and sale of Lear Siegler as though
such transactions had occurred as of December 29, 1996, the first day of the
Company's 1997 fiscal year. See "Transactions."
The Unaudited Pro Forma Consolidated Statements of Operations do not
purport to be indicative of what the Company's results of operations would
actually have been had the Vistar Merger and sale of Lear Siegler been completed
at the beginning of the period indicated or to project the Company's results of
operations for any future date.
36
<PAGE> 38
SAFELITE GLASS CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (1)
FOR THE YEAR ENDED JANUARY 3, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LEAR SIEGLER VISTAR SAFELITE
SAFELITE VISTAR PRO FORMA PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL ADJUSTMENTS ADJUSTMENTS COMBINED
------------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Sales:
Installation and related
services............. $430,290 $434,245 $ $ (15,446)(3) $826,789
(22,300)(4)
Wholesale............... 53,014 -- 53,014
-------- -------- --------
Total sales..... 483,304 434,245 879,803
Cost of sales............. 331,658 363,545 (15,446)(3) 679,757
-------- -------- --------
Gross profit.............. 151,646 70,700 200,046
Selling, general and
administrative.......... 111,815 80,575 (1,107)(5) (5,079)(6) 186,704
500(7)
Restructuring expenses.... 2,865 -- 2,865
Loss on sale of Lear
Siegler................. 5,418 5,418
Other operating
expenses................ 5,704 2,409 8,113
-------- -------- --------
Operating income
(loss)(10).............. 25,844 (12,284) (3,054)
Interest expense.......... (27,517) (1,554) 72(5) (15,536)(8) (44,535)
Interest income........... 1,254 710 (483)(5) 1,481
-------- -------- --------
Income (loss) from
continuing operations
before income taxes..... (419) (13,128) (46,108)
Income tax benefit
(provision)............. 6,842 (88) (278)(5) 15,334(9) 21,810
-------- -------- --------
Income (loss) from
continuing
operations(10).......... $ 6,423 $(13,216) $(24,298)
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
37
<PAGE> 39
SAFELITE GLASS CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
1. The pro forma financial data do not give effect to any potential synergies
that could result from the Vistar Transactions. The pro forma data are not
necessarily indicative of the operating results or financial position that
would have occurred had the sale of Lear Siegler and the Vistar Transactions
been consummated at the dates indicated, nor are they necessarily indicative
of future operating results.
2. The Safelite Historical Statement of Operations includes the operations of
Vistar, Inc. from December 19, 1997 (the date of the Vistar Merger) through
the Company's fiscal year end.
3. Represents the elimination of inter-company sales between Safelite and
Vistar.
4. Reflects estimated impact of certain customer contractual arrangements as a
result of the merger of the two companies.
5. Represents the operating expenses, interest expense, interest income and
related tax impact of Lear Siegler.
6. Adjusts goodwill amortization to reflect the purchase of Vistar using a
thirty year estimated useful life. The preliminary allocation of the
purchase price to the tangible and intangible assets of Vistar acquired is
detailed below:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 25,839
Inventory................................................... 5,654
Prepaids and other current assets........................... 1,457
Property, plant and equipment............................... 17,878
Deferred taxes.............................................. 31,557
Goodwill.................................................... 280,141
Other assets................................................ 2,726
Accounts payable............................................ (14,900)
Other current liabilities................................... (13,133)
Restructuring reserves...................................... (28,722)
Other liabilities........................................... (8,697)
Long-term debt.............................................. (17,716)
--------
Total....................................................... $282,084
========
</TABLE>
Steps to complete the evaluation of the acquired assets and liabilities of
Vistar include a market-by-market analysis of overlapping field locations
and administrative activities (see Note 4 to the Company's Consolidated
Financial Statements). It is the Company's intention, prior to the end of
calendar 1998, to complete its evaluation of the acquired assets and
liabilities and, as a result, the allocation of the acquisition costs among
tangible and intangible assets and liabilities acquired may change. The
impact of this change could cause pro forma amortization of goodwill to
increase by as much as $350,000 per year.
7. Represents the increase in management fees payable to THL as a result of the
Amended and Restated Management Agreement. See "Certain Relationships and
Related Transactions."
38
<PAGE> 40
8. Reflects the adjustment to interest expense and amortization of deferred
financing fees as a result of the Vistar Transactions as detailed below.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 3, 1998
----------------
<S> <C>
Credit Facility borrowings at estimated interest rates(a):
Revolver at 7.50% (includes premium financing)............ $ 4,175
Term Loan A at 7.60%...................................... 11,400
Term Loan B at 8.10%...................................... 8,100
Term Loan C at 8.35%...................................... 8,350
The Notes at 9.875%......................................... 9,875
Vistar unsecured notes payable.............................. 600
--------
Cash interest expense....................................... 42,500
Amortization of deferred financing fees..................... 2,035
--------
Pro forma interest expense.................................. 44,535
Less: Historical interest expense........................... (28,999)
--------
Pro forma adjustments....................................... $ 15,536
========
</TABLE>
- ---------------
(a) A 0.125 percent change in interest rates would change annual pro forma
interest expense by $500.
9. Represents the tax effect of adjustments to reflect the Vistar Transactions.
10. Management has identified certain synergies which are expected to be
realized as a result of combining the Company's and Vistar's operations.
These synergies are not included in pro forma operating income or pro forma
income from continuing operations before taxes. Management has estimated
that the annual pre-tax cost savings from these items will range from
$52,000 to $57,000 and that net synergies after reflecting the impact of
certain customer contractual arrangements discussed in note (3) above will
range from $30,000 to $35,000. These net synergies are expected to be
realized in part during calendar 1998 and in full during calendar 1999. The
synergies identified include (i) reductions in redundant administrative
overhead within both field and corporate operations, (ii) elimination of
redundant service center locations, (iii) elimination of redundant sales and
marketing force activities and (iv) reductions in product costs due to
increased purchasing leverage. The foregoing are forward looking statements
that involve certain risks and uncertainties that could cause actual results
to differ materially from those contained herein. Potential risks and
uncertainties include such factors as the substantial leverage and debt
service obligations of the Company as a result of the Vistar Transactions,
the ability of the Company to integrate the operations of Vistar with its
own operations and achieve the synergies that management currently
anticipates, demand for the Company's products and services, competition and
other risks identified herein.
39
<PAGE> 41
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data of Safelite set forth below with respect to
fiscal years ended December 30, 1995, December 28, 1996 and January 3, 1998 and
the three months ended April 4, 1998 and the balance sheet data at December 28,
1996, January 3, 1998 and April 4, 1998 are derived from the financial
statements included elsewhere in this Prospectus which have been audited by
Deloitte & Touche LLP, independent public accountants. The data presented for
the three months ended March 29, 1997, June 28, 1997 and July 4, 1998 are
derived from unaudited consolidated financial statements and include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. 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 Statements of Operations" and the financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR(1) -------------------------------------------
------------------------------------------- MARCH 29, APRIL 4, JUNE 28, JULY 4,
1993 1994 1995 1996 1997 1997 1998 1997 1998
------ ------ ------ ------- ------ ----------- -------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................. $328.3 $357.4 $372.1 $ 438.3 $483.3 $ 107.8 $213.8 $129.1 $241.1
Cost of sales..................... 229.7 246.1 261.7 299.6 331.7 75.8 155.5 85.0 170.7
------ ------ ------ ------- ------ ------- ------ ------ ------
Gross profit...................... 98.6 111.3 110.4 138.7 151.6 32.0 58.3 44.1 70.4
Selling, general & administrative
expenses........................ 100.4 90.8 93.5 107.3 111.8 26.0 46.5 29.4 47.4
Other operating expenses(2)....... -- 21.1 -- 7.6 5.7 -- 3.1 -- 1.0
Loss on sale of Lear Siegler...... -- -- -- -- 5.4 -- -- -- --
Restructuring expense(3).......... 4.6 -- 6.3 -- 2.9 3.8 -- 3.5
------ ------ ------ ------- ------ ------- ------ ------ ------
Income (loss) from operations..... (6.4) (0.6) 10.6 23.8 25.8 6.0 4.9 14.7 18.5
Interest expense.................. (15.5) (4.5) (6.0) (6.7) (27.5) (6.3) (10.9) (6.3) (11.2)
Interest income................... 0.3 2.2 2.9 2.1 1.3 0.3 0.1 0.2 0.1
------ ------ ------ ------- ------ ------- ------ ------ ------
Income (loss) from continuing
operations before income taxes,
minority interest and
extraordinary items............. (21.6) (2.9) 7.5 19.2 (0.4) 0.0 (5.9) 8.6 7.4
Income tax benefit
(provision)(4).................. 0.3 (0.2) (0.1) 17.6 6.8 (0.1) 1.6 (3.5) (4.0)
Minority interest................. 0.1 (2.7) (1.1) (10.2) -- -- -- -- --
------ ------ ------ ------- ------ ------- ------ ------ ------
Income (loss) from continuing
operations before extraordinary
items........................... (21.2) (5.8) 6.3 26.6 6.4 (0.1) (4.3) 5.1 3.4
Discontinued operations(5)........ (43.2) -- -- 1.7 -- -- -- -- --
Extraordinary loss(6)............. -- (1.5) -- (0.5) (2.8) -- -- -- --
------ ------ ------ ------- ------ ------- ------ ------ ------
Net Income (loss)................. $(64.4) $ (7.3) $ 6.3 $ 27.8 $ 3.6 $ (0.1) $ (4.3) $ 5.1 $ 3.4
====== ====== ====== ======= ====== ======= ====== ====== ======
OTHER FINANCIAL DATA:
Depreciation and amortization..... $ 12.0 $ 7.2 $ 7.6 $ 8.0 $ 8.7 $ 2.0 $ 6.4 $ 2.1 $ 6.0
Capital expenditures.............. 7.7 14.2 12.0 12.8 13.9 4.2 2.4 2.8 4.3
Ratio of earnings to fixed
charges(7)...................... -- -- 1.4x 2.0x -- 1.0x -- 1.7x 1.4x
BALANCE SHEET DATA:
Working capital................... $ 41.0 $ 41.9 $ 58.1 $ 56.6 $ 29.8 $ 56.6 $ 40.3 $ 59.5 $ 53.2
Total assets...................... 169.8 193.7 188.3 216.2 558.1 204.0 576.4 204.2 575.2
Total indebtedness................ 35.0 63.8 69.0 263.7 479.9 270.0 503.6 261.1 508.2
Stockholders' equity (deficit).... 7.7 0.2 (0.6) (128.5) (46.9) (128.6) (48.4) (123.5) (45.0)
</TABLE>
- ---------------
(1) Prior to 1998, the Company's fiscal year ended on the Saturday closest to
December 31 of each year. On May 18, 1998, the Company changed its fiscal
year to the Saturday closest to March 31.
(2) Other operating expenses in 1994 are comprised of a $2.5 million 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 are comprised of management transaction bonuses
related to the THL Transactions of $6.9 million and estimated costs
(primarily severance) of $0.7 million to exit the activities of Lear
Siegler. Other operating expenses in 1997 include $1.0 million of management
transaction bonuses, $3.0 million related to acceleration of vesting of
certain management stock options and $0.5 million related to
40
<PAGE> 42
forgiveness of certain officer loans made in connection with the Vistar
Merger. Also included in other operating expenses in 1997 are costs related
to obtaining bondholder consent to the Vistar Merger of $1.2 million. Other
operating expenses of $3.1 million and $1.0 million in the three months
ended April 4, 1998 and July 4, 1998, respectively, consist of costs
associated with the integration of corporate systems, moving, relocation and
other expenses associated with the Vistar Merger. See Notes 1, 2, 4 and 10
to the Company's Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) 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 $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. In
1997, the Company recorded restructuring charges totaling $2.9 million
consisting of $0.4 million for planned closing of Safelite service center
locations and $2.5 related to Safelite employee severance resulting from the
consolidation of Safelite and Vistar field and administrative activities.
Restructuring charges of $3.8 million for the three months ended April 4,
1998 consisted of $2.5 million for planned closing of Safelite service
center locations and $1.3 million related to Safelite employee severance.
Restructuring charges of $3.5 million for the three months ended July 4,
1998 consisted of $3.1 million for planned closing of Safelite service
centers and $0.4 million related to Safelite employee severance. See Notes 4
and 5 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 and 1997, the valuation allowance provided
against the Company's deferred tax assets was reduced by $25.9 million and
$3.0 million, respectively. See Note 14 to the Company's Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(5) 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 on such businesses was $2.0 million. In 1996, a
gain from discontinued operations totaling 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. See Note 16 to the
Company's Consolidated Financial Statements.
(6) In 1994, 1996 and 1997, extraordinary losses of $1.5 million, $0.5 million
and $2.8 million, respectively, were recorded, net of minority interest and
income tax of $0.3 million, $0.3 million and $1.9 million, respectively, as
a result of expensing unamortized loan origination fees related to the early
retirement of the associated debt.
(7) 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 1993, 1994, 1997 and the three months
ended April 4, 1998 the deficiency of earnings to fixed charges was $21.6
million, $2.9 million, $0.4 million and $5.9 million, respectively.
41
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Safelite is the largest provider of automotive 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. Safelite also acts as a subcontractor for other automotive glass
replacement and repair providers. Approximately 94%, or $227.1 million, of the
Company's sales for the three months ended July 4, 1998 were derived from
installation and related services sales. Of these sales, approximately 80% were
generated through the Company's own service centers, mobile vans, and
centralized telephone/dispatch centers ("service center sales"). The remainder
of installation and related services sales, or $43.9 million, for the three
months ended July 4, 1998 were derived from the Company's network of independent
automotive glass installation and repair providers which install glass for
Safelite under subcontracting arrangements ("network sales").
On December 19, 1997, the Company acquired Vistar, the second largest
automotive glass replacement and repair company in the United States (see Note 4
to the Company's Consolidated Financial Statements). At July 4, 1998, the
combined company had two manufacturing facilities, 74 warehouses, 47 dispatch
command centers/central telephone units and 717 service center locations. From
the date of the Vistar Merger through July 4, 1998, the Company has been
reviewing and eliminating redundant operations. The Company expects to complete
these consolidation activities by the end of calendar year 1998.
Insurance companies represent the largest installation and related services
customer segment comprising approximately 59% and 69% of installation and
related services sales in 1997 and the three months ended April 4, 1998,
respectively. The implementation of new Master Provider programs coupled with
the Vistar Merger continued to generate increases in the Company's sales to
insurance companies, with a related increase in lower margin network sales
during these periods.
The Company manufactures approximately 65% 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
automotive glass replacement and repair companies. Approximately 11%, 6% and 6%
of Safelite's sales for 1997 and the three month periods ended April 4, 1998 and
July 4, 1998, respectively, were derived from wholesale sales. The decline in
wholesale sales as a percent of total sales is due primarily to the increase in
overall sales resulting from the Vistar Merger. 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 1995 to 1997, the Company's sales increased from $372.1 million to
$483.3 million, and Adjusted EBITDA increased from $25.5 million to $49.6
million. For the three month period ended April 4, 1998, the Company generated
sales and adjusted EBITDA of $213.8 million and $18.2 million, respectively.
Sales, operating income and adjusted EBITDA for the three months ended July 4,
1998 were $241.1 million, $18.5 million and $29.0 million, respectively.
42
<PAGE> 44
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>
THREE MONTHS ENDED
FISCAL YEAR -----------------------------------------
--------------------- MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1997 1997 1998 1997 1998
----- ----- ----- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES:
Installation and related services:
Service center...................................... 80.7% 75.9% 75.3% 77.0% 75.4% 74.3% 75.9%
Network............................................. 4.1 10.8 13.7 11.4 18.9 13.5 18.2
Wholesale............................................. 15.2 13.3 11.0 11.6 5.7 12.2 5.9
----- ----- ----- ----- ----- ----- -----
Total sales............................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales........................................... 70.3 68.4 68.6 70.3 72.7 65.9 70.8
----- ----- ----- ----- ----- ----- -----
Gross profit............................................ 29.7 31.6 31.4 29.7 27.3 34.1 29.2
Selling, general and administrative expenses............ 25.1 24.5 23.2 24.1 21.7 22.8 19.7
Restructuring expense................................... 1.7 0.6 1.8 1.4
Other operating expenses................................ 1.7 1.2 1.5 0.4
Loss on sale of Lear Siegler............................ 1.1
Interest expense........................................ (1.6) (1.5) (5.7) (5.9) (5.1) (4.8) (4.6)
Interest income......................................... 0.7 0.5 0.3 0.3 0.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes....................... 2.0 4.4 (0.1) 0.0 (2.8) 6.7 3.1
Income tax benefit (provision).......................... 4.0 1.4 0.8 (2.7) (1.7)
Minority interest....................................... (0.3) (2.4)
Discontinued operations................................. 0.4
Extraordinary loss...................................... (0.1) (0.6)
----- ----- ----- ----- ----- ----- -----
Net income (loss)....................................... 1.7% 6.3% 0.7% 0.0% (2.0)% 4.0% 1.4%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Three Months Ended July 4, 1998 Compared with Three Months Ended June 28, 1997
Sales. Sales for the quarter ended July 4, 1998, increased $112.0 million,
or 87%, to $241.1 million, from $129.1 million in the comparable quarter of
1997. Installation and related services for the first quarter grew $113.6
million, or 100% to $227.0 million. Approximately 77% of this growth was derived
through service center sales while the remainder was provided by increased
network sales. Most of the sales growth in installation and related services is
attributable to the Vistar Merger, with favorable pricing and improved customer
mix also contributing to the increase.
Wholesale sales for the quarter ended July 4, 1998, fell 10% to $14.1
million as a result of an 11% decline in unit sales partially offset by
increased prices. These results reflect both the soft market environment and 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 for the quarter ended July 4, 1998, increased
59.9% to $70.4 million, from $44.1 million in the comparable quarter of 1997,
mainly as a result of increased sales volume from the Vistar Merger. Gross
profit margin decreased to 29.2% as compared to 34.1% in the comparable period
of the prior year as higher prices and improved customer mix were more than
offset by the higher rate of growth of network business relative to total sales.
The gross profit margin on network sales is substantially lower than on work
performed through Safelite owned service centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses rose 61.9% in the first quarter of fiscal 1999 to $47.5
million as a result of the Vistar Merger. Selling, general and administrative
expenses as a percent of sales decreased to 19.7% in the quarter ended July 4,
1998, from 22.8% in the corresponding prior year period. This decrease is a
result of the Company's improved operating leverage.
43
<PAGE> 45
Income Before Income Taxes. Income before income taxes decreased to $7.4
million in the first quarter of fiscal 1999 from $8.6 million in the same period
of the prior year. Income before income taxes was adversely affected by $4.8
million in increased interest costs and $4.5 million in restructuring and
one-time integration costs associated with the Vistar Merger.
Income Taxes. In the first quarter of fiscal 1999, the Company's
provisions for income taxes were significantly above income taxes computed using
statutory rates primarily due to non-deductible goodwill arising from the Vistar
Merger.
Net Income. Net income for the quarter ended July 4, 1998, was $3.4
million, down from $5.1 million in the same period of the prior year. The
decrease in net income from 1997 was primarily due to the changes in income
before income taxes described above.
Three Months Ended April 4, 1998 Compared with Three Months Ended March 29, 1997
Sales. Sales increased $106.0 million in the three months ended April 4,
1998, or 98.3%, to $213.8 million, from $107.8 million in the three months ended
March 29, 1997. Installation and related services grew $106.4 million, or 111.7
% to $201.7 million. Approximately 73% of this growth was attributable to
service center sales while the remainder was provided by increased network
sales. The growth in installation and related services revenue over last year
was due primarily to the Vistar Merger and favorable pricing, as overall market
conditions remained soft in the first three months of 1998.
Wholesale sales fell 3.5 % to $12.1 million despite an 8.0% increase in
unit sales. Soft market conditions and greater industry capacity have increased
competition at the wholesale level, particularly in the higher margin smaller
local glass chains and shops. As a result, much of the increase in unit sales
was derived from the more price sensitive truckload buyers who were purchasing
in advance of the industry-wide NAGS price increase which took effect March 16,
1998.
Gross Profit. Gross profit increased 81.8% to $58.3 million in the three
months ended April 4, 1998, from $32.0 million in the corresponding period of
the prior year. Gross profit margin decreased to 27.3% in the first three months
of 1998, from 29.7% in the corresponding prior year period, as the impact of
improved installation and related services pricing and customer mix was more
than offset by the higher growth rate of network business relative to total
sales. The gross profit margin on network sales is substantially lower than on
work performed through Safelite owned service centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses rose 78.8% in the first three months of 1998 to $46.5
million, with the Vistar Merger accounting for substantially all of the
increase. As a percentage of sales, selling, general and administrative expenses
declined to 21.7% in the first three months of 1998 from 24.1% for the
corresponding prior year period. This decline in selling, general and
administrative expenses as a percent of sales is a result of the Company's
improved operating leverage.
Income Before Income Taxes. Income before taxes declined to a loss of $5.9
million for the three months ended April 4, 1998, compared with essentially
break-even performance for the corresponding prior year period. The decline in
income before income taxes despite higher overall gross margin dollars and lower
selling general and administrative expenses as a percent of sales was caused
primarily by $6.9 million in restructuring charges and one-time integration
costs and $4.6 million in increased interest costs associated with the Vistar
Merger.
Income taxes. The Company recorded an income tax benefit in the first
three months of 1998 of $1.6 million, compared to a $0.1 million income tax
provision for the first three months of 1997. The income tax benefit (provision)
in both periods differs from amounts computed using statutory rates due
primarily to amortization of goodwill.
Net income. Net income declined to a loss of $4.3 million for the three
months ended April 4, 1998 from a loss of $0.1 million in the corresponding
prior year period due to the changes described above.
44
<PAGE> 46
1997 Compared with 1996
Sales. Sales increased $45.0 million in 1997, or 10.3%, to $483.3 million,
from $438.3 million in 1996. Installation and related services grew $50.1
million, or 13.2% to $430.3 million. Approximately 63% of this growth was
attributable to service center sales while the remainder was provided by
increased network sales. The growth in installation and related services revenue
over last year was due primarily to favorable pricing and improved customer mix.
Instrumental to the improved customer mix has been the addition of new
multi-year MP programs with several large insurers, most notably GEICO. Under an
MP program, the Company administers 100% of an insurance company's automotive
glass claims and, as a result, receives more referrals both to be performed in
its own service centers and through its network of independent automotive glass
installation providers. The increase in insurance customer sales volume was
partially offset by a decline in subcontracting sales volume, as overall market
conditions were soft in 1997.
Wholesale sales fell 8.9% to $53.0 million as a result of a 13% decline in
unit sales partially offset by increased pricing. The pricing improvement came
about through a shift of business from more price sensitive truckload buyers to
smaller local glass chains and shops. The wholesale business performance
reflected the soft market conditions and resulting competition at the wholesale
level.
Gross Profit. Gross profit increased 9.3% to $151.6 million, from $138.7
million in 1996. Gross profit margin remained virtually constant in 1997 at
31.4% compared to 31.6% in 1996, as the impact of improved installation and
related services pricing and customer mix was partially offset by higher product
and installation costs. Also negatively affecting the gross margin percentage
was the higher growth rate of network business relative to total sales. The
gross profit margin on network sales is substantially lower than on work
performed through Safelite owned service centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses rose 4.2% in 1997 to $111.8 million. Vistar selling,
general and administrative expenses from the December 19, 1997 merger date
through year-end accounted for nearly all of the total increase. As a percentage
of sales, selling, general and administrative expenses declined to 23.2% in 1997
from 24.5% in 1996.
Income Before Income Taxes. Income before income taxes decreased to a loss
of ($0.4) million in 1997 from income of $19.2 million in 1996. The decrease was
due primarily to $20.8 million in higher interest costs incurred as a result of
the Company's December 20, 1996 recapitalization, coupled with a $5.4 million
loss on the sale of Lear Siegler and $2.9 million in restructuring charges.
Partially offsetting these items was a decline in other operating expenses of
$1.9 million. Other operating expenses in 1997 consisted of one-time charges
related to the Vistar Merger as follows: (i) $3.0 million for acceleration of
vesting of certain management stock options, (ii) $1.0 million in management
transaction bonuses, (iii) $0.5 million related to the forgiveness of officer
loans and (iv) $1.2 million in costs associated with obtaining bondholder
consent to amend the terms of the Notes and approve the Vistar Merger.
Income Taxes. In 1997, the Company recorded a credit provision for income
taxes substantially in excess of the statutory rate primarily due to a reduction
of the Company's valuation allowance for deferred tax assets in recognition of
the Company's improved profitability, and the recognition of the right to use
previously unrecognized federal net operating loss carryforwards obtained in
connection with the Lear Siegler sale transaction. The credit provision for
income tax in 1997 was $10.8 million less than 1996. The valuation allowance was
substantially reduced in 1996 in recognition of the Company's improved
profitability at that time.
Net Income. Net income declined to $3.6 million from $27.8 million in 1996
primarily as a result of the changes described above as well as the elimination
of the adjustment for minority interest as a result of the THL Transactions in
1996. Also contributing to the change was a $2.8 million extraordinary loss in
1997 for the early extinguishment of debt which was made in connection with
obtaining new financing for the Vistar Merger.
45
<PAGE> 47
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 remainder 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, favorable pricing and 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.
Wholesale sales rose 3% 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 automotive 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 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 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 a credit provision for income
taxes 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.
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. Also
affecting net income in 1996 was a $1.7 million gain, related to Lear Siegler
discontinued operations. See Note 16 to the Company's consolidated financial
statements.
RESTRUCTURING CHARGES
Prior to 1990, the Company grew through acquisitions and new 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 automotive
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 1993 and 1995. In 1993,
the Company recorded $4.6 million in
46
<PAGE> 48
restructuring charges related to the closing of approximately 70 service center
locations. In 1995, the Company recorded restructuring charges of $5.6 million
related to the closing of 100 service center locations and $0.7 million related
to field management reorganization. There were no restructuring charges during
1996.
As a result of the Vistar Merger, the Company intends to consolidate
redundant overhead in both field and corporate operations, eliminate redundant
service center locations and eliminate redundant sales and marketing force
activities. Management estimates that the aggregate of all merger related
closing and consolidation costs will range from $37 million to $42 million. At
January 3, 1998, April 4, 1998 and July 4, 1998, the Company had partially
completed its evaluation of redundant locations and activities and recorded
$20.8 million, $3.3 million and $2.1 million in accruals, respectively, for
Vistar employee severance, closure of Vistar service center locations and
elimination of duplicate Vistar corporate functions. These costs have been
recorded as part of the Company's purchase accounting for Vistar. In addition,
at January 3, 1998, April 4, 1998 and July 4, 1998, the Company recorded
restructuring charges of $2.9 million, $3.8 million and $3.5 million,
respectively, for Safelite employee severance and closing of Safelite service
centers (see Notes 4 and 5 to the Company's financial consolidated statements).
Prior to December 1998, the Company expects to complete its
market-by-market analysis of overlapping field locations and administrative
activities of both Vistar and the Company. Costs associated with additional
consolidation of Vistar functions and activities will be recorded as an
adjustment to the initial purchase allocation. Costs associated with closing
Safelite locations will be expensed when the decision to close the facility is
made. The Company also expects to incur a total of $5 million to $10 million in
calendar 1998 for certain one-time expenses associated with the integration of
corporate systems, temporary services fees, training, moving, relocation and
other costs associated with the Vistar Merger. Management believes that
substantial synergies will result from the integration of Safelite and Vistar
operations and the related restructuring activities. These net cost savings are
estimated by management to range from $30 million to $35 million, annually.
Headcount and service center closings or site consolidations are expected to
comprise over 70% of the cost savings. Management believes that a portion of the
synergies are achievable during calendar 1998 with full synergies expected to be
realized in calendar 1999.
EFFECTIVE INCOME TAX RATE
For the quarters ended April 4, 1998 and July 4, 1998, the Company's
provision for income taxes was above the statutory rate due to permanent
differences, primarily goodwill. The Company recorded a net income tax benefit
of $6.8 million for fiscal year 1997. This tax benefit resulted primarily from a
reduction in the valuation allowance relating to net operating loss
carryforwards generated prior to 1994, and from obtaining the right to use
approximately $16.2 million of previously unrecognized federal net operating
loss carryforwards as part of the Lear Siegler sale transaction. 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
statutory limitations resulting from the THL Transactions and the Vistar Merger.
Based upon this review, management believes that the Company will realize the
benefit of a portion of its existing deductible temporary differences. See Note
14 to the Company's Consolidated Financial Statements. Management expects that
the increase in interest expense which will occur as a result of the Vistar
Merger combined with the Company's net operating loss carryforwards may result
in reduced Federal tax payments for a period of up to 10 years.
EFFECTS OF INFLATION
Inflation has not been material to the Company's operations for the periods
presented.
47
<PAGE> 49
QUARTERLY DATA
The following table sets forth the Company's quarterly sales for fiscal
1995, 1996, and 1997.
NET SALES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ------------- -------------
SALES % SALES % SALES %
--------- --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter........................... $ 85.6 23% $102.9 24% $107.8 22%
Second Quarter.......................... 99.0 26 122.0 28 129.1 27
Third Quarter........................... 99.5 27 115.8 26 126.3 26
Fourth Quarter.......................... 88.0 24 97.6 22 120.1 25
------ --- ------ --- ------ ---
Total Annual.................. $372.1 100% $438.3 100% $483.3 100%
====== === ====== === ====== ===
</TABLE>
Historically, the Company has experienced seasonal variations in revenues,
with lower revenues typically reported in the first and fourth calendar quarters
of each year. 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 first and fourth
calendar quarters of each year traditionally being its slowest periods of
activity. This reduced level of sales in the first and fourth calendar quarters
has resulted in a disproportionate decline in operating income during the those
quarters due to the Company's significant operating leverage. The Company
believes such seasonal trends will continue for the foreseeable future.
IMPACT OF YEAR 2000
The Company has initiated a program to prepare its computer systems and
applications for the year 2000 date change ("Year 2000"). As part of this
program, a team has been assigned to evaluate the \nature and extent of the work
required to make the Company's systems, products, electronic linkages with
insurance company customers and infrastructure Year 2000 compliant. A number of
projects are either underway or under review with respect to Year 2000
compliance for the Company's various business systems, the total cost of which
has not yet been determined. Year 2000 project costs are difficult to estimate
accurately, and projected costs could change due to technological difficulties,
project delays, and project cost overruns. Management will continue to evaluate
the estimated cost associated with ensuring that the Company's systems, products
and infrastructure are Year 2000 compliant. While these on-going efforts will
involve additional costs, management believes that the costs will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the three months ended July 4,
1998 was $1.8 million, an increase in cash usage of $15.5 million from the
corresponding prior year period. Increased inventory requirements resulting from
the Vistar Merger and restructuring cash payments were the primary cause for the
increase. Net cash used in operating activities for the three months ended April
4, 1998 was $15.6 million, a decrease in cash usage of $1.1 million from the
corresponding prior year period. Excluding Lear Seigler discontinued operations
in the quarter ended March 29, 1997, cash usage increased by $2.8 million,
primarily due to increases in accounts receivable, inventory and debt service
associated with the
48
<PAGE> 50
Vistar Merger. Net cash provided by operating activities for 1997 was $2.4
million, an increase in operating cash flows of $2.3 million from 1996.
Excluding Lear Siegler discontinued operations, cash flows decreased by $23.3
million in 1997. The primary factor in this decrease was the additional cash
required to service the increase in debt which resulted from the THL
Transactions in December 1996. Net cash generated by operating activities for
1996 was $0.1 million, an increase of $10.2 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 flow from
operating activities was $20.8 million. This $20.8 million improvement in cash
flow was primarily due to improvements in operating income and improved working
capital management, offset by the purchase of insurance liability coverage for
1997 through 1999 for approximately $12.0 million.
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, and information technology
equipment. Capital expenditures totaled $4.3 million for the three months ended
July 4, 1998 and $2.8 million for the corresponding period of the prior year.
Capital expenditures totaled $4.2 million and $2.4 million for the three months
ended March 29, 1997 and April 4, 1998, respectively, and $13.9 million, $12.8
million and $12.0 million for 1997, 1996 and 1995, respectively. Included in
1995 capital spending is $3.5 million for the purchase and renovation of the
Company's manufacturing/distribution facilities in Wichita, Kansas. The level of
1996 capital expenditures reflects expansion of service center and warehouse
coverage into new markets and an upgrade to the Company's manufacturing
facilities. The increase in capital spending during 1997 reflects the Company's
expansion of service center and warehouse coverage and the purchase of new point
of sale equipment for the former Vistar service centers. Capital spending during
the three months ended April 4, 1998 reflects the Company's focus on planning
merger consolidation activities. The increase in capital spending during the
three months ended July 4, 1998 reflects spending for merger integration related
activities as well as the increase in the size of the business as a result of
the Vistar Merger.
Management expects post-integration capital spending levels to increase to
approximately $22.0 million annually as a result of the Vistar Merger.
Additional integration-related capital expenditures of $3.0 million to $5.0
million in both calendar 1998 and calendar 1999 are expected as a result of (i)
converting Vistar service centers and mobile vans to the Safelite logo and
format and (ii) expansion of certain centralized telephone/dispatch center
locations. The Company believes that cash flows from operating activities and
its ability to borrow under its credit facilities will be adequate to meet its
debt service obligations, working capital needs and planned capital expenditures
for the forseeable future.
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 Distribution and the Vistar
Merger, the Company retired existing indebtedness of approximately $150 million
and incurred new indebtedness aggregating approximately $365 million.
Substantially all of the proceeds of such indebtedness were used to refinance
existing bank debt, to fund the Distribution, to pay Vistar Merger consideration
and to pay bonuses, fees and expenses related to the Vistar Merger.
As a result of the Vistar Merger, the Company has significantly increased
cash requirements for debt service relating to the Company's credit facilities.
See Note 10 to the Company's Consolidated Financial Statements 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 $100 million, to
meet its liquidity needs. At July 4, 1998, the Company has long-term borrowings
of $508.2 million and $52.6 million of availability under the Revolving Credit
Facility (less $14.2 million in letters of credit outstanding).
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
49
<PAGE> 51
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
At April 4, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The components of comprehensive income are net income and
the change in minimum pension liability, net of tax.
In June 1997, FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which is effective for the Company's fiscal
year ended March 1999. This statement establishes standards for the way that
business enterprises report information about operating segments and may result
in additional financial statement disclosures for the Company.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits" which is effective for the
Company's fiscal year ended March 1999. The statement will result in revised
financial statement disclosures regarding employers' pensions and other retiree
benefits.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement requires derivatives to be
recorded on the balance sheet as assets or liabilities, measured at fair value.
Gains or losses resulting from changes in fair value of the derivatives are
recorded depending upon whether the instruments meet the criterion for hedge
accounting. This statement is effective for fiscal years beginning after June
15, 1999. The impact of adopting this statement has not been determined.
50
<PAGE> 52
BUSINESS
COMPANY OVERVIEW
Safelite is the largest provider of automotive glass replacement and repair
services in the United States. The Company installed approximately 1.7 million
replacement units in 1997 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 service centers, mobile vans, centralized telephone/dispatch
centers and its network of independent automotive glass replacement and repair
providers. 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
automotive 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, has provided the Company with a
significant competitive advantage in the insurance segment of the market. Since
1993, the Company estimates that it has increased its leading market share in
this segment, resulting in improved financial performance as demonstrated by
compound annual growth in sales through 1997 of 10% to $483.3 million. During
the same period, operating income improved from a loss of $6.4 million in 1993
to $25.8 million of operating income in 1997. Adjusted EBITDA (as defined) for
the same period grew from $22.0 million to $49.6 million, a compounded annual
growth rate of 22%. Sales, operating income and adjusted EBITDA for the three
months ended July 4, 1998 were $241.1 million, $18.5 million and $29.0 million,
respectively. See "Summary Historical and Pro Forma Financial Information."
On December 19, 1997, Safelite completed the Vistar Merger whereby, Vistar
merged with and into the Company with the Company as the surviving corporation.
The Vistar Merger was accounted for as an acquisition; accordingly, the
operations of Vistar are included in the Company's financial statements from
December 19, 1997 forward. Prior to the Vistar Merger, Vistar was the second
largest provider of automotive glass replacement and repair services in the
United States. Vistar was created on February 29, 1996 from the merger of
Windshields America, Inc., a wholly owned subsidiary of Belron (USA) BV, and
Globe Glass and Mirror Company. Vistar installed or repaired approximately 1.6
million units in its fiscal year ended March 31, 1997 for insurance companies,
commercial fleet leasing and rental car companies, car dealerships and body
shops, government agencies and individual consumers. Vistar provided these
installation services through its network of 356 service centers and
approximately 1,000 mobile vans and its network of independent automotive glass
replacement and repair providers. Vistar net sales and operating income were
$413.5 and $8.8 million, respectively, for its fiscal year ended March 31, 1997
and $339.5 million and a loss of $8.2 million, respectively, for the nine months
ended December 19, 1997. See "Summary of Transactions -- The Vistar
Transactions" and "Transactions -- The Vistar Transactions." At July 4, 1998,
the combined companies had two manufacturing facilities, 74 warehouses, 47
centralized telephone/dispatch centers, approximately 2,000 mobile vans and 717
service center locations across the United States.
The automotive glass replacement and repair industry in 1997 was an
estimated $3.0 billion market, representing the installation of approximately
12.5 million replacement units. The replacement and repair of automotive 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 increases in the aggregate number of vehicles on the
road, the increases in the number of miles driven and increases in price of
automotive replacement glass and repair service, which principally reflect the
increasing size and design complexity of automotive glass. Such growth has been
fairly consistent year to year, with some variations resulting primarily from
fluctuations in weather conditions.
The automotive 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 23% and
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the leading market share in the insurance segment of the market. Since the early
1990's, 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 35% and a decline in market share for small "mom and pop" providers
from an estimated 70% to an estimated 55% during the same period.
COMPETITIVE STRENGTHS
Industry Leadership and Nationwide Coverage. Safelite is the largest
competitor in the highly fragmented automotive glass replacement and repair
industry. The Company operates service centers in all of the top 100
Metropolitan Statistical Areas ("MSAs") in the United States. 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 replacement
and repair centers, achieves over 90% coverage. Safelite has the largest number
of service centers and the largest network of independent automotive glass
replacement and repair providers in the United States. 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 automotive glass repair and
replacement services on a nationwide basis.
Strong, Established Relationships with Major Insurance Companies. Safelite
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
influence approximately 55% of all repairs and replacements in the United
States. Safelite has entered into Total Customer Solution ("TCS") arrangements
with approximately 25 of those insurers including Farmers Insurance Group,
United Services Automobile Association, Prudential Insurance Company of America,
and Safeco Corporation. Under a TCS arrangement, Safelite typically serves as
one of a few recommended automotive 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 Safelite's
approximately 45 TCS arrangements, those with Allstate, Nationwide Mutual
Insurance Company, GEICO, Liberty Mutual Insurance Company, Travelers Group, CNA
Insurance Group, Metropolitan Property and Casualty Insurance Company and
National General Insurance are also Master Provider relationships. Under an MP
program, Safelite acts as the administrator of the insurance company's
automotive glass claims. 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 TCS 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 its merger with Vistar, coupled
with Belron's worldwide industry experience, will significantly enhance the
overall cost advantage Safelite enjoyed prior to the Vistar Merger. Safelite has
a 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.
Management believes that Safelite is the only full-scale vertically
integrated automotive glass replacement company in the U.S. The Company produces
approximately 65% of its windshield needs at its two manufacturing plants in
Enfield, North Carolina and Wichita, Kansas. Safelite produces only high-volume
windshield models, manufacturing 550 of the total 2,800 active windshield parts
available in the industry. Safelite determines which windshield models to
produce by assessing the sales trends and
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estimating future windshield demand after a new automobile model has been on the
market for approximately one year.
The Company uses a three tiered distribution system to better serve its
customers and minimize its inventory levels. Two central distribution facilities
are located at the Company's manufacturing facilities in Enfield, North Carolina
and Wichita, Kansas. These central distribution facilities send inventory to the
Company's 74 regional warehouses (27 free-standing warehouses and 47 co-located
with the Company's Centralized Telephone Units). These facilities can then
quickly and accurately stock the service centers and vans in their local markets
on an as-needed basis.
Every Safelite employee participates in some form of incentive compensation
plan which rewards productivity and/or profitability of the Company. The
Company's management estimates that its performance incentive program has
increased productivity of its installation associates from 2.5 installations per
day in 1991 to 4.0 per day in 1997 (while the industry averaged an estimated 3.0
installations per day and Vistar's installation associates averaged
approximately 3.2 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 automotive information
systems allow Safelite to handle all aspects of an insured automotive glass
claim effectively and cost efficiently from the initial phone call placed by the
insured policyholder to the automatic billing of an 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 automotive 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. 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. These reports include information to
which the insurance companies do not otherwise have access, 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.
STRATEGIES FOR GROWTH
Expand and Enhance Relationships with Insurance Companies. The Company's
principal business strategy is to increase its share in the segment of the
automotive 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 replacement and repair services to the
policyholders of virtually every major automotive insurance company in the U.S.
The Company focuses its marketing and sales strategy on adding new insurance
relationships and increasing its share of business with its existing insurance
clients. Management believes that as it processes greater proportions of an
insurance company's replacement and repair claims, it can continue to reduce the
loss expenses and administrative costs of automotive glass replacement and
repair claims for the insurance company, while improving policyholder
satisfaction through faster, more reliable and consistent installation service.
The Company continually strives to enhance the value it provides to
insurance company clients while improving profitability through increased market
share. Recent examples include (i) implementation of a Repair First Network to
help improve repair performance, (ii) development of on-line call center
scheduling capability for faster, more efficient policyholder service and (iii)
creation of a SmartPay process under which insurance companies pay only
"reasonable and customary" prices for glass claims serviced by non-program
providers.
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Expand Nationwide Coverage. Following the elimination of duplicative
service center locations resulting from the Vistar Merger, the Company plans to
continue expanding the breadth and depth of its nationwide network by
selectively acquiring regional automotive glass replacement and repair
businesses and opening new service center locations. The Company believes that
it can enhance its sales and results through the integration of well-targeted
acquisitions into Safelite's nationwide network. In addition, the Company
expects to open 5 to 10 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 additional
outsourcing services to insurance and fleet companies for items such as
pre-insurance vehicle inspection, towing referral, post-collision rental car
referral, after hours loss reporting and residential glass claims processing.
These services historically carry significant administrative burdens, high
processing costs and low dollar loss values, like the automotive glass
replacement and repair service that Safelite otherwise provides to insurance and
fleet companies efficiently and cost-effectively. The Company is evaluating
plans to offer these additional services as a natural extension of its core
automotive glass business.
INDUSTRY OVERVIEW
The market consists of two segments, the manufacture and sale of automotive
glass to large original equipment manufacturers ("OEMs") and the manufacturing
and installation of automotive glass for the replacement market. The OEM market
is generally characterized as a high-volume, manufacturing intensive industry.
By contrast, the automotive glass replacement market consists of service
providers focused on providing automotive glass replacement installation to a
broad base of institutional and individual customers. Replacement automotive
glass is generally purchased by installers from large OEM suppliers in the
wholesale market.
The automotive glass replacement and repair industry in 1997 was an
estimated $3.0 billion industry representing the installation of approximately
12.5 million replacement units. The replacement and repair of automotive glass
is driven by the incidence of breakage. The market for the installation of
replacement automotive glass is highly fragmented with over 20,000 providers of
automotive 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. Since the early 1990s, the industry has been consolidating as evidenced
by an increase in market share for the top three industry participants from an
estimated 24% in 1992 to an estimated 35% in 1997 while the market share for
small "mom and pop" providers declined from an estimated 70% to an estimated 55%
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 automotive
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 automotive 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 automotive glass replacement industry include auto
insurance companies, commercial fleet leasing companies, rental car companies,
car dealerships, body shops, governmental agencies and individual consumers.
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Insurance companies represent the largest segment of the market as a result
of their payment of replacement automotive glass claims for their policyholders.
The Company believes that insurance companies through their policyholders,
directly or indirectly, influence approximately 70% of the selections of
automotive glass replacement providers. As a result of this influence, insurance
companies represent the most important segment of the automotive 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. Automotive 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 automotive 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 have followed the
wholesale price increases announced by the OEMs. Prices charged in the
automotive 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 automotive glass and the
increasing level of claims processing services associated with insurance-related
replacement automotive glass purchases.
NAGS list prices and offsetting discounts from NAGS list prices have
increased significantly over the past five years. The Company has been informed
that NAGS intends to reset its published list prices in early 1999 in order to
bring actual prices charged more in line with published list prices. While the
Company believes that as list prices are reduced, the related percentage
discounts from list price offered by the Company and the Company's competitors
will also be reduced, there can be no assurance that the resetting of NAGS list
prices will not have a material adverse effect on the Company.
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 64%, 58%,
53% and 49%, respectively, of total sales for the three month periods ended July
4, 1998 and April 4, 1998, and fiscal years 1997 and 1996. Safelite's top ten
customers accounted for approximately 44%, 41%, 40% and 39% of the Company's
consolidated sales in the three month periods ended July 4, 1998 and April 4,
1998 and fiscal years 1997 and 1996, respectively. Approximately 12% and 13% of
the Company's consolidated sales were from Allstate Insurance in the three
months ended April 4, 1998 and July 4, 1998, respectively. No customer accounted
for more than 10% of the Company's consolidated sales during 1997 and 1996.
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 segment. From 1993 to 1997, the Company's sales to
this market segment have grown at a compound annual rate of approximately 17%.
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, has
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provided the Company with a significant competitive advantage in the
insurance-influenced segment of the market.
The Company has developed Total Customer Solution (TCS) arrangements and
Master Provider (MP) relationships to service its auto insurance company
customers. Under a TCS arrangement, Safelite serves as one of a few recommended
automotive 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 serves
as administrator of the insurance company's automotive glass claims. As
administrator, Safelite manages the allocation of the automotive glass
replacement business between Safelite and other approved providers based on the
insurance company's predetermined criteria. The Company currently provides its
automotive 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 customers ranked by
total auto insurance premiums written for 1996:
<TABLE>
<CAPTION>
PRIVATE PASSENGER
AUTO PHYSICAL DAMAGE
NATIONAL RANK NAME PREMIUMS WRITTEN
------------- ---- --------------------
(DOLLARS IN BILLIONS)
<C> <S> <C>
1 State Farm................................................. $8.9
2 Allstate................................................... 5.1
3 Farmers Insurance.......................................... 2.3
4 Nationwide Insurance....................................... 1.5
5 USAA Insurance............................................. 1.3
6 GEICO...................................................... 1.0
7 Progressive Group.......................................... 1.0
8 American Family Insurance Group............................ 0.7
9 Liberty Mutual............................................. 0.6
10 Travelers Insurance........................................ 0.6
13 Prudential................................................. 0.4
14 Hartford Insurance Group................................... 0.4
16 Erie Insurance Group....................................... 0.4
17 CNA Insurance Group........................................ 0.4
18 Safeco..................................................... 0.4
19 Metropolitan Group......................................... 0.4
20 Hanover.................................................... 0.4
</TABLE>
Source: Best's Review, October 1997
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.
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 47 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 automotive glass
repair and replacement
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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 automotive 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 automotive 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 approximately 250
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 15 national "strategic account" representatives. These individuals
have built relationships with the major insurance, fleet and rental car company
decision makers and average 10 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 approximately 235 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 automotive 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 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 automotive 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 $189 in 1993 to $239 in 1997, a compounded annual growth rate of 6%.
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
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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 47 centralized DCC/CTU locations and four 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 four National Referral Centers (three in Columbus, Ohio and
one in Chicago, Illinois) have capacity for over 6 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 automotive 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 5,000
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 stock-keeping-unit (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.
These reports include information otherwise generally unavailable to the
insurance companies, 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 uses a three tiered distribution system to
better serve its customers and minimize its inventory levels. Two central
distribution facilities are located at the Company's manufacturing facilities in
Enfield, North Carolina and Wichita, Kansas. These central distribution
facilities send inventory to the Company's 74 regional warehouses (27
free-standing warehouses and 47 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
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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 distribution centers in the industry.
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' automotive glass needs, the Company also offers tempered
automotive 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.
MANUFACTURING. Management believes that Safelite is the only full-scale
vertically integrated automotive glass replacement company in the U.S. The
Company produces 65% of its windshield needs at its two manufacturing plants in
Enfield, North Carolina and Wichita, Kansas. The Enfield facility encompasses
146,000 square feet of manufacturing space and has an annual capacity of over
one million units. The Wichita facility encompasses 98,000 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. Safelite
determines which windshield models to produce by assessing the sales trends and
estimating future windshield demand after a new automobile model has been on the
market for approximately one year. 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 (non-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.
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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 (or gasket) around the
part. The attached gasket saves time for the windshield installer since
everything is attached at the plant. The Company outsources 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.
SUPPLIERS AND RAW MATERIALS
Safelite generally purchases low volume windshields from third parties, as
well as raw glass, vinyl, paint, adhesives and tempered glass. In the three
months ended April 4, 1998 and the year ended January 3, 1998, the Company
sourced 79% and 63%, respectively, of its purchased glass from Libby-
Owens-Ford. 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 681 of its 717 installation service centers, with the terms
of its leases generally being five years with one or two five year renewal
options. Safelite also leases 71 of its 74 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
June 2001. The Company maintains administrative offices at 2400 Farmers Drive in
Columbus, Ohio, which it leases pursuant to a lease expiring in November 1998,
which the Company plans to renew. Vistar's corporate headquarters and national
call center are located at 2 North LaSalle Street, Chicago, Illinois under a
lease expiring in July 2005. It is Safelite's intention to retain the space
associated with the Chicago call center, but to exit the leased space used for
Vistar's corporate headquarters' activities. Safelite also maintains a national
referral center, local DCC/CTU and regional warehouse at 760 Dearborn Park Lane
in Columbus, Ohio. Safelite leases this space pursuant to agreements expiring in
April 2006. 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 July 4, 1998, the Company employed approximately 6,800 people. The
Company has approximately 400 employees covered by four unions. Safelite has
experienced no labor related work stoppages and believes that its employee
relations are good.
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COMPETITION
The markets for the Company's products and services are very competitive.
In the automotive 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 automotive glass replacement industry,
it does compete against several other large competitors in this market, the
largest two of which have market shares estimated to be 8% and 4%. State Farm,
one of the Company's largest customers, began in a region by region rollout
commencing in the summer of 1997 to use a competitor to function as its glass
claims call center and bill processing administrator. 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 automotive 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 1998
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.
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."
On May 11, 1998, the Company was served with a subpoena requiring that it
produce documents to a grand jury in Dallas, Texas, conducted by the Antitrust
Division of the United States Department of Justice. The documents demanded by
the subpoena relate to the pricing of replacement glass at three service center
locations in the state of Texas. The Company intends to comply fully with the
subpoena. Based on discussions with the Antitrust Division of the United States
Department of Justice, management believes that it is unlikely that the Company
is the target of this investigation. In addition, management does not believe
that the Company or its employees have engaged in any anti-competitive
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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 fines, penalties, damages and costs or,
that if it were liable, that it would not have a material adverse effect on the
Company. See "Risk Factors -- Litigation."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of the Company after giving effect to the Vistar Merger. 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 and Director
John F. Barlow............... 55 President, Chief Executive Officer and Director
Douglas A. Herron............ 48 Senior Vice President, Chief Financial Officer and
Director
Thomas M. Feeney............. 46 Senior Vice President, Client Sales and Support
Douglas R. Maehl............. 50 Senior Vice President, Manufacturing, Distribution
and Purchasing
Elizabeth A. Wolszon......... 43 Senior Vice President, Marketing and Strategic
Planning
James K. West................ 55 Senior Vice President, Global Business Development
Poe A. Timmons............... 38 Vice President -- Finance and Corporate Controller
Anthony J. DiNovi............ 36 Director
Selwyn Herson................ 45 Director
Adrian F. Jones.............. 44 Director
Seth W. Lawry................ 33 Director
Thomas H. Lee................ 54 Director
Gary Lubner.................. 39 Director
Ronnie Lubner................ 64 Director
John E. Mason................ 50 Director
M. Louis Shakinovsky......... 54 Director
Scott M. Sperling............ 40 Director
Rodney Stansfield............ 59 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 since
July 1991 and served as the Company's Chief Executive Officer from July 1991
through the completion of the THL Transactions. 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., Cyber Cash, Inc. and
QuickResponse Services, 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 Chief Operating
Officer since September 1991. Mr. Barlow was made Chief Executive Officer
following the THL Transactions. 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. Mr. Herron was elected as a Director of
the Company in March 1998. From December 1989 to May 1992, Mr. Herron served as
Manager, Finance Operation of GE Medical Systems,
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a leading manufacturer and supplier of diagnostic imaging equipment and
financing products to hospitals and clinics throughout the world.
Thomas M. Feeney has served as the Company's Senior Vice President Client
Sales and Support since 1991 and has been employed with the Company since 1988.
Prior to joining Safelite, Mr. Feeney was a Vice President with Tenneco
Automotive Retail.
Douglas R. Maehl has served as the Company's Senior 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.
Poe A. Timmons has served as the Company's Vice President-Finance 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.
Elizabeth A. Wolszon has served as the Company's Senior 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 Specialty Merchandising, a group of specialty retailing chains owned by
Sears Roebuck & Co.
James K. West served as the Company's Senior Vice President of Information
Systems from June 1990 through February 1998 and recently assumed the role of
Senior Vice President, Global Business Development. 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.
Anthony J. DiNovi has served as a director since December 1996. 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 Acquisitions Fund II (Retirement Accounts),
L.P., respectively. Mr. DiNovi also serves as a director of CelPage, Inc., Eye
Care Centers of America, Inc., Fisher Scientific International Inc. and The
Learning Company, Inc.
Selwyn Herson has served as a director since the Vistar Merger. Mr. Herson
is the Founder and Managing Director of The Windsor Park Management Group, an
investment banking and strategic consulting firm based in Los Angeles. Mr.
Herson has consulted for Belron International on a number of major projects. Mr.
Herson also serves as a Director of S&K Famous Brands, Inc. and several private
corporations.
Adrian F. Jones has served as a director since the Vistar Merger. Mr. Jones
is the Chief Financial Officer of Belron International which he joined in 1986.
Prior to joining Belron, Mr. Jones was a manager for Arthur Andersen LLP.
Seth W. Lawry has served as a director since December 1996. Since April
1994, Mr. Lawry has been employed by Thomas H. Lee Company, an investment
company, and currently serves as a Managing Director. 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 Freedom
Securities Corporation and Syratech Corp. 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.
Thomas H. Lee has served as a Director since March 1998. Mr. Lee is Founder
and President of Thomas H. Lee Company, an investment company. Mr. Lee is also
Chairman 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. Lee also serves as a director of Finlay Enterprises,
Inc., First
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Security Services Corporation, Livent, Inc., Miller Import Corporation, Sondik
Supply Company and Vail Resorts, Inc.
Gary Lubner has served as a Director since March 1998. Mr. Lubner is
Managing Director of Autoglass Limited, the United Kingdom's leading automotive
glass repair and replacement company. Prior to his appointment as Managing
Director of Autoglass Limited in 1995, Mr. Lubner held various positions with
Plate Glass & Shatterprufe Industries Limited, South Africa's leading glass and
wood processor and distributor.
Ronnie Lubner has served as a director since the Vistar Merger. Mr. Lubner
is the Chairman and Chief Executive Officer of Plate Glass & Shatterprufe
Industries Limited which he joined in 1953. Mr. Lubner is also a director of
South African Breweries and Advanta Corporation.
John E. Mason has served as a director since the Vistar Merger. Mr. Mason
is the Chief Executive officer of Belron International which he joined in 1983
and an Executive Director of Plate Glass & Shatterprufe Industries Limited.
M. Louis Shakinovsky has served as a director since the Vistar Merger. Mr.
Shakinovsky is the Group Legal Services Director of Belron International and
Plate Glass & Shatterprufe Industries Limited which he joined in 1965.
Scott M. Sperling has served as a director since December 1996. Since July
1994, Mr. Sperling has served as a Managing Director of Thomas H. Lee Company.
Mr. Sperling 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. Sperling also serves as a
director of Fisher Scientific International Inc., The Learning Company, Livent,
Inc. and The General Chemical Group Inc. 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.
Rodney Stansfield has served as a Director since March 1998. Mr. Stansfield
was recently appointed Chief Executive Officer of Glass South Africa. Prior to
joining Glass South Africa, Mr. Stansfield served as Chief Executive Officer of
Libbey-Owens-Ford Co. Mr. Stansfield also serves as a director of Plate Glass &
Shatterprufe Industries Limited.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Compensation Committee makes recommendations
concerning the salaries and incentive compensation of employees of and
consultants to Safelite, and oversees and administers the Company's stock option
plans. Messrs. Barlow, DiNovi, Mason and Sperling are members of the
Compensation Committee. The Audit Committee is responsible for reviewing the
results and scope of audits and other services provided by Safelite's
independent auditors. Messrs. Jones, Lawry, Shakinovsky, and Staglin are members
of the Audit Committee.
DIRECTOR COMPENSATION
Directors that are neither employees of the Company nor of Thomas H. Lee
Company or Belron receive $1,000 for every Board meeting they attend. Such
directors are also eligible to receive options under the Company's 1996 and 1998
Stock Option Plans.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of Messrs.
Staglin, Barlow and Herron in connection with the THL Transactions and the
Vistar Merger. The employment agreements for Messrs. Barlow and Staglin were
amended on April 30, 1997, to reflect a change in their titles. Mr. Staglin
serves as Chairman of the Board with an annual base salary of at least $700,000
and a performance bonus determined by the Board of Directors of the Company. Mr.
Barlow serves as President and Chief
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Executive Officer of the Company with a base salary of at least $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 base salary of at least $350,000 and an annual bonus to be
determined by the Board of Directors of the Company in accordance with an
executive bonus plan (the "Executive Bonus Plan"). Each of the foregoing
agreements provides for an initial term of three years with two year automatic
renewal periods, unless either party gives notice of its or his 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)
will be paid (unless the Board of Directors approves 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 termination and 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 approves a greater amount) and (iii) his additional benefits
will continue for 12 months following the date of termination. Each of these
agreements includes non-disclosure provisions, as well as non-competition
provisions covering the period of employment by the Company plus one year, but
in no event less than three years.
STOCK OPTION PLANS
1998 Stock Option Plan. The Company's 1998 Stock Option Plan (the "1998
Plan") provides for grants of options to acquire up to 410,000 shares of Class B
Non-Voting 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 1998 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 1998 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. At April 4, 1998, the Company had 407,500
options outstanding under the 1998 Plan and 2,500 options available for future
grant.
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.
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 Class A
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 provision
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
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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. Prior to the Vistar Merger, vesting of
options to purchase 160,000 shares of Class A Voting Common Stock issued under
the plan was accelerated and all 160,000 options were exercised. The remaining
15,000 outstanding options were converted into the right to purchase an equal
number of Class B Non-Voting Common Stock in connection with the Vistar Merger.
At April 4, 1998, the Company had 15,000 options outstanding under the 1996 Plan
and no options available for future grants.
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.
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 Vistar Merger. In connection with the Vistar Merger, options to purchase
54,853 shares of Class A Common Stock for $3.00 per share were exercised and
outstanding options were converted into options to purchase an equal number of
Class B Non-Voting Common Stock. At April 4, 1998, the Company had 2,190 options
to purchase Class B Non-Voting Common Stock under the 1993 Plan outstanding and
no options available for future grants.
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 Vistar Merger.
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,
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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.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid by Safelite for services rendered for the three months ended
April 4, 1998 and the fiscal years ended January 3, 1998 and 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
--------------------------------------------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD(2) SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION
--------------------------- --------- -------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Garen K. Staglin........................ 1998 $175,000 $ 34,500 -- 10,000 $ 3,643(4)
Chairman of the Board 1997 $700,000 $ 502,851 $57,977(3) 8,424 $ 75(4)
1996 $666,827 $2,230,000 $75,628(3) -- $ 5,246(4)
John F. Barlow.......................... 1998 $175,000 $ 34,500 -- 40,000 $ 3,621(5)
President and Chief 1997 $693,269 $ 472,274 -- 50,000 $ 3,453(5)
Executive Officer 1996 $573,798 $2,040,000 -- -- $ 5,024(5)
Douglas A. Herron....................... 1998 $ 96,250 $ 20,653 -- 17,500 $ 3,505(6)
Senior Vice President and 1997 $374,904 $ 222,278 -- 23,370 $ 1,479(6)
Chief Financial Officer 1996 $327,885 $ 691,713 -- -- $ 4,772(6)
Elizabeth A. Wolszon.................... 1998 $ 73,750 $ 15,825 -- 15,000 $ 3,200(7)
Senior Vice President 1997 $289,231 $ 163,602 -- 14,076 $ 1,270(7)
Marketing and Strategic 1996 $270,192 $ 430,703 -- -- $ 2,113(7)
Planning
Thomas M. Feeney........................ 1998 $ 71,250 $ 15,289 -- 15,000 $ 6,929(8)
Senior Vice President 1997 $274,904 $ 557,587 -- 27,220 $ 3,270(8)
Client Sales and Support 1996 $248,077 $ 366,860 -- -- $11,664(8)
</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) References to fiscal periods herein are as follows: three months ended April
4, 1998 ("1998"), year ended January 3, 1998 ("1997"), and year ended
December 28, 1996 ("1996").
(3) Includes $37,267 and $60,591, respectively, for compensation related to
reimbursement of certain expenses.
(4) Represents $3,200, $0 and $1,980, respectively, in Company contributions to
the 401(k) plan and $443, $75 and $3,266, respectively, in medical plan
benefits.
(5) Represents $3,200, $0 and $1,980, respectively, in Company contributions to
the 401(k) plan and $421, $3,453 and $3,044, respectively, in medical plan
benefits.
(6) Represents $3,200, $0 and $2,336, respectively, in Company contributions to
the 401(k) plan and $305, $1,270 and $2,436, respectively, in medical plan
benefits.
(7) Represents $3,200, $0 and $2,024, respectively, in Company contributions to
the 401(k) plan and $0, $1,270 and $89, respectively, in medical plan
benefits.
(8) Represents $3,200, $0 and $4,180, respectively, in Company contributions to
the 401(k) plan and $3,729, $3,270 and $7,484, respectively, in medical plan
benefits.
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The following table sets forth certain information with respect to stock
options granted during the three months ended April 4, 1998 and the fiscal year
ended January 3, 1998 to each of the executive officers named in the Summary
Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
- ----------------------------------------------------------------------------------------- -------------------------------------
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEES OR BASE
FISCAL GRANTED IN FISCAL PRICE EXP.
NAME PERIOD(2) ($) PERIOD ($/Sh)(4) DATE 5% ($) 10% ($)
---- --------- ---------- ---------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Garen K. Staglin........................ 1998 10,000 2.4% $19.00 3/26/08 $119,500 $ 302,811
Chairman of the Board 1997 8,424(3) 4.8% $13.40 2/14/07 $ 71,014 $ 179,937
John F. Barlow.......................... 1998 40,000 9.8% $19.00 3/26/08 $478,000 $1,211,200
President and Chief Executive 1997 50,000(3) 28.6% $13.40 2/14/07 $421,500 $1,068,000
Officer
Douglas A. Herron....................... 1998 17,500 4.3% $19.00 3/26/08 $209,125 $ 529,900
Senior Vice President and Chief 1997 23,370(3) 13.4% $13.40 2/14/07 $197,009 $ 499,183
Financial Officer
Elizabeth A. Wolszon.................... 1998 15,000 3.7% $19.00 3/26/08 $179,250 $ 454,200
Senior Vice President Marketing 1997 14,076(3) 8.0% $13.40 2/14/07 $118,661 $ 300,663
and Strategic Planning
Thomas M. Feeney........................ 1998 15,000 3.7% $19.00 3/26/08 $179,250 $ 454,200
Senior Vice President Client 1997 27,220(3) 15.6% $13.40 2/14/07 $229,465 $ 581,419
Sales and Support
</TABLE>
- ---------------
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
the Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation, if
any, in the price of the Company's common stock. Such amounts are based on
the assumption that the option holders hold the options granted for their
full term. The actual value of the options will vary in accordance with the
market price of the Company's common stock.
(2) References to fiscal periods herein are as follows: three months ended April
4, 1998 ("1998") and year ended January 3, 1998 ("1997").
(3) Vesting of options granted was accelerated immediately prior to the Vistar
Merger.
(4) The exercise price of the options is the fair market value of the underlying
common stock at the date of the grant.
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<PAGE> 71
The following table sets forth certain information regarding the exercise
of stock options during the three months ended April 4, 1998 and the fiscal year
ended January 3, 1998, and the number and value of stock options held by the
executive officers named in the Summary Compensation Table as of January 3, 1998
and April 4, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS/SARS
SHARES FY-END (#) AT FY-END($)
FISCAL ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME PERIOD(1) ON EXERCISE(#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Garen K. Staglin............... 1998 -- -- 10,000 --
Chairman of the Board........ 1997 8,424 $156,686 -- --
John F. Barlow................. 1998 -- -- 40,000 --
President and Chief Executive 1997 50,000 $930,000 -- --
Officer
Douglas A. Herron.............. 1998 -- -- 17,500 --
Senior Vice President and 1997 23,370 $434,682 -- --
Chief Financial Officer
Elizabeth A. Wolszon........... 1998 -- -- 15,000 --
Senior Vice President 1997 14,076 $261,814 -- --
Marketing and Strategic
Planning
Thomas M. Feeney............... 1998 -- -- 15,000 --
Senior Vice President Client 1997 31,598 $633,254 -- --
Sales and Support
</TABLE>
- ---------------
(1) References to fiscal periods herein are as follows: as of and for the three
months ended April 4, 1998 ("1998") and as of and for the year ended January
3, 1998 ("1997").
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<PAGE> 72
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 Voting Stock, Class B Non-Voting Stock and
Non-Voting Preferred Stock, as of April 4, 1998 by (i) 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>
NO. OF
SHARES NO. OF SHARES NO. OF SHARES
OF CLASS A OF CLASS B OF NON-VOTING
VOTING % OF NON-VOTING % OF PREFERRED % OF
NAME OF BENEFICIAL OWNER STOCK(1) CLASS STOCK(1) CLASS STOCK(1) CLASS
------------------------ ---------- ----- ------------------- ----- ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Garen K. Staglin(2)(3)................. 72,101 2.1% 154,203 1.4% -- --
John F. Barlow(2)(4)................... 72,101 2.1% 184,203 1.7% -- --
Douglas A. Herron(2)(5)................ 21,649 * 60,797 * -- --
Elizabeth A. Wolszon(2)(6)............. 11,993 * 38,985 * -- --
Douglas R. Maehl(2)(6)................. 11,993 * 38,985 * -- --
James K. West(2)(6).................... 11,993 * 38,985 * -- --
Thomas M. Feeney(2)(6)................. 11,993 * 38,985 * -- --
Poe A. Timmons(2)(7)................... 6,505 * 18,011 * -- --
Anthony J. DiNovi(8)................... 1,447,080 42.4% 2,894,160 26.7% -- --
Seth W. Lawry(8)....................... 1,447,080 42.4% 2,894,160 26.7% -- --
Thomas H. Lee(8)....................... 1,447,080 42.4% 2,894,160 26.7% -- --
Scott M. Sperling(8)................... 1,447,080 42.4% 2,894,160 26.7% -- --
Gary Lubner............................ -- -- -- -- -- --
Ronnie Lubner.......................... -- -- -- -- -- --
M. Louis Shakinovsky................... -- -- -- -- -- --
John E. Mason.......................... -- -- -- -- -- --
Adrian F. Jones........................ -- -- -- -- -- --
Selwyn Herson.......................... -- -- -- -- -- --
Rodney Stansfield...................... -- -- -- -- -- --
All Directors and Executive Officers as
a Group (19 Persons)................. 1,667,408 50.5% 3,467,314 32.0% -- --
5% Stockholders:
Belron (USA) BV........................ 1,690,101 49.5% 4,487,123 43.1% 20,000 50.0%
Kellman Shareholders(9)(10)............ -- -- 2,472,648 23.8% 20,000 50.0%
Thomas H. Lee Equity Fund, III,
L.P.(11)............................. 1,241,479 36.7% 2,482,959 23.9% -- --
THL-CCI Limited Partnership(12)........ 128,782 3.8% 257,563 2.5% -- --
</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 within 60 days of January 3,
1998 are deemed outstanding.
(2) The address of this stockholder is c/o Safelite Glass Corp., 1105 Schrock
Road, Columbus, Ohio 43229.
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<PAGE> 73
(3) Includes 54,076 shares of Class A Voting Stock, 108,152 shares of Class B
Non-Voting Stock and 10,000 options to purchase shares of Class B
Non-Voting Stock owned of record by a Charitable Remainder Unit Trust
established for the benefit of Mr. Staglin and his wife.
(4) Includes 11,087 shares of Class A Voting Stock and 22,173 shares of Class B
Non-Voting Stock owned of record by trusts established for the benefit of
Mr. Barlow's children. Also includes 40,000 options to purchase shares of
Class B Non-Voting Stock.
(5) Includes options to purchase 17,500 shares of Class B Non-Voting Stock.
(6) Includes options to purchase 15,000 shares of Class B Non-Voting Stock.
(7) Includes options to purchase 5,000 shares of Class B Non-Voting Stock.
(8) 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.
(9) The Kellman Shareholders and their individual holdings consist of: (i)
Family Revocable Trust (2,225,141 shares of Class B Non-Voting Stock and
17,998 shares of Non-Voting Preferred Stock); (ii) Jack Kellman Gift Trust
U/A/D 12/16/91 (137,833 shares of Class B Non-Voting Stock and 1,114 shares
of Non-Voting Preferred Stock); (iii) Joseph Kellman 1995 Descendants Test
for the Family of Jack U/A/D 11/8/95 (13,716 shares of Class B Non-Voting
Stock and 111 shares of Non-Voting Preferred Stock); (iv) Joseph Kellman
1995 Descendants Trust for the Family of Richard U/A/D 11/8/95 (13,716
shares of Class B Non-Voting Stock and 111 shares of Non-Voting Preferred
Stock); (v) Joseph Kellman 1995 Descendants Trust for the Family of Celia
U/A/D 11/8/95 (13,716 shares of Class B Non-Voting Stock and 111 shares of
Non-Voting Preferred Stock); (vi) Joseph Kellman Gift Trust for the Family
of Jack U/A/D 11/8/95 (22,842 shares of Class B Non-Voting Stock and 185
shares of Non-Voting Preferred Stock); (vii) Joseph Kellman Gift Trust for
the Family of Richard U/A/D 11/8/95 (22,842 shares of Class B Non-Voting
Stock and 185 shares of Non-Voting Preferred Stock); and (viii) Joseph
Kellman Gift Trust for the Family of Celia U/A/D 11/8/95 (22,842 shares of
Class B Non-Voting Stock and 185 shares of Non-Voting Preferred Stock).
(10) Joseph Kellman is the Trustee of the Family Revocable Trust (which owns
2,225,141 shares of Class B Non-Voting Stock and 17,998 shares of
Non-Voting Preferred Stock). Joseph Kellman maintains a principal address
at 1000 North Lake Shore Drive, Apartment 47-B, Chicago, Illinois 60610.
Allan B. Muchin, Maurice Raizes and Marvin Zimmerman are the Trustees of
each of the other Kellman Shareholders listed above in footnote (6) (which
own an aggregate of 247,507 shares of Class B Non-Voting Stock and 2,002
shares of Non-Voting Preferred Stock). Messrs. Muchin, Raizes and Zimmerman
each maintain a principal business address at c/o Katten, Muchin & Zavis,
525 West Monroe Street, Suite 1600, Chicago, Illinois 60661, and each
disclaims beneficial ownership of such shares.
(11) THL Equity Advisors III Limited Partnership ("Advisors"), the general
partner of the THL Equity Fund and Thomas H. Lee Foreign Fund III, LP., 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 76,819 shares of Class A Voting Stock and 153,638 shares of
Class B Non-Voting Stock). Each of such persons maintains a principal
business address at c/o Thomas H. Lee Company, 75 State Street, Suite 2600,
Boston, MA 02109. Each of such persons disclaims beneficial ownership of
such shares.
72
<PAGE> 74
(12) 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 c/o Thomas H. Lee Company, 75
State Street, Suite 2600, Boston, MA 02109. Each of such persons disclaims
beneficial ownership of such shares.
73
<PAGE> 75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the THL Transactions, 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 THL Transactions and an annual fee of $500,000 for each of five
successive years, for management services to the Company. Such management
services consisted of on-going operational, financial, accounting and strategic
planning analysis and advice. Following the initial five year term of such
agreement, such agreement was to automatically continue for successive one year
terms unless any party thereto, at least ninety days prior to the end of any
term, provided 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 THL Transactions. 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 THL Transactions 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. Feeney received
$183,500, 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 THL Transactions. Pursuant to
the Stockholders' Agreement, the stockholders party thereto were 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 had the right to elect a majority of the Board of Directors. The
Stockholders' Agreement also granted THL the right to require the Company to
effect the registration of shares of Class A Common Stock THL held for sale to
the public, subject to certain conditions and limitations. In addition, under
the terms of the Stockholders' Agreement, if the Company proposed to register
any of its securities under the Securities Act of 1933, as amended, whether for
its own account or otherwise, the stockholder parties thereto were entitled to
notice of such registration and were 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) were to be paid by
the Company.
Upon consummation of the Vistar Transactions, the Stockholders' Agreement
was terminated and superseded by a Shareholders Agreement entered into among the
Company and the Vistar Shareholders (consisting of Belron and the Kellman
Shareholders and the respective permitted transferees thereof), the THL
Shareholders (consisting of the Thomas H. Lee Equity Fund III, L.P. ("Equity
Fund"), Thomas H. Lee Foreign Fund III, L.P. ("Foreign Fund"), THL-CCI Investors
Limited Partnership ("THL-CCI") and Big Bend Investments, L.P. and the permitted
transferees thereof) and certain members of the Company's management (the
"Management Shareholders") (and the permitted transferees thereof). See
"Security Ownership of Certain Beneficial Owners and Management." The
Shareholders Agreement was amended by Amendment No. 1 to the Shareholders
Agreement, dated as of March 26, 1998. Unless otherwise noted, references herein
to the Shareholders Agreement shall mean the Shareholders Agreement, as amended.
The Shareholders Agreement provides for the composition of the Board of
Directors of the Company to be designated one half by certain Vistar
Shareholders and one half by certain THL Shareholders.
At the closing of the Vistar Transactions, the Company and certain of its
shareholders (including Equity Fund, Foreign Fund, THL-CCI, Belron, the Kellman
Shareholders and certain management Shareholders) entered into a Registration
Agreement (the "Registration Agreement"), which gives such persons so-called
"demand" and "piggy-back" rights to require the Company to effect the
registration of shares of Registerable Securities (as defined in the
Registration Agreement) they hold for sale to the public, subject to certain
conditions and limitations. All fees, costs and expenses of any registration
74
<PAGE> 76
effected on behalf of such shareholders under the Registration Agreement (other
than underwriting discounts and commission) will be paid by the Company.
Thomas H. Lee Company received $4.0 million in fees upon consummation of
the Vistar Merger. In addition, Belron received fees totaling $3.0 million upon
consummation of the Vistar Merger. The Company also paid $2.7 million in
advisory fees to The Windsor Park Management Group as consideration for services
provided to Vistar in connection with the Vistar Merger. Selwyn Herson, who
became a director of the Company after consummation of the Vistar Merger, is an
affiliate of The Windsor Park Management Group. At the closing of the Vistar
Merger, the Company entered into an Amended and Restated Management Agreement
with Thomas H. Lee Company, and an Amended and Restated Management Agreement
with Belron (together, the "Management Agreements"), pursuant to which the
Company agreed to pay to each of Thomas H. Lee Company and Belron, for
management services provided to the Company, an annual fee of $1.0 million. Such
management services consist of on-going operational, financial, accounting and
strategic planning analysis and advice. The Management Agreements will continue
in full force and effect, unless and until terminated by mutual consent of the
respective parties thereto, for so long as Thomas H. Lee Company or Belron, as
applicable (or any successor thereto or permitted assignee thereof, as the case
may be) continues to carry on the business of providing management services of
the type described in the respective Management Agreements; provided, however,
that (i) either party to a Management Agreement may terminate such Management
Agreement following a material breach of the terms thereof by the other party
thereto and a failure to cure such breach within 30 days following written
notice thereof and (ii) each of the Management Agreements shall automatically
terminate upon the sale in an initial public offering registered under the
Securities Act of shares of the Company's common stock.
In connection with the closing of the Vistar Transactions, certain members
of management of the Company received bonuses aggregating $1.0 million. Of such
amount, Mr. Staglin received $212,000, Mr. Barlow received $212,000, Mr. Herron
received $109,886, Mr. Feeney received $81,344, Mr. Maehl received $74,209, Ms.
Wolszon received $84,198, Mr. West received $78,490 and Ms. Timmons received
$57,084. In addition, prior to consummation of the Distribution, vesting of
certain stock options to purchase an aggregate of 160,000 shares of the
Company's Class A Common Stock, previously granted to Mr. Staglin (8,424
options), Mr. Barlow (50,000 options), Mr. Herron (23,370 options), Mr. Feeney
(27,220 options), Mr. Maehl (14,076 options), Ms. Wolszon (14,076 options), Mr.
West (14,076 options), and Ms. Timmons (8,758 options) under the Company's
existing stock option plans, was accelerated, which permitted option holders to
exercise those options and participate in the Distribution with respect to the
shares of the Company's stock subject thereto. The acceleration of this vesting
created a charge of approximately $3.0 million. See "Executive
Compensation -- Option/SAR Grants in Last Fiscal Year."
Certain former members of management of Vistar received transaction bonuses
totaling approximately $5.2 million. In addition, certain former members of
Vistar management will and have received severance payments, subject to the
terms and conditions of their employment agreements.
In connection with consummation of the Vistar Merger, the Company forgave
all payments owed to Vistar by Joseph Kellman, formerly a Vistar Shareholder and
currently a Safelite Shareholder, under a promissory note with an outstanding
principal and interest amount due of approximately $3.5 million, and all
payments owed to the Company by certain members of management under notes with
outstanding amounts aggregating approximately $470,000. The total amount of
loans made to executive officers which were forgiven were as follows: Mr.
Staglin, $152,851; Mr. Barlow, $122,274; Mr. Herron, $29,778; Mr. Feeney,
$3,237; Ms. Wolszon, $16,102; Mr. Maehl, $16,102; and Mr. West, $15,440.
75
<PAGE> 77
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Safelite consists of 4,960,0000 shares of
Safelite Class A Common Stock ("Class A Voting Stock"), $0.01 par value per
share, 11,000,000 shares of Safelite Class B Common Stock ("Class B Non-Voting
Stock" and, together with the Class A Voting Stock, the "Common Stock"), $0.01
par value per share, and 40,000 shares of 8% Preferred Stock, $.01 par value per
share (the "8% Preferred Stock").
The following summary of certain provisions of the Common Stock and
Non-Voting Preferred Stock does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of the Company's Restated
Certificate of Incorporation (the "Restated Certificate of Incorporation") and
by the provisions of applicable law.
COMMON STOCK
Except as otherwise provided below, all shares of Class A Voting Stock and
Class B Non-Voting Stock are identical in all respects and entitle the holders
thereof to the same rights, preferences and privileges, subject to the same
qualifications, limitations and restrictions, as set forth in the Restated
Certificate of Incorporation.
Dividends. As and when dividends are declared or paid with respect to
shares of Common Stock, whether in cash, property or securities of the Company,
the holders of Class A Voting Stock and the holders of Class B Non-Voting Stock
are entitled to receive such dividends pro rata at the same rate per share of
each class of Common Stock; provided that (i) if dividends are declared or paid
in shares of Common Stock, the dividends payable on shares of Class A Voting
Stock are payable in shares of Class A Voting Stock and the dividends payable on
shares of Class B Non-Voting Stock are payable in shares of Class B Non-Voting
Stock, and (ii) if the dividends consist of other voting securities of the
Company, the Company will pay to each holder of Class B Non-Voting Stock
dividends consisting of non-voting securities (except as otherwise required by
law) of the Company which are otherwise identical to the voting securities and
which are convertible into such voting securities on the same terms as the Class
B Non-Voting Stock is convertible into the Class A Voting Stock.
Dissolution, Liquidation or Winding-Up. In the event of any dissolution,
liquidation or winding-up of the affairs of the Company, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Company and of the amounts to which the holders of any
outstanding shares of any capital stock ranking senior in preference to the
Common Stock are entitled, including, without limitation, the holders of
Non-Voting Preferred Stock, the holders of the Class A Voting Stock and the
holders of the Class B Non-Voting shall be entitled to participate pro rata at
the same rate per share of each class of Common Stock in all distributions to
the holders of the Common Stock in any liquidation, dissolution or winding-up of
the Company. The Board of Directors of the Company, in good faith, shall
determine the fair market value, as of the date of distribution, of any property
(other than cash) distributed in the event of any dissolution, liquidation or
winding-up of the affairs of the Company and such fair market value shall be the
amount received in such dissolution, liquidation or winding-up by the
stockholders by reason of the distribution of the property). Any such
determination made by the Board of Directors of the Company shall be final and
binding on the Company and all holders of Common Stock.
Voting. Except as otherwise provided below or as otherwise required by
applicable law, the holders of Class A Voting Stock are entitled to one vote per
share on all matters to be voted on by the Company's stockholders and, except as
otherwise required by law, the holders of Class B Non-Voting Stock have no right
to vote on any matters to be voted on by the Company's stockholders.
Conversion of the Class B Non-Voting Stock. Any holder of shares of Class
B Non-Voting Stock has the right to exchange such holder's shares of Class B
Non-Voting Stock as follows: (i) any time on or after the Triggering Day (as
defined below), all shares of Class B Non-Voting Stock held by any person shall
be exchangeable, on a one-for-one basis, for shares of Class A Voting Stock, and
(ii) upon or any time after the sale, which is not a Permitted Transfer (as
defined below), to any person, such shares of
76
<PAGE> 78
Class B Non-Voting Stock which have been so sold shall be exchangeable for
shares of Class A Voting Stock. The terms "Triggering Day" and "Permitted
Transfer" have the respective meanings set forth in the Shareholders Agreement
entered into in connection with the Vistar Transactions, which is filed as an
Exhibit to the Registration Statement. See "Certain Relationships and Related
Transactions." The conversion of Class B Non-Voting Stock to Class A Voting
Stock could result in a Change of Control (as defined in the Indenture).
The rights, preferences and privileges of holders of the Common Stock are
subject to, and may be adversely affected by, the rights of holders of shares of
the Non-Voting Preferred Stock and any other preferred stock that the Company
may designate in the future.
PREFERRED STOCK
The Non-Voting Preferred Stock is an accumulating perpetual preferred
stock. The Non-Voting Preferred Stock was part of the merger consideration
issued pursuant to the Vistar Transactions.
Dividends. The Company will pay cumulative semi-annual dividends on the
Non-Voting Preferred Stock if, when and as declared by the Board of Directors of
the Company, and to the extent permitted under the General Corporation Law of
the State of Delaware, which shall accrue on a daily basis (computed on the
basis of a 360-day year and actual days elapsed) at the rate per annum of eight
percent (8%) per share of Non-Voting Preferred Stock calculated as a percentage
of $1,000 (plus accrued and unpaid dividends), compounded semiannually, from and
including the effective date of the Vistar Merger until the redemption of
Non-Voting Preferred Stock (with payment being calculated through the date on
which payment shall be tendered to the holders of Non-Voting Preferred Stock).
This dividend rate will automatically increase to (i) fourteen percent (14%) per
annum upon the Occurrence of a Redemption Event (defined below), (ii) fifteen
percent (15%) per annum on the first annual anniversary date of such Redemption
Event and (iii) sixteen percent (16%) per annum on the second anniversary date
of such Redemption Event if the Company elects not to redeem Non-Voting
Preferred Stock upon the occurrence of such Redemption Event. Such dividends
will accrue and be cumulative whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Company legally
available for the payment of dividends. The date on which the Company initially
issues any shares of Non-Voting Preferred Stock will be deemed to be its "date
of issuance" regardless of the number of times transfer of such shares of
Non-Voting Preferred Stock is made on the stock records of the Company, and
regardless of the number of certificates which may be issued to evidence such
shares of Non-Voting Preferred Stock. A "Redemption Event" shall mean (i) an
underwritten initial public offering of the Company's capital stock pursuant to
a registration statement effected under the Securities Act or (ii) the
occurrence of a Change in Control under the terms of the Indenture. If at any
time the Company distributes less than the total amount of dividends then
accrued with respect to Non-Voting Preferred Stock, such payment will be
distributed among the holders of Non-Voting Preferred Stock so that an equal
amount will be paid (as nearly as possible) with respect to each outstanding
share of Non-Voting Preferred Stock.
As a result of restrictions contained in the Indenture, dividends are not
payable in respect of the Non-Voting Preferred Stock unless such payment is in
compliance with the Limitation on Restricted Payments covenant contained in the
Indenture. The accrual of dividends, however, is not subject to restriction in
the Indenture.
So long as any shares of Non-Voting Preferred Stock remain outstanding,
neither the Company nor any Subsidiary (which shall mean any Company,
association or other business entity of which the Company directly or indirectly
owns at the time more than fifty percent (50%) of the outstanding voting
securities or equity interests) will redeem, purchase or otherwise acquire any
other equity security of the Company junior to Non-Voting Preferred Stock in
right to payment outstanding on the date of the Restated Certificate of
Incorporation or thereafter outstanding, including, without limitation, the
Common Stock (all such securities collectively, the "Junior Securities"), nor
will the Company declare or pay any cash dividend (including accrued dividends)
or make any distribution of assets other than shares of
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Junior Securities upon any Junior Securities; provided that nothing in the
Restated Certificate of Incorporation shall prohibit the Company from acquiring
Common Stock of the Company pursuant to contractual rights approved by the Board
of Directors of the Company.
Liquidation, Dissolution or Winding-Up. In the event of a Liquidity Event
(as defined below), before any distribution or payment may be made with respect
to the Junior Securities, holders of each share of Non-Voting Preferred Stock
shall be entitled to be paid out of the assets of the Company available for
distribution to holders of the Company's capital stock of all classes, whether
such assets are capital, surplus, or capital earnings, an amount in cash equal
to $1,000 per share of Non-Voting Preferred Stock (which amount, together with
the other shares and per share numbers used in the Restated Certificate of
Incorporation shall be subject to equitable adjustment whenever there shall
occur a stock split, combination, reclassification or other similar event
involving the class or series of stock in question), plus accrued dividends from
the date of issuance thereof up to and including the date full payment shall be
tendered to the holders of Non-Voting Preferred Stock with respect to such
Liquidity Event (the "Liquidation Amount"). The term "Liquidity Event" shall
mean a liquidation, dissolution or winding-up of the Company, whether voluntary
or involuntary. If, upon any such Liquidity Event, the assets of the Company
available for distribution to its stockholders shall be insufficient to permit
payment to the holders of Non-Voting Preferred Stock of the full amount of the
Liquidation Amount to which they are entitled to be paid, the holders of shares
of Non-Voting Preferred Stock shall share ratably in any distribution of assets
according to the amounts which would be payable with respect to the shares of
Non-Voting Preferred Stock held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full. After the payment
of the Liquidation Amount shall have been made in full to the holders of
Non-Voting Preferred Stock, or funds necessary for such payment shall have been
set aside by the Company in trust for the accounts of holders of Non-Voting
Preferred Stock so as to be available for such payments, the holders of
Non-Voting Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Company, and the remaining assets of the
Company legally available for distribution to its stockholders shall be
distributed among the holder of other classes of securities of the Company in
accordance with their respective terms. The Liquidation Amount shall be paid in
cash to the extent the Company has cash available. Whenever a distribution
provided for above is payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Company's Board of Directors. As a result of restrictions
contained in the Indenture, distributions are not payable in respect of the
Non-Voting Preferred Stock unless such distributions are in compliance with the
Limitation on Restricted Payments covenant contained in the Indenture.
Voting. Except as otherwise required by law, the holders of Non-Voting
Preferred Stock shall have no right to vote on any matters to be voted on by the
Company's stockholders.
Mandatory Redemption. The Non-Voting Preferred Stock is not mandatorily
redeemable.
Optional Redemption. The Company may redeem Non-Voting Preferred Stock at
its option, in whole or in part, at $1,000 per share plus accrued dividends from
the date of issuance thereof up to and including the date full payment shall be
tendered to holders of Non-Voting Preferred Stock with respect to such
redemption (the "Redemption Price"), at any time (the "Redemption Date"). If, at
any time, the Company redeems less than all of the outstanding shares of
Non-Voting Preferred Stock, such redemption will be made from the holders of
Non-Voting Preferred Stock on a pro rata basis based on the number of shares of
Non-Voting Preferred Stock held by each stockholder. The terms of the Bank
Credit Agreement and the Indenture restrict the Company's ability to redeem
shares of the Non-Voting Preferred Stock.
Ranking. The Non-Voting 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 Non-Voting
Preferred Stock, with
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respect to dividends or redemption payments or upon dissolution, liquidation or
winding up, may be created without the consent of the holders of the Non-Voting
Preferred Stock, as described below.
Restrictions and Limitations. The Company shall not amend the Restated
Certificate of Incorporation without the approval, by vote or written consent,
by the holders of at least a majority of the then outstanding shares of
Non-Voting Preferred Stock, voting together as a separate class, if such
amendment would amend any of the rights, preferences, privileges of or
limitations provided for in the Restated Certificate of Incorporation for the
benefit of any shares of Non-Voting Preferred Stock. Without limiting the
generality of the preceding sentence, the Company will not amend the Restated
Certificate of Incorporation without the approval by the holders of at least a
majority of the then outstanding shares of Non-Voting Preferred Stock, voting
separately as a separate class, if such amendment would: (i) change the relative
seniority rights of holders of Non-Voting Preferred Stock as to the payment of
dividends in relation to the holders of any other capital stock of the Company;
(ii) reduce the amount payable to the holders of Non-Voting Preferred Stock upon
the voluntary or involuntary liquidation, dissolution or winding-up of the
Company, or change the relative seniority of the liquidation preferences of the
holders of Non-Voting Preferred Stock to the rights upon liquidation of the
holders of other capital stock of the Company, or change the dividend rights of
the holders of Non-Voting Preferred Stock; (iii) cancel or modify the redemption
rights provided for in the Restated Certificate of Incorporation; or (iv) cancel
or modify the rights of the holders of Non-Voting Preferred Stock provided for
in the section of the Restated Certificate of Incorporation entitled
"Restrictions and Limitations."
No Reissuance of Preferred Stock. No share or shares of Non-Voting
Preferred Stock acquired by the Company by reason of redemption, purchase or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of Non-Voting Preferred
Stock accordingly.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Restated Certificate of Incorporation of the Company provides that no
director shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for (i) any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (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 the Company and its
stockholders through stockholders' derivative suits on behalf of the Company 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 the Company 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.
The Company's Amended and Restated Bylaws provide that the Company shall, to the
full extent permitted by the Delaware General Corporation Law as currently in
effect, indemnify and may 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
(referred to herein as the Bank Credit Agreement) in an aggregate principal
amount of $450 million under which $350 million was borrowed under the Term Loan
Facility (as defined below) in connection with the Vistar Transactions and $47.4
million of a total of $100 million of commitments available (less outstanding
letters of credit of $14.2 million) under the Revolving Credit Facility was
borrowed at July 4, 1998.
Structure. The Bank Credit Agreement consists of (a) a term loan facility
in an aggregate principal amount of $350 million (the "Term Loan Facility"),
consisting of three tranches in principal amounts of $150 million (the "Tranche
A Term Loan"), $100 million (the "Tranche B Term Loan"), and $100 million (the
"Tranche C 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 $100 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 at the time of the Vistar Transactions and, subject
to limited exceptions, 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 initial borrowing under the Bank Credit
Agreement (such initial borrowing date referred to hereinafter as the
"Closing"). The Tranche B Term Loan will mature on the seventh anniversary of
the Closing. The Tranche C Term Loan will mature on the eighth anniversary of
the Closing. The Term Loan Facility is subject to the following amortization
schedule:
<TABLE>
<CAPTION>
REPAYMENT AMOUNTS
---------------------------------------
TRANCHE A TRANCHE B TRANCHE C
DATE TERM LOAN TERM LOAN TERM LOAN
---- ----------- ----------- -----------
<S> <C> <C> <C>
Last business day in September, December 1999..... $ 5,000,000 $ 250,000 $ 250,000
Last business day in March, June, September and
December 2000................................... 5,000,000 250,000 250,000
Last business day in March, June, September and
December 2001................................... 7,500,000 250,000 250,000
Last business day in March, June, September and
December 2002................................... 10,000,000 250,000 250,000
Last business day in March, June, September
2003............................................ 12,500,000 12,062,500 250,000
December 17, 2003................................. 12,500,000 -- --
Last business day in December 2003................ -- 12,062,500 250,000
Last business day in March, June, September and
December 2004................................... -- 12,062,500 11,937,500
December 17, 2004................................. -- 12,062,500 --
Last business day in December 2004................ -- -- 11,937,500
Last business day in March, June and September
2005............................................ -- 11,937,500
December 17, 2005................................. -- -- 11,937,500
</TABLE>
In addition, the Bank Credit Agreement is subject to mandatory principal
prepayment and commitment reductions (to be applied to the Term Loan Facility)
in an amount equal to, subject to certain
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exceptions, (a) 100% of the net cash 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
(as defined in the Bank Credit Agreement).
Security. The Bank Credit Agreement is secured by security interests in
and pledges of or liens on substantially all the assets of the Company.
Interest. At the Company's election, the interest rates per annum
applicable to the loans under the Bank Credit Agreement are fluctuating rates 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 1.00% per annum for ABR loans and 2.00% per annum
for LIBOR loans. The borrowing margins applicable to the Tranche B Term Loan are
1.25% per annum for ABR loans and 2.25% per annum for LIBOR loans. The borrowing
margins applicable to the Tranche C Term Loan are 1.50% per annum for ABR loans
and 2.50% per annum for LIBOR loans. All of the forgoing margins are subject to
reduction based upon the achievement by the Company of certain financial
performance thresholds. 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.
Covenants. The Bank Credit Agreement contains a number of covenants that,
among other things, 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 and maximum leverage ratios.
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 the lenders under the Bank Credit
Agreement.
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, the occurrence of certain ERISA events,
failure or invalidity of security or guarantees 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 July 4, 1998, the outstanding
principal balance of this premium financing was approximately $6.1 million.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under the Indenture, dated as of December
20, 1996, among the Company, SGC Franchising Corp. (a former subsidiary of the
Company) and Fleet National Bank, as trustee, as amended by the First
Supplemental Indenture, dated as of December 12, 1997, between the Company and
State Street Bank and Trust Company, as successor trustee to Fleet National Bank
(the "Trustee"), and the Second Supplemental Indenture, dated as of December 18,
1997, among the Company, the Subsidiary Guarantors (as defined therein, and each
a former subsidiary of the Company) and the Trustee (the "Indenture").
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.
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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 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 effectively be 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.
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As of July 4, 1998, the Company had approximately $508.2 million of Senior
Indebtedness outstanding (excluding unused commitments) all of which would have
been Secured Indebtedness (excluding $14.2 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.
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.
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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 marshaling 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.
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
The Indenture provides that, 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. The Company currently
has no subsidiaries. See "Certain Covenants -- Future Guarantees."
Each 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 --
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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 provides 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.
The Indenture provides 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
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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 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
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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 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; (7)
payments made on the Issue Date pursuant to the Recapitalization Agreement and
(8) payment of the Distribution. 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 clauses 2 (i), (4), (5), (6), (7) and (8) shall be excluded from
such calculation.
The Indenture will not permit the payment of dividends in respect of the
Non-Voting Preferred Stock unless the Company exercises its optional right to
redeem the Non-Voting Preferred Stock; 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" covenant.
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
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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 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; (v) Restricted Payments permitted by
the Indenture; and (vi) payments made by the Company to, and agreements entered
into by the Company with, Affiliates in connection with the Vistar Merger.
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
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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 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 provides 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.
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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 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
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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 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.
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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 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 provides 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.
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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 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 decrease 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
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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, 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
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(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 Trust
Indenture Act, sec.314(a).
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;
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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 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
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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 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
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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 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
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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-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
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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.
"Distribution" means a dividend of up to $67.2 million on the Company's
outstanding Class A Common Stock, a dividend of approximately $4.7 million
representing accrued and unpaid dividends on the Company's 8% Cumulative
Preferred Stock and a redemption of the Company's 8% Cumulative Preferred Stock
for an amount equal to approximately $58.2 million, in each case to be paid no
more than five business days prior to the Vistar Merger.
"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.
"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
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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.
"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).
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"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 Company with respect to such Investment, whether by
dividend, sale, liquidation or repayment, in each case prior to the date of such
Asset Sale.
"Non-Voting Preferred Stock" means the Company's 8% Non-Voting Preferred
Stock, $0.01 par value per share, to be issued by the Company as partial merger
consideration in the Vistar Merger.
"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 $450 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,
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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 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, (xvi) Indebtedness of Vistar
constituting Capitalized Lease Obligations in an aggregate principal amount not
to exceed $2.0 million and other Indebtedness of Vistar constituting unsecured
Indebtedness in an aggregate principal amount not to exceed $8.0 million, in
each case which is assumed by the Company upon consummation of the Vistar
Merger, and (xvii) 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
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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 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
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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;
(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
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(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.
"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
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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.
"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).
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"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
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.
"Vistar Merger Agreement" means that certain Merger Agreement, dated as of
October 10, 1997, by and between Vistar, Inc. and the Company.
"Vistar Merger" means the merger contemplated by the Vistar Merger
Agreement.
"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.
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"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
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.
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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
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Securities held by such holder until the applicable Registration Statement is
filed or declared effective, 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
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holder will be required to treat any gain realized upon the disposition of the
Exchange Note as interest 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 1998, 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 broker-
dealer 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
broker-dealers) 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 28, 1996, January 3, 1998 and April 4, 1998 and the
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended January 3, 1998 and the
three months ended April 4, 1998 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.
The consolidated balance sheets of Vistar, Inc. and its subsidiaries as of
March 31, 1996 and 1997, and the consolidated statements of earnings (loss),
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1997 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
116
<PAGE> 118
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF SAFELITE GLASS CORP. AND
SUBSIDIARIES:
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets -- December 28, 1996, January 3,
1998, April 4, 1998 and July 4, 1998...................... F-3
Consolidated Statements of Operations -- Years Ended
December 30, 1995, December 28, 1996 and January 3, 1998
and Three Months Ended March 27, 1997, April 4, 1998, June
28, 1997 and July 4, 1998................................. F-4
Consolidated Statements of Stockholders' Equity
(Deficit) -- Years Ended December 30, 1995, December 28,
1996 and January 3, 1998 and Three Months Ended April 4,
1998 and July 4, 1998..................................... F-5
Consolidated Statements of Cash Flows -- Years Ended
December 30, 1995, December 28, 1996 and January 3, 1998
and Three Months Ended March 27, 1997, April 4, 1998, June
28, 1997 and July 4, 1998................................. F-6
Notes to Consolidated Financial Statements.................. F-7
FINANCIAL STATEMENTS OF VISTAR, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants.................... F-25
Consolidated Balance Sheets -- March 31, 1996 and 1997...... F-26
Consolidated Statements of Earnings (Loss) -- Years Ended
March 31, 1995, 1996 and 1997 and Nine Months Ended
December 21, 1996 and December 19, 1997................... F-27
Consolidated Statements of Stockholders' Equity -- Years
Ended March 31, 1995, 1996 and 1997 and Nine Months Ended
December 19, 1997......................................... F-28
Consolidated Statements of Cash Flows -- Years Ended March
31, 1995, 1996 and 1997 and Nine Months Ended December 21,
1996 and December 19, 1997................................ F-29
Notes to Consolidated Financial Statements.................. F-30
</TABLE>
F-1
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
Safelite Glass Corp.:
We have audited the accompanying consolidated balance sheets of Safelite
Glass Corp. and subsidiaries ("Company") as of December 28, 1996, January 3,
1998, and April 4, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 30,
1995, December 28, 1996 and January 3, 1998, and for the three months ended
April 4, 1998. 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 auditing standards generally
accepted in the United States of America. 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 Safelite Glass Corp. and
subsidiaries at December 28, 1996, January 3, 1998, and April 4, 1998, and the
results of their operations and their cash flows for the years ended December
30, 1995, December 28, 1996 and January 3, 1998, and the three months ended
April 4, 1998, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Dayton, Ohio
June 25, 1998
F-2
<PAGE> 120
SAFELITE GLASS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4, JULY 4,
1996 1998 1998 1998
------------ ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 31,188 $ 7,404 $ 10,254 $ 8,798
Accounts receivable, net........................... 29,647 54,927 62,000 70,235
Refundable taxes................................... 7,600
Inventories........................................ 42,454 48,133 50,535 54,439
Prepaid expenses................................... 6,684 6,505 11,382 10,991
Deferred income taxes.............................. 7,862 24,613 18,416 14,871
--------- --------- --------- ---------
Total current assets........................ 125,435 141,582 152,587 159,334
PROPERTY, PLANT AND EQUIPMENT -- Net................. 40,119 63,820 61,994 57,124
INTANGIBLE ASSETS -- Net............................. 17,832 292,004 292,325 292,025
OTHER ASSETS......................................... 18,970 23,821 24,873 22,607
DEFERRED INCOME TAXES................................ 13,890 36,827 44,576 44,153
--------- --------- --------- ---------
TOTAL ASSETS................................ $ 216,246 $ 558,054 $ 576,355 $ 575,243
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable................................... $ 23,703 $ 45,313 $ 43,480 $ 52,644
Current portion -- long-term debt.................. 5,418 6,425 5,941 5,742
Accrued expenses:
Payroll and related items........................ 17,359 14,768 9,669 9,706
Self-insurance reserves.......................... 9,086 7,987 7,018 7,013
Taxes............................................ 6,376 4,537 546 1,753
Accrued interest................................. 685 1,949 8,695 5,892
Restructuring.................................... 561 20,007 22,390 15,279
Other............................................ 5,664 10,787 14,529 8,146
--------- --------- --------- ---------
Total current liabilities................... 68,852 111,773 112,268 106,175
LONG-TERM DEBT -- Less current portion............... 258,322 473,499 497,645 502,463
OTHER LONG-TERM LIABILITIES:
Self-insurance reserves............................ 6,512 5,758 4,895 4,138
Pension............................................ 7,733 4,098 671 1,070
Restructuring...................................... 1,128 6,846 8,983 6,091
Other.............................................. 2,231 2,954 304 268
--------- --------- --------- ---------
Total other long-term liabilities........... 17,604 19,656 14,853 11,567
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock issued, 8%, $100 par value at
December 28, 1996 and $0.01 thereafter........... 58,250 1 1 1
Class A Common Stock issued, $0.01 par value....... 53 38 38 38
Class B Common Stock issued, $0.01 par value....... 1 104 104 104
Additional paid-in capital......................... 182,368 324,794 324,878 324,878
Accumulated deficit................................ (356,555) (357,761) (362,077) (358,628)
Other.............................................. (12,649) (14,050) (11,355) (11,355)
--------- --------- --------- ---------
Total stockholders' deficit................. (128,532) (46,874) (48,411) (44,962)
--------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.......... $ 216,246 $ 558,054 $ 576,355 $ 575,243
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 121
SAFELITE GLASS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------------- ----------------------------------------------------
DECEMBER 30, DECEMBER 28, JANUARY 3, MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1998 1997 1998 1997 1998
------------ ------------ ---------- ----------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SALES:
Installation and related
services.............. $315,642 $380,142 $430,290 $ 95,249 $201,684 $113,441 $227,058
Wholesale............... 56,500 58,183 53,014 12,544 12,108 15,680 14,109
-------- -------- -------- -------- -------- -------- --------
Total sales....... 372,142 438,325 483,304 107,793 213,792 129,121 241,167
COST OF SALES............. 261,693 299,623 331,658 75,758 155,545 85,058 170,732
-------- -------- -------- -------- -------- -------- --------
GROSS MARGIN.............. 110,449 138,702 151,646 32,035 58,247 44,063 70,435
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES................ 93,486 107,350 111,815 25,993 46,467 29,328 47,474
RESTRUCTURING EXPENSES.... 6,311 2,865 3,791 3,509
LOSS ON THE SALE OF LEAR
SIEGLER................. 5,418
OTHER OPERATING
EXPENSES................ 7,558 5,704 3,079 985
-------- -------- -------- -------- -------- -------- --------
OPERATING INCOME.......... 10,652 23,794 25,844 6,042 4,910 14,735 18,467
INTEREST EXPENSE.......... (6,000) (6,726) (27,517) (6,357) (10,987) (6,368) (11,187)
INTEREST INCOME........... 2,890 2,094 1,254 279 138 232 137
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAX
(PROVISION) BENEFIT AND
MINORITY INTEREST....... 7,542 19,162 (419) (36) (5,939) 8,599 7,417
INCOME TAX (PROVISION)
BENEFIT................. (157) 17,605 6,842 (59) 1,623 (3,512) (3,968)
MINORITY INTEREST......... (1,059) (10,199)
-------- -------- -------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS.............. 6,326 26,568 6,423 (95) (4,316) 5,087 3,449
DISCONTINUED OPERATIONS... 1,706
EXTRAORDINARY ITEM --
Early extinguishment of
debt, net of tax
benefit................. (500) (2,835)
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)......... $ 6,326 $ 27,774 $ 3,588 $ (95) $ (4,316) $ 5,087 $ 3,449
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 122
SAFELITE GLASS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
PREFERENTIAL --------
AND CLASS A CLASS B ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED TREASURY
STOCK STOCK STOCK STOCK CAPITAL DEFICIT STOCK
--------- ------------ ------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994........ $ 32 $11 $ 1 $ 393,562 $(390,655) $ (732)
Purchase of 5,256 shares of Class
A Treasury Stock................. 5 (5)
Net income........................ 6,326
Minimum pension liability
adjustment, net of tax...........
------------ --- ---- --------- --------- -------
BALANCE, DECEMBER 30, 1995........ 32 11 1 393,567 (384,329) (737)
Issuance of 4,209,689 shares of
Class A Common Stock net of
issuance costs of $6,502......... 42 49,866
Issuance of 582,498 shares of
preferred stock.................. 58,250
Redemption of preferential common
stock............................ (32) (293,107)
Contributed capital............... 21,314
Purchase of 353,557 shares of
Class A Treasury Stock........... (4,720)
Exercise of 6,080 stock options... 63
Net income........................ 27,774
Purchase of minority interest..... 10,665
Minimum pension liability
adjustment, net of tax...........
------------ --- ---- --------- --------- -------
BALANCE, DECEMBER 28, 1996........ 58,250 53 1 182,368 (356,555) (5,457)
Purchase of 1,000 shares of Class
A Common Stock................... (11)
Stock options exercised........... 2 5,273
Dividend ($12.99 per share)....... (67,194)
Preferred stock redemption,
including payment of accumulated
dividends of $4,794.............. (58,250) (4,794)
Elimination of stock subscription
receivable.......................
Reverse stock split (1 for 3)..... (34) 34
Stock dividend (2 shares of Class
B Common Stock for each share of
Class A Common Stock)............ 34 (34)
Issuance of 1,690,101 shares of
Class A Common Stock and
6,959,771 shares of Class B
Common Stock..................... 17 69 164,348
Issuance of 40,000 shares of
preferred stock.................. $ 1 39,999
Net income........................ 3,588
Minimum pension liability
adjustment, net of tax...........
---- ------------ --- ---- --------- --------- -------
BALANCE, JANUARY 3, 1998.......... 1 38 104 324,794 (357,761) (5,468)
Issuance of 4,378 shares of Class
B Common Stock................... 84
Net loss.......................... (4,316)
Minimum pension liability
adjustment, net of tax...........
---- ------------ --- ---- --------- --------- -------
BALANCE, APRIL 4, 1998............ 1 38 104 324,878 (362,077) (5,468)
==== ============ === ==== ========= ========= =======
Net Income (Unaudited)............ 3,449
---- ------------ --- ---- --------- --------- -------
BALANCE, JULY 4, 1998
(Unaudited)...................... $ 1 $ $38 $104 $ 324,878 $(358,628) $(5,468)
==== ============ === ==== ========= ========= =======
<CAPTION>
OTHER
------------------------
STOCK MINIMUM COMP.
SUBSCRIPTION PENSION INCOME
RECEIVABLE LIABILITY TOTAL (LOSS)
------------ --------- --------- -------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994........ $(372) $(1,631) $ 216
Purchase of 5,256 shares of Class
A Treasury Stock.................
Net income........................ 6,326 $ 6,326
Minimum pension liability
adjustment, net of tax........... (7,156) (7,156) (7,156)
----- ------- --------- -------
BALANCE, DECEMBER 30, 1995........ (372) (8,787) (614) $ (830)
=======
Issuance of 4,209,689 shares of
Class A Common Stock net of
issuance costs of $6,502......... 49,908
Issuance of 582,498 shares of
preferred stock.................. 58,250
Redemption of preferential common
stock............................ (293,139)
Contributed capital............... 21,314
Purchase of 353,557 shares of
Class A Treasury Stock........... (4,720)
Exercise of 6,080 stock options... (4) 59
Net income........................ 27,774 $27,774
Purchase of minority interest..... 10,665
Minimum pension liability
adjustment, net of tax........... 1,971 1,971 1,971
----- ------- --------- -------
BALANCE, DECEMBER 28, 1996........ (376) (6,816) (128,532) $29,745
=======
Purchase of 1,000 shares of Class
A Common Stock................... (11)
Stock options exercised........... 5,275
Dividend ($12.99 per share)....... (67,194)
Preferred stock redemption,
including payment of accumulated
dividends of $4,794.............. (63,044)
Elimination of stock subscription
receivable....................... 376 376
Reverse stock split (1 for 3).....
Stock dividend (2 shares of Class
B Common Stock for each share of
Class A Common Stock)............
Issuance of 1,690,101 shares of
Class A Common Stock and
6,959,771 shares of Class B
Common Stock..................... 164,434
Issuance of 40,000 shares of
preferred stock.................. 40,000
Net income........................ 3,588 $ 3,588
Minimum pension liability
adjustment, net of tax........... (1,766) (1,766) (1,766)
----- ------- --------- -------
BALANCE, JANUARY 3, 1998.......... (8,582) (46,874) $ 1,822
=======
Issuance of 4,378 shares of Class
B Common Stock................... 84
Net loss.......................... (4,316) $(4,316)
Minimum pension liability
adjustment, net of tax........... 2,695 2,695 2,695
----- ------- --------- -------
BALANCE, APRIL 4, 1998............ (5,887) (48,411) (1,621)
===== ======= ========= =======
Net Income (Unaudited)............ 3,449 $ 3,449
----- ------- --------- -------
BALANCE, JULY 4, 1998
(Unaudited)...................... $ $(5,887) $ (44,962) $ 3,449
===== ======= ========= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 123
SAFELITE GLASS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------------- --------------------------------------------------
DECEMBER 30, DECEMBER 28, JANUARY 3, MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1998 1997 1998 1997 1998
------------ ------------ ---------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $ 6,326 $ 27,774 $ 3,588 $ (95) $ (4,316) $ 5,087 $ 3,449
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Extraordinary item-early
extinguishment of debt....... 500 2,835
Depreciation and
amortization................. 7,621 8,031 8,700 2,003 6,377 2,053 6,041
Loss on sale of subsidiary..... 5,418
Change in equity from exercise
of stock options............. 2,976
Minority interest.............. 862 10,199
Deferred income taxes.......... (19,715) (6,887) 59 (1,552) 3,512 3,968
Loss on disposition of
assets....................... 654 258 324 346 12 12
Gain from discontinued
operations................... (1,706)
Changes in operating assets and
liabilities:
Accounts receivable.......... (5,011) 2,379 560 (1,217) (7,073) (4,593) (8,235)
Inventories.................. (5,159) (704) (145) (690) (2,402) 2,100 (3,904)
Accounts payable............. (2,120) 4,277 1,852 (3,937) (1,833) 4,332 9,164
Accrued expenses............. (25,939) 1,615 (2,288) (10,643) (5,099) 2,767 (5,144)
Other........................ 12,696 (11,179) (18,478) 1,754 (42) (1,451) (7,184)
Cash flows provided by (used
in) discontinued
operations................... (21,604) 3,975 (3,940) (179)
-------- --------- --------- -------- -------- ------- -------
Net cash flows provided by
(used in) operating
activities................ (10,070) 125 2,430 (16,706) (15,594) 13,640 (1,833)
-------- --------- --------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............. (11,986) (12,843) (13,856) (4,233) (2,425) (2,781) (4,255)
Proceeds from sale of fixed
assets......................... 1,243 87 87 5 28 22 13
Acquisition of intangibles....... (392) (30) (30) (2,821)
Sale of subsidiary............... (3,407)
Purchases of short-term
investments.................... (47,479) (29,570)
Maturities of short-term
investments.................... 23,500 64,224
Cash paid in Vistar transaction
(net of cash acquired)......... (68,224)
-------- --------- --------- -------- -------- ------- -------
Net cash flows provided by
(used in) investing
activities................ (34,722) 21,506 (85,430) (4,258) (5,218) (2,759) (4,242)
-------- --------- --------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common and preferred
stock.......................... 108,217 7
Redemption of preferential common
stock.......................... (293,139)
Purchase of treasury stock....... (5) (4,720) (11) (13)
Payments on long-term
borrowings..................... (7,500) (47,500) (166,996) (1,316) (2,219) (1,338) (1,551)
Proceeds from long-term
borrowings..................... 263,740 350,000
Borrowings (payments) on
revolver, net.................. 12,700 (21,500) 15,368 7,600 25,881 (7,600) 6,170
Capitalized debt issuance
costs.......................... (9,323) (11,206)
Exercise of stock options........ 2,299
Dividends paid................... (71,988)
Redemption of preferred stock.... (58,250)
-------- --------- --------- -------- -------- ------- -------
Net cash flows provided by
(used in) financing
activities................ 5,195 (4,225) 59,216 6,291 23,662 (8,951) 4,619
-------- --------- --------- -------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. (39,597) 17,406 (23,784) (14,673) 2,850 1,930 (1,456)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.............. 53,379 13,782 31,188 31,188 7,404 16,515 10,254
-------- --------- --------- -------- -------- ------- -------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD........................ $ 13,782 $ 31,188 $ 7,404 $ 16,515 $ 10,254 $18,445 $ 8,798
======== ========= ========= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest........... $ 6,051 $ 5,127 $ 29,550 $ 2,936 $ 3,857 $ 8,280 $13,353
======== ========= ========= ======== ======== ======= =======
Cash paid for income taxes....... $ 109 $ 350 $ 492 $ 203 $ 123 $ 123 $ 312
======== ========= ========= ======== ======== ======= =======
Contributed capital.............. $ 21,314
=========
Common and preferred stock issued
in merger...................... $ 204,434
=========
Common stock issued as
compensation................... $ 84
========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 124
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 AND
THREE MONTHS ENDED MARCH 29, 1997 (UNAUDITED), APRIL 4, 1998, JUNE 28,
1997 (UNAUDITED) AND JULY 4, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- Safelite Glass Corp. and subsidiaries (the
"Company" or "Safelite") are engaged principally in the manufacture,
distribution and installation of replacement automotive glass and related
insurance claims processing. The Company is the largest automotive glass
replacement and repair company in the United States. Currently, approximately
95% of the Company's sales represent installation and related services with the
balance representing sales to wholesale customers. On December 19, 1997, the
Company acquired Vistar, Inc. ("Vistar"), the second largest automotive glass
replacement and repair company in the United States (see Note 4). At July 4,
1998, the combined company had two manufacturing facilities, 74 warehouses, 47
dispatch command centers/central telephone units and 717 service center
locations across the United States.
Basis of Accounting -- The consolidated financial statements have been
prepared on the basis of accounting principles generally accepted in the United
States of America and all amounts are expressed in U.S. dollars. 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 herein, include the accounts of Lear Siegler Holdings Corp.
("Lear Siegler") through September 12, 1997 (see Notes 2 and 3).
Fiscal Year -- Prior to 1998, the Company used a 52 or 53 week fiscal year
that ended on the Saturday nearest December 31. In May 1998, the Company changed
its fiscal year to a 52 or 53 week fiscal year that ends on the Saturday closest
to March 31. The footnote references to year ends are as follows: December 30,
1995 ("1995"), December 28, 1996 ("1996") and January 3, 1998 ("1997").
Interim Financial Statements -- In the opinion of management, the unaudited
consolidated financial statements presented herein reflect all adjustments,
consisting of normal recurring accruals, which are necessary to present fairly
the financial position and results of operations for the period then ended.
Cash and Cash Equivalents -- The Company considers all short-term
investments which have a purchased term of three months or less to be cash
equivalents. The carrying amount approximates fair value because of the short
maturity of those instruments.
Concentration of Credit Risk -- Approximately 38% at December 28, 1996, 58%
at January 3, 1998, 57% at April 4, 1998 and 66% at July 4, 1998 (unaudited), 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. During the three months ended
April 4, 1998 and July 4, 1998 (unaudited), $25,779 (12%) and $30,983 (13%),
respectively, of total sales for the period were to a single insurance customer.
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.
F-7
<PAGE> 125
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories -- The Company accounts for inventories, which are primarily
finished goods, at the lower of standard cost, which approximates actual cost
determined utilizing the first in, first out method, or market. Valuation
allowances for obsolete and slow moving inventories were $1,621, $1,704, $1,723
and $514 at December 28, 1996, January 3, 1998, April 4, 1998 and July 4, 1998
(unaudited), respectively.
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:
<TABLE>
<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.
Debt Issuance Costs -- Debt issuance costs are amortized over the life of
the related debt.
Long-Lived Assets -- Long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable from undiscounted future cash
flows.
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 -- The Company expenses all advertising costs. The costs
of yellow pages advertising are expensed at the time the yellow pages phone book
is published. Total advertising expense was $5,910, $7,123 and $7,367 in 1995,
1996 and 1997, respectively. Total advertising expense for the three months
ended March 29, 1997 (unaudited) and April 4, 1998 was $1,807 and $2,298,
respectively. Total advertising expense for the three months ended June 28, 1997
and July 4, 1998 (both unaudited) was $1,938 and $2,700, respectively.
Other Operating Expenses -- Other operating expenses in 1996 consist of
$6,858 in management transaction bonuses related to the THL Transaction and
estimated costs (primarily severance) of $700 to exit the activities of Lear
Siegler (see Note 2). Other operating expenses in 1997 include $1,000 of
management transaction bonuses, $2,976 related to the acceleration of vesting of
certain management stock options, and $470 related to forgiveness of certain
officer loans made in connection with the Vistar Merger (see Note 4). Also
included in other operating expenses in 1997 are costs related to obtaining
bondholder consent to the Vistar Merger of $1,258 (see Note 10). Other operating
expenses of $3,079 and $985 in the three months ended April 4, 1998 and July 4,
1998 (unaudited), respectively, consist of costs associated with the integration
of corporate systems, moving, relocation and other expenses associated with the
Vistar Merger.
Interest Rate Swaps -- The Company uses settlement accounting to account
for its interest rate swap agreements.
F-8
<PAGE> 126
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Comprehensive Income -- At April 4, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." Components of comprehensive income are net
income and the change in minimum pension liability net of income tax effect.
Other -- The following Statements of Financial Accounting Standards (SFAS)
were issued by the Financial Accounting Standards Board and will be adopted by
the Company during the fiscal year ending April 3, 1999. The impact of adopting
these statements has not been determined.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," was issued in June 1997. This statement establishes standards for
the way that business enterprises report information about operating segments.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits," was issued in February 1998 and revises the current
disclosure requirements for employers' pensions and other retiree benefits.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. The statement requires derivatives to be
recorded on the balance sheet as assets or liabilities, measured at fair value.
Gains or losses resulting from changes in fair value of the derivatives are
recorded depending upon whether the instruments meet the criterion for hedge
accounting. This statement is effective for fiscal years beginning after June
15, 1999. The impact of adopting this statement has not been determined.
Reclassifications -- Certain reclassifications have been made to conform
balances with the 1998 presentation.
2. THE THL 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 (collectively, the "THL
Transactions"). As a result of the THL Transactions, Safelite's preferential
common shares were converted into the right to receive cash, and Thomas H. Lee
Equity Fund III, L.P., together with certain of its affiliates and certain other
investors (collectively "THL"), obtained 88% of Safelite's common stock. Certain
existing shareholders, primarily Safelite management, retained the remaining
interest. The Agreement also provided for Safelite's 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 were
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 Stock and 17,991 shares of Class B
Common Stock owned by existing shareholders (primarily management), was
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
F-9
<PAGE> 127
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 10).
(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 THL 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.
Prior to the THL Transactions, Lear Siegler operated as a holding company
whose principal activity was to oversee its discontinued operations. The Lear
Siegler activities did 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 were accrued in
accordance with Emerging Issues Task Force Statement No. 94-3. This amount was
included in other operating expenses for 1996.
In connection with the THL 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. 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. SALE OF LEAR SIEGLER
On September 12, 1997, the Company sold all of the issued and outstanding
shares of the capital stock of Lear Siegler (the "Lear Siegler Stock") to BPLSI
Investment Company, a Delaware corporation
F-10
<PAGE> 128
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(the "Purchaser"), pursuant to a Stock Purchase Agreement by and among Lear
Siegler, the Company, the Purchaser, and James F. Matthews (the President of
Lear Siegler and the sole stockholder of the Purchaser).
The net book value of Lear Siegler on the sale date was $5,500, which was
comprised of $3,500 in cash, $13,400 in other assets and $11,400 in liabilities.
The sale price of the Lear Siegler Stock was $100 in cash and a promissory
note delivered by the Purchaser to the Company. The promissory note provides
that the Purchaser must pay to the Company an amount equal to 50% of the net
proceeds realized, directly or indirectly, by Lear Siegler from the liquidation
or other disposition, if any, of the assets belonging to Lear Siegler or its
direct or indirect subsidiaries which were seized by the Cuban government when
Fidel Castro came to power, or from settlement of any claims relating thereto
(the "Cuban Assets") if the Purchaser receives dividends or other distributions
from Lear Siegler. Due to certain restrictions in the documents governing the
December 20, 1996 recapitalization of Safelite, no payments are anticipated
under the promissory note for six years. The promissory note will remain in full
force and effect until the earlier of (a) June 21, 2017, or (b) after six years,
such time as all of the Cuban Assets have been liquidated or otherwise disposed
of, and Lear Siegler is permitted to distribute the net proceeds thereof, and
the Company receives 50% of such net proceeds plus interest from the date of
disposition to the date of payment. Due to the wholly-contingent nature of the
ability of Lear Siegler or any of its subsidiaries to realize any proceeds from
the liquidation or other disposition of any of the Cuban Assets, there can be no
assurance that the Purchaser will make any payments to the Company under the
promissory note. Accordingly, the Company has recorded this promissory note at a
net book value of zero, and a loss of $5,418 related to the sale.
4. THE VISTAR TRANSACTIONS
On December 19, 1997, the Company merged with Vistar, with the Company as
the corporation surviving the merger (the "Vistar Merger"). The Company's merger
with Vistar has been accounted for as a purchase transaction, with results of
Vistar included in the Company's financial statements from the acquisition date.
Prior to the Vistar Merger, the Company paid a dividend on its outstanding
shares of Class A Common Stock in the aggregate amount of $67,194 and paid a
dividend on its outstanding shares of 8% Cumulative Preferred Stock equal to the
accrued and unpaid dividends thereon in the aggregate amount of $4,794
(collectively, the "Dividend"), and redeemed all outstanding shares of its 8%
Cumulative Preferred Stock at an aggregate redemption price of $58,250 (the
"Redemption" and, together with the Dividend, the "Distribution"). Subsequent to
the Distribution and immediately prior to the consummation of the Vistar Merger,
the Company effected a 1 for 3 reverse stock split (the "Stock Split") of its
Class A Common Stock, which was reclassified as Class A Voting Common Stock
("Class A Voting Stock"), reclassified its Class B Common Stock as Class B
Non-Voting Stock ("Class B Non-Voting Stock"), and paid a dividend on each share
of Class A Voting Stock outstanding after the Stock Split in the form of two
shares of Class B Non-Voting Stock. The Company also authorized the creation of
a new series of preferred stock, designated as Non-Voting 8% Preferred Stock
(the "Non-Voting Preferred Stock"). The Non-Voting Preferred Stock is an
accumulating perpetual preferred stock. As a result of restrictions contained in
the indenture governing its 9 7/8% Senior Subordinated Notes due 2006 (the
"Indenture"), dividends are not payable in respect of the Non-Voting Preferred
Stock unless such payment is in compliance with the "Limitation on Restricted
Payments" covenant contained in the Indenture. Cumulative undeclared preference
dividends were $131, $798 and $1,727 as of January 3, 1998, April 4, 1998 and
July 4, 1998 (unaudited), respectively. The Non-Voting Preferred Stock is not
mandatorily redeemable. Unlike the 8% Cumulative Preferred Stock, however, the
Non-Voting Preferred Stock is redeemable by the Company, at its option, at any
time (provided that the Company is in compliance with the "Limitation on
Restricted Payments" covenant).
F-11
<PAGE> 129
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price paid by the Company to the holders of Vistar's
outstanding capital stock (the "Vistar Shareholders") in exchange for all of the
outstanding capital stock of Vistar consisted of 1,690,101 shares of Class A
Voting stock (valued at $19.01 a share), 6,959,771 shares of Class B Non-Voting
Stock (valued at $19.01 a share), 40,000 shares of Non-Voting Preferred Stock
($40,000 aggregate liquidation preference) and $65,000 cash (collectively, the
"Merger Consideration"). The aggregate purchase price was $269,434. As a result
of the Vistar Merger, the holders of the Company's outstanding capital stock
immediately prior to the Vistar Merger (the "Safelite Shareholders") retained
ownership of 50.5% of the outstanding Class A Voting Stock and became the owners
of approximately 33% of the outstanding Class B Non-Voting stock (including
shares subject to exercisable options to acquire Class B Non-Voting Stock) and
the Vistar Shareholders became the owners of 49.5% of the outstanding Class A
Voting Stock, approximately 67% of the outstanding Class B Non-Voting Stock and
100% of the outstanding Non-Voting Preferred Stock.
In connection with the Vistar Merger, substantially all of the Safelite
Shareholders and all of the Vistar Shareholders entered into a Shareholders
Agreement (the "Shareholders Agreement"), which established certain rights and
restrictions with respect to the management of the Company and transfers of the
Class A Voting Stock and the Class B Non-Voting Stock, and a Registration
Agreement providing for certain rights to cause the Company to register the
Class A Voting Stock and the Class B Non-Voting Stock under the Securities Act
of 1933, as amended.
Fees and expenses paid in connection with the Vistar Merger totaled
approximately $14,550. Of these total fees and expenses, approximately $3,000,
$3,010 and $2,737 were paid to THL, Belron International (a former Vistar
shareholder) and The Windsor Park Management Group, respectively. The Windsor
Park Management Group is affiliated with an individual who became a director of
the Company subsequent to the Vistar Merger. Also in connection with the Vistar
Merger, THL amended its existing management agreement with the Company to remove
any future obligations of the Company to pay transaction fees and to set the
annual management fee payable thereunder at $1,000. Belron International entered
into an Amended and Restated Management Agreement with the Company to replace
its existing management agreement with Vistar, pursuant to which Belron will
continue to receive a management fee of $1,000 per year. Each of such agreements
with THL and Belron International will terminate upon consummation of an initial
public offering of the Company's common stock. The Company also paid THL $1,000
in connection with the debt refinancing.
Payment of the Distribution, the cash portion of the Merger Consideration,
the refinancing of Vistar's senior credit financing and the fees and expenses of
the transaction were financed through borrowings made pursuant to a refinancing
of the Company's existing senior credit facility (see Note 10).
The excess purchase price over the fair value of identifiable net assets
acquired has been allocated to goodwill. Goodwill of $280,141 recorded in the
transaction will be amortized over 30 years using the straight-line method. The
allocation of the purchase price to the net assets acquired is preliminary with
respect to certain amounts, pending the results of certain studies which have
not yet been completed.
F-12
<PAGE> 130
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary was prepared to illustrate the pro forma results of
operations as if the Vistar acquisition had occurred at the beginning of the
fiscal years presented without the benefit of any synergies. Included in the pro
forma presentation is the impact of certain purchase adjustments directly
attributable to the acquisition which are expected to have a continuing impact.
<TABLE>
<CAPTION>
1996 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $818,339 $879,803
Income (loss) from continuing operations before
extraordinary charge...................................... (1,595) (24,716)
Net income (loss)........................................... (389) (27,551)
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the Vistar acquisition been consummated as of the beginning of the
fiscal years presented, nor is it necessarily indicative of future operating
results. The pro forma financial information does not reflect any synergies that
may be achieved from the combined operations. Included in pro forma net income
are adjustments to conform the accounting practices of the companies which
decreased net income by $287 in 1996 and increased net income by $46 in 1997.
As a result of the Merger, the Company intends to consolidate redundant
overhead in both field and corporate operations, eliminate redundant service
center locations and eliminate redundant sales and marketing force activities.
At January 3, 1998, April 4, 1998 and July 4, 1998, the Company had partially
completed its evaluation of redundant locations and activities and recorded the
following accrual as part of its purchase accounting for Vistar:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
1997 APIRL 4, 1998 JULY 4, 1998
------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Closing of Vistar service center locations... $ 1,734 $1,472 $1,545
Vistar field and corporate severance......... 13,556 1,873 555
Elimination of redundant Vistar corporate
functions.................................. 5,559
------- ------ ------
$20,849 $3,345 $2,100
======= ====== ======
</TABLE>
Prior to December 1998, the Company expects to complete its
market-by-market analysis of overlapping field locations and administrative
activities of both Vistar and the Company. Costs associated with additional
consolidation of Vistar functions and activities will be recorded as an
adjustment to the initial purchase allocation. The costs associated with closing
Safelite locations will be expensed when the decision as to which facilities to
close is made. Management estimates the aggregate of all merger related closing
and consolidation costs will range from $37,000 to $42,000.
5. 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.
F-13
<PAGE> 131
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
As described in Note 4, at January 3, 1998, April 4, 1998 and July 4, 1998,
the Company had partially completed its review of redundant corporate and field
operations which resulted from its acquisition of Vistar. Accordingly,
restructuring provisions for $2,865, $3,791 and $3,509, respectively, were
recorded in each period. The January 3, 1998, provision consisted of $415
related to Safelite service center closings and $2,450 related to Safelite
employee severance. The April 4, 1998, provision consisted of $2,491 related to
Safelite service center closings and $1,300 related to Safelite employee
severance. The July 4, 1998 (unaudited) provision consisted of $3,113 related to
Safelite Service Center closings and $396 related to Safelite employee
severance. The Company expects to complete its merger related restructuring
review by December 1998 and anticipates that further restructuring provisions
will be taken in its fiscal year ending March 1999.
The following summarizes the reserve activity:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED --------------------------------------------------
--------------------------- MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance........ $ $ 5,098 $ 1,689 $1,689 $26,853 $1,425 $31,373
Restructuring liabilities
acquired -- Vistar..... 2,438
Restructuring Merger
accrual................ 20,849 3,345 2,100
Restructuring
provision.............. 6,311 2,865 3,791 3,509
Used for intended
purpose................ (1,213) (3,409) (988) (264) (2,616) (71) (15,612)
------- ------- ------- ------ ------- ------ -------
Ending balance........... $ 5,098 $ 1,689 $26,853 $1,425 $31,373 $1,354 $21,370
======= ======= ======= ====== ======= ====== =======
</TABLE>
6. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4, JULY 4,
1996 1998 1998 1998
------------ ---------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Trade receivables....................... $31,748 $ 70,755 $ 74,622 $ 82,768
Less allowance for uncollectible
accounts.............................. (2,101) (15,828) (12,622) (12,533)
------- -------- -------- --------
Net..................................... $29,647 $ 54,927 $ 62,000 $ 70,235
======= ======== ======== ========
</TABLE>
F-14
<PAGE> 132
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED ---------------------------------------------------
--------------------------- MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for
uncollectible accounts:
Balance, beginning of
period.................. $ 2,301 $ 2,413 $ 2,101 $2,101 $15,828 $2,132 $12,622
Provision................. 1,354 1,015 1,469 618 1,319 259 1,043
Vistar Merger............. 14,002
Charge-offs............... (1,242) (1,327) (1,744) (587) (4,525) (298) (1,132)
------- ------- ------- ------ ------- ------ -------
Balance, end of period.... $ 2,413 $ 2,101 $15,828 $2,132 $12,622 $2,093 $12,533
======= ======= ======= ====== ======= ====== =======
</TABLE>
7. PROPERTY, PLANT & EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4, JULY 4,
1996 1998 1998 1998
------------ ---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land................................ $ 4,672 $ 5,569 $ 5,569 $ 5,569
Buildings and leaseholds............ 33,336 43,148 47,333 40,899
Equipment and furniture............. 52,764 71,950 81,186 78,781
-------- -------- -------- --------
Total..................... 90,772 120,667 134,088 125,249
Less accumulated depreciation (50,653) (56,847) (72,094) (68,125)
-------- -------- -------- --------
Net................................. $ 40,119 $ 63,820 $ 61,994 $ 57,124
======== ======== ======== ========
</TABLE>
Depreciation expense was $6,851, $7,239 and $7,622 for the years ended
1995, 1996 and 1997, respectively. Depreciation expense for the three months
ended 1997 (unaudited) and 1998 was $1,822 and $3,876, respectively.
Depreciation expense for the three months ended June 28, 1997 and July 4, 1998
(both unaudited) was $1,870 and $3,537, respectively.
8. INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4, JULY 4,
1996 1998 1998 1998
------------ ---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Trademarks............................... $24,168 $ 24,264 $ 24,264 $ 24,264
Goodwill................................. 853 276,096 278,918 281,122
Non-compete agreements................... 46 76 76 76
------- -------- -------- --------
Total.......................... 25,067 300,436 303,258 305,462
Less accumulated amortization............ (7,235) (8,432) (10,933) (13,437)
------- -------- -------- --------
Net...................................... $17,832 $292,004 $292,325 $292,025
======= ======== ======== ========
</TABLE>
Amortization expense in 1995, 1996 and 1997 was $770, $792 and $1,078,
respectively. Amortization expense for the three months ended 1997 (unaudited)
and 1998 was $181 and $2,501, respectively. Amortization expense for the three
months ended June 28, 1997 and July 4, 1998 (both unaudited) was $183 and
$2,504, respectively.
9. 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-15
<PAGE> 133
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental commitments under non-cancelable operating leases for
facilities (including closed service centers), vehicles and equipment at April
4, 1998, are as follows:
<TABLE>
<S> <C>
Year:
1998...................................................... $ 46,349
1999...................................................... 38,092
2000...................................................... 26,423
2001...................................................... 14,147
2002...................................................... 6,879
Thereafter................................................ 7,328
--------
Total............................................. $139,218
========
</TABLE>
For 1995, 1996 and 1997, rent expense under all operating leases was
$24,028, $25,180 and $28,585, respectively. Rent expense for the three months
ended 1997 (unaudited) and 1998 was $6,674 and $14,164, respectively. Rent
expense for the three months ended June 28, 1997 and July 4, 1998 (both
unaudited) was $7,320 and $13,652, respectively.
10. LONG-TERM DEBT
At December 28, 1996, the Company had a credit facility consisting 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 letters of
credit, which provided up to a maximum of $30,000. The rate of interest on these
borrowings was based on the prime rate or Eurodollar rate, at the Company's
option. A commitment fee of 1/2% per annum was required on the unused portion
of the credit facility.
In connection with the Vistar Merger, a new credit facility was entered
into which consists of (a) a term loan facility in an aggregate principal amount
of $350,000 (the "Term Loan Facility"), consisting of three tranches in
principal amounts of $150,000 (the "Tranche A Term Loan"), $100,000 (the
"Tranche B Term Loan"), and $100,000 (the "Tranche C Term Loan"), respectively,
and (b) a revolving credit facility, including letters of credit, which provides
up to $100,000 (the "Revolving Credit Facility"). The Tranche A Term Loan and
the Revolving Credit Facility mature on September 30, 2003, the Tranche B Term
Loan and the Tranche C Term Loan mature on September 30, 2004 and September 30,
2005, respectively.
In addition, the new credit facility is subject to mandatory principal
prepayment and commitment reductions (to be applied to the Term Loan Facility)
in an amount equal to, subject to certain exceptions, (a) 100% of the net cash
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 (iii) 50%
of the Company's excess cash flow (as defined). Borrowings under the facility
are collateralized by substantially all assets of the Company. The rate of
interest on these borrowings is based on the prime rate, or LIBOR, at the
Company's option. At April 4, 1998, the interest rates in effect were 7.125%,
7.125%, 7.65% and 7.875% on the Revolver, Tranche A, Tranche B and Tranche C
Term Loans, respectively. At July 4, 1998 (unaudited), the interest rates in
effect were 7.531%, 7.125%, 7.625% and 7.875% on the Revolver, Tranche A,
Tranche B and Tranche C Term Loans, respectively.
The credit facility contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries 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,
F-16
<PAGE> 134
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company must comply with specified financial ratios and minimum tests,
including minimum interest coverage ratios and maximum leverage ratios.
The Company utilizes interest rate exchange agreements to manage the
exposure associated with interest rate fluctuations. During fiscal 1997 and the
three months ended April 4, 1998, the Company purchased interest rate swaps in
the notional amount of $150,000 to hedge the impact of changing interest rates
on its variable rate debt. Swap agreements totalling $100,000 mature March 31,
2000; the counterparty, however, has the option to extend maturity until March
31, 2002. Swap agreements totaling $50,000 mature December 31, 2000; the
conterparty, however, has the option to extend maturity until June 30, 2003. The
swap agreements provide for interest to be received on notional amounts at
variable rates and provides for interest to be paid on the same notional amounts
at fixed rates. The fixed interest rates do not change over the life of the swap
agreements. The variable interest rates are reset every three months and are
based on LIBOR. The credit risk associated with the interest rate swap
agreements revolve around the ability of the counterparty to perform its
obligation under the agreement. The Company does not anticipate nonperformance
by the counterparty. Terms of the swap agreements are as follows:
<TABLE>
<CAPTION>
JANUARY 3, APRIL 4, JULY 4,
1998 1998 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notional amount................................ $100,000 $150,000 $150,000
Fair value (unrealized losses)................. (1,568) (2,250) (2,103)
Average received rate (variable)............... 5.91% 5.69% 5.69%
Average pay rate (fixed)....................... 6.19% 6.19% 5.96%
Average life (years)........................... 2.25 2.00 2.00
</TABLE>
Net interest received or paid on these contracts is reflected in interest
expense. The difference between the interest paid and received on the interest
rate swap contracts resulted in $328 and $70 of additional interest expense in
1997 and the three months ended April 4, 1998, respectively, and $92 and $126 of
additional interest expense for the three months ended June 28, 1997 and July 4,
1998 (both unaudited), respectively.
In connection with the THL Transactions described in Note 2, on December
20, 1996, the Company issued $100,000 in 9 7/8% Senior Subordinated Notes (the
"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. During 1997, the
noteholders were paid $5,000 in exchange for their consent for the Company to
modify the terms of the Notes and to allow the Company to enter into the Vistar
Merger. This payment is being amortized over the remaining life of the Notes.
Costs of the consent solicitation of $1,258 were expensed in 1997.
The Company has various unsecured notes payable with interest rates ranging
from 6.4% to 8.5% and prime plus 1%.
F-17
<PAGE> 135
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of the Company's long-term debt are as follows:
<TABLE>
<CAPTION>
APRIL 4, 1998
---------------------------------------------------------
DUE DATE SENIOR
FOR FISCAL REVOLVING TERM SUBORDINATED NOTES OTHER
YEAR ENDING NOTES LOANS NOTES PAYABLE (NOTE 12) TOTAL
----------- --------- -------- ------------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1999.......................... $1,298 $4,643 $ 5,941
2000.......................... $ 16,500 210 2,585 19,295
2001.......................... 24,500 1,200 25,700
2002.......................... 34,500 1,200 35,700
2003.......................... 56,313 1,200 57,513
Thereafter.................... $41,250 218,187 $100,000 359,437
------- -------- -------- ------ ------ --------
Total................. $41,250 $350,000 $100,000 $5,108 $7,228 $503,586
======= ======== ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
JULY 4, 1998 (UNAUDITED)
---------------------------------------------------------
DUE DATE SENIOR
FOR FISCAL REVOLVING TERM SUBORDINATED NOTES OTHER
YEAR ENDING NOTES LOANS NOTES PAYABLE (NOTE 12) TOTAL
----------- --------- -------- ------------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1999.......................... $ 878 $3,512 $ 4,390
2000.......................... $ 16,500 210 2,585 19,295
2001.......................... 24,500 1,200 25,700
2002.......................... 34,500 1,200 35,700
2003.......................... 56,313 1,200 57,513
Thereafter.................... $47,420 218,187 $100,000 365,607
------- -------- -------- ------ ------ --------
Total................. $47,420 $350,000 $100,000 $4,688 $6,097 $508,205
======= ======== ======== ====== ====== ========
</TABLE>
The carrying amount of debt approximates its fair value.
The Company had letters of credit outstanding totaling $17,556 as of April
4, 1998 and $14,223 as of July 4, 1998 (unaudited).
11. CAPITAL STOCK
In conjunction with the Vistar Merger described in Note 4, the Company
effected a 1 for 3 reverse stock split of its Class A Common Stock and
reclassified these shares as Class A Voting Common Stock. The Class B Common
Stock was reclassified as Class B Non-Voting Common Stock, and a stock dividend
was paid, in which two shares of Class B Non-Voting Common Stock were issued for
each share of Class A Voting Common Stock. The Company paid $4,794 in accrued
dividends on the 8% Cumulative Preferred Stock and redeemed the preferred stock
for $58,250. A new series of preferred stock was issued and designated as
Non-Voting 8% Preferred Stock. Treasury shares were converted into Class A
Voting Common Stock and Class B Non-Voting Common Stock via the 1 for 3 reverse
stock split and the Class B Common Stock reclassification, respectively. The 2
for 1 stock dividend was not paid for shares held in treasury.
F-18
<PAGE> 136
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the number of shares outstanding and held in
treasury for each class of stock at respective dates. Share amounts for December
28, 1996, have not been restated for the reverse stock split or stock dividend.
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4, JULY 4,
1996 1998 1998 1998
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
(U
naudited)
8% Cumulative Preferred Stock.............. 582,498
8% Non-Voting Preferred Stock.............. 40,000 40,000 40,000
Class A Common Stock Issued................ 5,326,935
Class A Common Stock Held in Treasury...... 358,813
Class A Voting Common Stock................ 3,534,283 3,534,283 3,534,283
Class A Voting Common Stock Held in
Treasury................................. 119,938 119,938 119,938
Class B Common Stock Issued................ 50,000
Class B Common Stock Held in Treasury...... 50,000
Class B Non-Voting Common Stock............ 10,458,260 10,462,638 10,462,638
Class B Non-Voting Common Stock Held in
Treasury................................. 50,000 50,000 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.
In conjunction with the Vistar Merger, all options for Class A shares were
converted to options to purchase the same number of Class B shares. At April 4,
1998 and July 4, 1998 (unaudited), all options outstanding are to key associates
and are for Class B Non-Voting shares.
The following table summarizes the stock options outstanding:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 28, 1996 JANUARY 3, 1998 APRIL 4, 1998 JULY 4, 1998
----------------- ----------------- ------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- -------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
period............... 5,025 $241.78 45,532 $ 29.35 54,780 $24.90 17,190 $12.08 424,690 $18.72
Granted................ 42,133 3.00 15,328 3.00 175,000 13.40 407,500 19.00
Exercised.............. (6,080) 3.00 (203,611) 11.17
Forfeited.............. (1,626) 3.00 (8,979) 136.63
------ ------- ------ ------- -------- ------ ------- ------ ------- ------
Outstanding at end of
period................ 45,532 $ 29.35 54,780 $ 24.90 17,190 $12.08 424,690 $18.72 424,690 $18.72
====== ======= ====== ======= ======== ====== ======= ====== ======= ======
Exercisable at period
end................... 4,149 $292.00 11,209 $110.05 876 $ 3.00 1,314 $ 3.00 1,314 $ 3.00
====== ======= ====== ======= ======== ====== ======= ====== ======= ======
Weighted-average fair
value of options
granted during the
period using the
Black-Scholes pricing
model................. $1.56 $1.43 $ 3.64 $ 4.64
Assumptions used:
Expected dividend
yield............... 0% 0% 0% 0%
Expected volatility... 0% 0% 0% 0%
Risk-free interest
rate................ 7.5% 6.6% 6.2% 5.7%
Expected life of
option (in years)... 10.0 10.0 5.2 5.0
</TABLE>
F-19
<PAGE> 137
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows various information about stock options
outstanding at April 4, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
PRICES APRIL 4, 1998 LIFE PRICE APRIL 4, 1998 PRICE
-------- -------------- --------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 3.00 2,190 6.9 $ 3.00 1,314 $3.00
13.40 15,000 9.3 13.40
19.00 407,500 10.0 19.00
------- ---- ------ ----- -----
$ 3.00-$19.00 424,690 9.9 $18.72 1,314 $3.00
======= ==== ====== ===== =====
</TABLE>
There was no change in the number of options outstanding at July 4, 1998.
During 1997, the Company recorded $2,976 of expenses associated with the
acceleration of the vesting of 160,000 management stock options. The Company
accounts for employee stock options using the intrinsic value method allowed by
Accounting Principles Board Opinion No. 25. Had compensation costs been
determined based on the fair value method of Statement of Financial Accounting
Standard No. 123 for all plans, the Company's net earnings would have been
reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------- ----------------------------------------------------
MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1997 1997 1998 1997 1998
------ ------- ------ ----------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (in thousands):
As reported................. $6,326 $27,774 $3,588 (95) (4,316) $5,087 $3,449
Pro forma................... $6,317 $27,764 $3,577 (95) (4,319) $5,084 $3,375
</TABLE>
At April 4, 1998 there were 2,500 options available for grant.
12. COMMITMENTS AND CONTINGENCIES
For certain of its workers' 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. This transaction had no significant
impact on results of operations for 1996. 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 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 April 4,
1998, the outstanding principal balance of this premium financing was $7,228. As
of July 4, 1998 the outstanding principal balance (unaudited) was $6,097.
F-20
<PAGE> 138
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 25, 1998, a customer advised Safelite, following a review of
contract terms, that the customer was disputing certain billings made to it by
Vistar prior to the Vistar Merger. On September 22, 1998, this preacquisition
contingency was resolved without a material adverse impact on the Company's
financial statements.
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. 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 statements.
13. SAVINGS AND RETIREMENT PLANS
Safelite maintains a 401(k) savings plan, covering substantially all
associates, except the former employees of Vistar, 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 also
maintains a 401(k) savings plan covering substantially all the former associates
of Vistar, that provides basic matching contributions of up to 25% of the first
6% of each participant's compensation. Safelite contributions to its 401(k)
savings plans were $636, $762 and $998 for the years 1995, 1996 and 1997,
respectively. Contributions for the three months ended 1997 (unaudited) and 1998
were $386 and $491, respectively. Contributions for the three months ended June
28, 1997 and July 4, 1998 (both unaudited) were $298 and $323, respectively.
Safelite also has a defined benefit plan whose benefits were frozen and
fully vested to participants effective June 30, 1993. The funded status of the
Safelite defined benefit plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4,
1996 1998 1998
------------ ---------- --------
<S> <C> <C> <C>
Accumulated and projected benefit obligation (all
vested) for services provided to date............... $(14,964) $(17,192) $(18,548)
Less market value of plan assets...................... 14,319 16,932 18,738
-------- -------- --------
Plan assets in excess of (less than) projected benefit
obligation.......................................... (645) (260) 190
Unrecognized net loss resulting from past experience
different from that assumed......................... 1,227 1,284 895
Adjustment to recognize minimum pension liability..... (1,227) (1,284)
-------- -------- --------
Prepaid (accrued) pension cost........................ $ (645) $ (260) $ 1,085
======== ======== ========
Discount Rate......................................... 7.5% 7.0% 7.0%
</TABLE>
Plan assets at April 4, 1998 are invested in common and preferred stocks,
corporate and U.S. government bonds and money market funds. The expected
long-term rate of return on plan assets was 8.5% for all periods.
As part of the sale of Lear Siegler (Note 3), the Company retained the
liability for pension obligations of former Lear Siegler employees and related
pension assets. Plan benefits are based on various formulae, the principal
factors of which are years of service and compensation during the years
immediately preceding retirement. The Company's funding policy for these plans
is to make the minimum annual contributions required by applicable regulations.
No further accruals for service costs will be made.
F-21
<PAGE> 139
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Lear Siegler defined benefit plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4,
1996 1998 1998
------------ ---------- --------
<S> <C> <C> <C>
Accumulated and projected benefit obligation (all
vested) for services provided to date............... $(33,805) $(35,475) $(35,576)
Less market value of plan assets...................... 26,717 31,637 34,905
-------- -------- --------
Plan assets in excess of (less than) projected benefit
obligation.......................................... (7,088) (3,838) (671)
Unrecognized net loss................................. 10,133 13,020 9,814
Adjustment to recognize minimum pension liability..... (10,133) (13,020) (9,814)
-------- -------- --------
Accrued pension cost.................................. $ (7,088) $ (3,838) $ (671)
======== ======== ========
Discount Rate......................................... 7.5% 7.0% 7.0%
</TABLE>
Plan assets at April 4, 1998 consist primarily of a bond mutual fund, U.S.
government obligations and cash equivalents. The expected long-term rate of
return on plan assets was 8.75% in 1995 and 8.5% in 1996, 1997 and the three
months ended 1998.
Net periodic pension expense (income) for all of the Company's defined
benefit plans for the respective periods includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
----------------------------- ENDED APRIL 4,
1995 1996 1997 1998
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Service cost-benefit earned during the
period..................................... $ 15
Interest cost on the projected benefit
obligation................................. 3,219 $ 3,225 $ 3,560 $ 911
Actual return on plan assets................. (4,273) (2,736) (3,861) (5,771)
Net amortization and deferral................ 939 (494) 558 4,840
------- ------- ------- -------
Net periodic pension expense (income)........ $ (100) $ (5) $ 257 $ (20)
======= ======= ======= =======
</TABLE>
Net periodic pension expense for the three months ended March 29, 1997
(unaudited) was $64. Net periodic pension expense (income) for the three months
ended June 28, 1997 and July 4, 1998 (both unaudited) was $64 and $(17),
respectively.
At December 28, 1996, January 3, 1998 and April 4, 1998, the Company
recorded, as required by SFAS No. 87, an additional minimum pension liability of
$11,360, $14,304, and $9,814, respectively, related to certain unfunded pension
obligations. The corresponding cumulative charge to stockholders' equity
(deficit) for these amounts at December 28, 1996, January 3, 1998, April 4, 1998
and July 4, 1998 (unaudited), net of applicable taxes, was $6,816, $8,582,
$5,887 and $5,887, respectively.
14. 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-22
<PAGE> 140
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax provision (benefit) before extraordinary
items are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------- --------------------------------------------------
MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1997 1997 1998 1997 1998
---- -------- ------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Current...................... $157 $ 2,110 $ 45 $ (71)
Deferred..................... (19,715) (6,887) $59 (1,552) $3,512 $ 3,968
---- -------- ------- --- ------- ------ -------
Total........................ $157 $(17,605) $(6,842) $59 $(1,623) $3,512 $ 3,968
==== ======== ======= === ======= ====== =======
</TABLE>
The income tax provision (benefit) differs from the amounts determined by
applying the statutory income tax rate as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------- --------------------------------------------------
MARCH 29, APRIL 4, JUNE 28, JULY 4,
1995 1996 1997 1997 1998 1997 1998
------- -------- ------- ----------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income taxes at statutory
rate.................... $ 2,640 $ 6,706 $ (147) $(13) $(2,079) $ 3,010 $ 2,596
Reduction in valuation
allowance............... (2,000) (25,894) (2,996)
State income taxes........ 312 958 (21) (1) (197) 430 371
Lear Siegler net operating
losses.................. (5,674)
Other, principally
permanent differences... (795) 625 1,996 73 653 72 1,001
------- -------- ------- ---- ------- ------- -------
Provision (benefit) for
income taxes............ $ 157 $(17,605) $(6,842) $ 59 $(1,623) $ 3,512 $ 3,968
======= ======== ======= ==== ======= ======= =======
</TABLE>
Items comprising the Company's net deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, APRIL 4, JULY 4,
1996 1998 1998 1998
------------ ---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....... $ 32,035 $ 46,688 $ 45,825 $ 47,460
Differences between book and tax basis
of inventories...................... 2,530 3,993 3,770 3,957
Reserves not currently deductible...... 17,406 10,533 14,321 12,281
Restructuring reserves................. 9,862 12,549 9,013
Deductible intangibles................. 4,502 29 28
Pension................................ 4,547 5,722 3,925 3,941
Other.................................. 2,738 2,340
Difference between book and tax basis
of property, plant and equipment.... 4,373 4,144
Valuation Allowance.................... (36,182) (21,800) (21,800) (21,800)
-------- -------- -------- --------
Total.......................... 23,074 61,840 62,992 59,024
-------- -------- -------- --------
Deferred tax liabilities:
Difference between book and tax basis
of property, plant and equipment.... (1,322) (400)
-------- -------- -------- --------
Net deferred tax asset................... $ 21,752 $ 61,440 $ 62,992 $ 59,024
======== ======== ======== ========
</TABLE>
F-23
<PAGE> 141
SAFELITE GLASS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, net operating loss limitations and other factors which may
impact the Company's ability to realize the tax benefits.
As part of the sale of Lear Siegler, the Company obtained the right to use
approximately $16,210 of previously unrecognized federal net operating loss
carryforwards. In addition, deferred tax assets totaling $11,386 related to Lear
Siegler, which had been fully reserved, were assigned to Lear Siegler in the
sale transaction.
At April 4, 1998, the Company has net operating loss carryforwards for
federal income tax purposes totaling approximately $112,000 which expire through
2017.
15. EXTRAORDINARY ITEM
During 1997 the Company recorded an extraordinary loss of $2,835, net of
income tax benefit of $1,890, as a result of expensing unamortized loan
origination costs related to its 1996 credit facility and fees paid to the
lenders of its new credit facility. In 1996, the Company recorded an
extraordinary loss of $500, net of income tax benefit of $344, for the
unamortized loan origination fees related to the early repayment of another debt
obligation.
16. 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>
F-24
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Vistar, Inc.:
We have audited the accompanying consolidated balance sheets of VISTAR,
INC. (formerly Globe Glass & Mirror Co. and successor of Windshields America,
Inc.) (an Illinois corporation) AND SUBSIDIARIES as of March 31, 1996 and 1997,
and the related consolidated statements of earnings (loss), stockholders' equity
and cash flows for each of the three years in the period ended March 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vistar, Inc.
and Subsidiaries as of March 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
The financial statements of Vistar, Inc. and Subsidiaries as of December
19, 1997, and for the nine-month periods ended December 21, 1996, and December
19, 1997, were not audited by us and, accordingly, we do not express an opinion
on them.
Arthur Andersen LLP
Chicago, Illinois
April 7, 1997 (except with respect to
the matter described in Note 15,
as to which the date is September 22, 1998)
F-25
<PAGE> 143
VISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31
--------------------
1996 1997 DEC. 19, 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 13,438 $ 3,016 $ 4,942
Marketable securities................................ 700 750 --
Trade accounts receivable, less allowance for
doubtful accounts of $2,656, $3,733 and $14,002,
respectively...................................... 30,065 36,035 30,452
Inventories.......................................... 21,347 13,804 7,010
Income tax refunds receivable and prepayments........ 11,682 3,958 3,808
Prepaid expenses and other current assets............ 6,388 8,511 5,675
Current maturities of notes receivable............... 972 677 452
Deferred income taxes................................ 14,802 10,969 4,684
-------- -------- --------
Total current assets.............................. 99,394 77,720 57,023
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land................................................. 962 962 962
Buildings and building improvements.................. 1,023 1,023 1,481
Machinery and equipment.............................. 13,657 20,077 20,143
Leasehold improvements............................... 10,082 11,175 11,328
Furniture and fixtures............................... 2,993 3,356 3,540
-------- -------- --------
28,717 36,593 37,454
Less-Accumulated depreciation and amortization....... 8,653 15,801 19,576
-------- -------- --------
Property, plant and equipment, net................ 20,064 20,792 17,878
-------- -------- --------
OTHER ASSETS:
Notes receivable, excluding current maturities....... 800 800 125
Deferred income taxes................................ 11,739 11,722 16,787
Intangible assets.................................... 157,791 148,417 144,119
Other noncurrent assets.............................. 6,645 2,374 6,605
-------- -------- --------
Total other assets................................ 176,975 163,313 167,636
-------- -------- --------
$296,433 $261,825 $242,537
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................. $ 4,772 $ 2,906 $ 1,721
Trade accounts payable............................... 23,584 18,639 19,581
Other current liabilities............................ 34,436 35,125 26,108
-------- -------- --------
Total current liabilities......................... 62,792 56,670 47,410
-------- -------- --------
LONG-TERM DEBT, excluding current maturities........... 45,088 17,624 16,695
-------- -------- --------
PREFERENCE STOCK ($10 par value, 44,167 shares issued
and outstanding)..................................... 176,250 176,250 132,023
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 100,000 shares
authorized; 45,970 shares issued and outstanding
(excluding preference shares)..................... 460 460 460
Additional paid-in capital........................... 78,857 78,857 78,857
Accumulated deficit.................................. (67,014) (68,036) (32,908)
-------- -------- --------
Total stockholders' equity........................ 12,303 11,281 46,409
-------- -------- --------
$296,433 $261,825 $242,537
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-26
<PAGE> 144
VISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31 FOR THE NINE MONTHS ENDED
------------------------------ -----------------------------
1995 1996 1997 DEC. 21, 1996 DEC. 19, 1997
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES........................ $114,319 $172,821 $413,504 $318,762 $339,502
-------- -------- -------- -------- --------
COST OF SALES:
Materials...................... 41,896 67,219 186,263 140,076 164,289
Labor.......................... 17,604 27,104 75,242 56,970 71,151
Vehicle........................ 5,074 6,058 12,209 9,861 11,740
Occupancy...................... 6,371 9,229 16,165 10,759 13,439
Other.......................... 16,711 21,075 22,402 17,873 26,185
-------- -------- -------- -------- --------
87,656 130,685 312,281 235,539 286,804
-------- -------- -------- -------- --------
Gross profit................ 26,663 42,136 101,223 83,223 52,698
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 21,543 38,001 72,090 55,458 49,968
AMORTIZATION OF INTANGIBLE
ASSETS......................... 3,285 5,001 13,371 9,558 10,162
NONRECURRING CHARGES............. -- -- 6,939 5,323 793
RESTRUCTURING CHARGES............ -- 9,532 -- -- --
-------- -------- -------- -------- --------
Operating income (loss)........ 1,835 (10,398) 8,823 12,884 (8,225)
-------- -------- -------- -------- --------
INTEREST EXPENSE................. (49) (731) (2,046) (1,698) (1,206)
INTEREST INCOME.................. -- 98 437 327 600
-------- -------- -------- -------- --------
Income (loss) before income
taxes....................... 1,786 (11,031) 7,214 11,513 (8,831)
(PROVISION) BENEFIT FOR INCOME
TAXES.......................... (175) 1,807 (8,236) (8,416) (268)
-------- -------- -------- -------- --------
NET INCOME (LOSS)................ $ 1,611 $ (9,224) $ (1,022) $ 3,097 $ (9,099)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-27
<PAGE> 145
VISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1994...................... $ -- $42,229 $(59,401) $(17,172)
Conversion of amounts due to Belron into
capital................................. -- 20,000 -- 20,000
Net income................................. -- -- 1,611 1,611
---- ------- -------- --------
BALANCE, March 31, 1995...................... -- 62,229 (57,790) 4,439
Conversion of amounts due to Belron into
capital................................. -- 17,088 -- 17,088
Merger with Globe.......................... 460 (460) -- --
Net loss................................... -- -- (9,224) (9,224)
---- ------- -------- --------
BALANCE, March 31, 1996...................... 460 78,857 (67,014) 12,303
Net loss................................... -- -- (1,022) (1,022)
---- ------- -------- --------
BALANCE, March 31, 1997...................... 460 78,857 (68,036) 11,281
Preference stock dilution (unaudited)...... -- -- 44,227 44,227
Net loss (unaudited)....................... -- -- (9,099) (9,099)
---- ------- -------- --------
BALANCE, December 19, 1997 (unaudited)....... $460 $78,857 $(32,908) $ 46,409
==== ======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-28
<PAGE> 146
VISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31 FOR THE NINE MONTHS ENDED
----------------------------- -----------------------------
1995 1996 1997 DEC. 21, 1996 DEC. 19, 1997
------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 1,611 $ (9,224) $ (1,022) $ 3,097 $(9,099)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities --
Depreciation.................................... 2,160 3,183 6,198 4,009 5,260
Amortization.................................... 3,285 5,001 13,371 9,558 10,162
Deferred income tax (benefit) provision......... -- (1,992) 5,543 1,741 1,220
(Gain) loss on disposal of property, plant and
equipment..................................... (97) 508 74 (27) 6
Restructuring and other charges................. -- 9,532 -- -- --
Change in assets and liabilities, net of effects
of business acquisitions --
Trade accounts receivable..................... (105) (4,676) (5,468) (1,983) 5,603
Inventories................................... (2,669) (2,400) 7,910 3,886 6,851
Prepaid expenses and other current assets..... (832) (471) 6,931 13,168 3,215
Trade accounts payable........................ (1,355) 3,802 (4,945) 14,776 851
Other current liabilities..................... (2,268) (5,039) 3,938 10,625 (6,747)
Other......................................... (40) (4,387) 4,571 2,544 (3,557)
------- -------- -------- -------- -------
Net cash provided by (used in) operating
activities................................ (310) (6,163) 37,101 61,394 13,765
------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of marketable securities.......... -- (700) (50) -- 750
Cash paid for businesses, net of cash acquired.... (3,181) (10,728) (7,156) (7,153) (1,622)
Cash obtained in Merger........................... -- 15,014 -- -- --
Purchases of property, plant and equipment........ (3,248) (4,583) (8,042) (6,061) (3,553)
Proceeds from sale of property, plant and
equipment....................................... 150 447 -- 24 --
Collections on notes receivable................... -- 28 381 123 219
------- -------- -------- -------- -------
Net cash used in investing activities....... (6,279) (522) (14,867) (13,067) (4,206)
------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving line of credit............ -- 19,869 (25,869) (28,269) (7,633)
Payments on long-term debt........................ (114) (1,409) (4,462) -- --
Net increase (decrease) in payable to Belron...... 6,907 (381) (2,325) -- --
------- -------- -------- -------- -------
Net cash provided by (used in) financing
activities................................ 6,793 18,079 (32,656) (28,269) (7,633)
------- -------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 204 11,394 (10,422) 20,058 1,926
CASH AND CASH EQUIVALENTS, beginning of period...... 1,840 2,044 13,438 13,438 3,016
------- -------- -------- -------- -------
CASH AND CASH EQUIVALENTS, end of period............ $ 2,044 $ 13,438 $ 3,016 $ 33,496 $ 4,942
======= ======== ======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest........................................ $ 11 $ 613 $ 2,092 $ 237 $ 1,129
Income taxes.................................... 122 895 10,319 3,498 475
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-29
<PAGE> 147
VISTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND PRESENTATION
Windshields America, Inc., together with its subsidiaries ("Windshields"),
was a wholly owned subsidiary of Belron (USA) BV ("Belron") through February 29,
1996. On that date, Windshields merged with and into Globe Glass & Mirror Co.
("Globe") with Belron retaining a 51% ownership interest in the merged entity
(the "Merger"). The previous stockholders of Globe obtained a 49% ownership
interest in the merged entity. The common stock of Globe survived the Merger;
Windshields' common stock was canceled and retired. The Merger was accounted for
as a reverse acquisition in accordance with the purchase method of accounting
with Windshields as the deemed acquirer. Pursuant to such accounting, each of
the 50,000 shares of Windshields common stock ($.001 par value) outstanding as
of the Merger date were exchanged for approximately .9194 shares of newly issued
Globe common stock ($10 par value) resulting in Belron owning 51% of the merged
entity. The merged entity originally retained the name of Globe Glass & Mirror
Co. but later changed its name to Vistar, Inc. The accompanying consolidated
financial statements include the accounts of Windshields through the Merger date
and of the merged entity thereafter. All significant intercompany accounts and
transactions have been eliminated in consolidation. As used herein, the
"Company" refers to Windshields through February 29, 1996, and the merged entity
and its subsidiaries thereafter.
The Company's business consists primarily of the replacement and repair of
automotive glass throughout the United States. A significant portion of the
Company's sales are to customers in the insurance industry.
In the opinion of management, the financial statements as of December 19,
1997, and for the nine months ended December 21, 1996, and December 19, 1997,
include all adjustments, consisting only of normal recurring adjustments, which
are necessary to present fairly the financial position and results of operations
for the periods then ended. Operating results for any interim period are not
necessarily indicative of results that may be expected for the full year. All
interim numbers presented herein are unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term liquid investments. Outstanding
balances of the Company's controlled disbursement accounts are included in trade
accounts payable ($9,324, $7,155 and $8,051 at March 31, 1996, March 31, 1997,
and December 19, 1997, respectively). Restricted cash, held in escrow accounts
for insurance purposes and in support of certain indebtedness, amounted to
$5,717, $1,655 and $1,393 as of March 31, 1996, March 31, 1997, and December 19,
1997, respectively, and is classified as other noncurrent assets.
MARKETABLE SECURITIES
Marketable securities consisted of fixed income securities with original
maturities of less than one year and were carried at amortized cost, which
approximated fair market value, as the Company had the ability and intent to
hold them to maturity.
INVENTORIES
All inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value) and consist primarily of replacement glass. In
1997, the Company entered into an agreement to purchase a substantial portion of
its glass inventory from one supplier. The provisions of this agreement allow
the Company to maintain lower inventory levels.
F-30
<PAGE> 148
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost which, for such assets
acquired in a business combination, represents the estimated fair value of such
assets at their acquisition date. Major renewals and betterments which extend
the useful life of an asset are capitalized; routine maintenance and repairs are
expensed as incurred. Upon the sale or retirement of these assets, the related
gross cost and accumulated depreciation are removed from the accounts and any
related gain or loss is reflected in earnings.
Depreciation and amortization of property, plant and equipment are computed
using the straight-line method for financial reporting purposes based on the
following estimated useful lives:
<TABLE>
<CAPTION>
CLASSIFICATION PERIOD
-------------- ------
<S> <C>
Building and building improvements.................. 10 to 40 years
Machinery and equipment............................. 2 to 10 years
Leasehold improvements.............................. Over the life
of the lease
Furniture and fixtures.............................. 5 to 10 years
</TABLE>
INTANGIBLE ASSETS
The excess cost over the fair value of net assets acquired in the Merger is
being amortized on a straight-line basis over 20 years. Other such excess costs,
resulting from various acquisitions of smaller glass replacement and repair
businesses, are being amortized on a straight-line basis over five or ten years.
After an acquisition, the Company continually reviews whether subsequent events
and circumstances have occurred that indicate the remaining estimated useful
life of such excess costs may warrant revision or that the remaining balance may
not be recoverable. If events and circumstances indicate that excess costs
related to a particular business should be reviewed for possible impairment, the
Company uses projections to assess whether future operating income of the
business on a nondiscounted basis is likely to exceed the amortization of such
excess costs over its remaining life, to determine whether a write-down to
recoverable value is appropriate. Should an impairment be identified, a loss
would be reported to the extent that the carrying value exceeds the fair value
of that goodwill as determined by valuation techniques available in the
circumstances.
Other intangible assets (with a net recorded value of $3,917, $3,763 and
$4,957 as of March 31, 1996, March 31, 1997, and December 19, 1997,
respectively) include the costs of noncompete agreements with certain previous
owners of businesses acquired by Globe prior to the Merger, costs associated
with the acquisition of customer lists and costs incurred in obtaining trade
names. Such costs are being amortized on a straight-line basis over five years,
except for costs of noncompete agreements which are amortized over the term, not
to exceed seven years, of the agreements. Accumulated amortization of all
intangible assets as of March 31, 1996, March 31, 1997, and December 19, 1997,
amounted to $18,480, $31,851 and $42,013, respectively.
ADVERTISING COSTS
The Company's yellow pages advertising qualifies as direct response
advertising and therefore the Company capitalizes such advertising costs and
amortizes the expense over the period in which the benefits are expected (the
life of the publication), which is generally one year or less. Advertising costs
of $2,399, $2,287 and $2,572 were reported as prepaid expenses as of March 31,
1996, March 31, 1997, and December 19, 1997, respectively. Total advertising
expense was $2,007, $2,894, $5,156, $3,548 and $4,873 in fiscal 1995, fiscal
1996, fiscal 1997 and the nine months ended December 21, 1996, and December 19,
1997, respectively.
F-31
<PAGE> 149
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION
Revenue is recognized when the replacement or repair service is performed.
NEW ACCOUNTING PRONOUNCEMENTS
In July, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), and Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. SFAS
No. 131 introduces a new model for segment reporting, called the "management
approach." The management approach is based on the way that the chief operating
decision maker organizes segments within a company for making operating
decisions and assessing performance. Management is currently evaluating the
provisions of this statement to determine its impact upon current reporting.
Both SFAS No. 130 and SFAS No. 131 will be adopted by the Company by fiscal year
1999.
In April, 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Cost of Start-up
Activity" ("SOP 98-5"). SOP 98-5 establishes the standard on the financial
reporting of start-costs and organization cost. SOP 98-5 requires costs of
start-up activities and organization cost to be expensed as incurred. Management
is currently evaluating the provisions of this statement to determine its impact
upon current reporting. SOP 98-5 will be adopted by the Company by fiscal year
1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In addition,
certain prior-year amounts have been reclassified to conform with current-year
presentation.
3. ACQUISITIONS
Based on independent appraisals of Globe, the purchase price paid in the
Merger by Windshields was determined to be $176,250. In connection with the
Merger, the Company and its stockholders entered into various agreements which
stipulate a dividend policy and certain stockholder rights, including put and
call provisions on the shares retained by the Globe shareholders. Such put
options provide that the Globe shareholders, solely at their option, could put
their entire common stock holdings to the Company, or in certain circumstances,
to Belron for the greater of the Company's Market Value, as defined, and a
preestablished minimum after the one year anniversary of the Merger.
Accordingly, such shares have been classified as Preference Stock outside of
stockholders' equity. Any changes in the minimum value of the putable shares are
reflected as an adjustment to Preference Stock on the Company's balance sheet
with an offsetting adjustment in Accumulated Deficit. Market value, as of March
31, 1997, based on a determination by the shareholders, had not changed since
the Merger. However, based on the Market Value of the Company implied in the
December 19, 1997, merger of the
F-32
<PAGE> 150
Company with and into Safelite Glass Corp. ("Safelite"), as described in Note
14, the value of the putable shares was reduced by $44,227 as of December 19,
1997.
The Merger purchase price was allocated to Globe's net assets as follows:
<TABLE>
<S> <C>
Cash.................................................... $ 15,014
Trade accounts receivable............................... 14,865
Inventories............................................. 8,627
Income tax refunds receivable........................... 11,682
Other current assets.................................... 7,955
Property, plant and equipment........................... 10,982
Intangible assets....................................... 137,217
Other assets............................................ 23,931
Trade accounts payable.................................. (12,865)
Other current liabilities............................... (22,158)
Long-term debt.......................................... (19,000)
=========
</TABLE>
Included in the above allocation are $22,403 of deferred tax assets related
to Windshields which had been fully reserved before the Merger and are further
described in Note 8. Additionally, as a condition of the Merger, Belron
converted $17,088 of advances loaned to the Company into permanent capital
during fiscal 1996. Advances due to Belron are non-interest bearing.
Also, during fiscal 1995, fiscal 1996 and fiscal 1997, the Company acquired
the net assets and businesses of several companies in purchase transactions for
aggregate purchase prices of approximately $5,056, $20,461 and $8,492,
respectively. During the nine months ended December 21, 1996, and December 19,
1997, the Company acquired the net assets and businesses of several companies in
purchase transactions for aggregate purchase prices of approximately $8,492 and
$2,298, respectively. These acquisitions were not material to the Company.
All of the above acquisitions were accounted for as purchases and,
accordingly, the purchase price was allocated to the related assets acquired and
liabilities assumed based upon their estimated fair values at the date of
acquisition. Certain allocations have been, or may be, adjusted based on more
current available information. Future adjustments, if any, will be made prior to
the one year anniversary of the related acquisition and are not expected to be
material. Operating results of acquired businesses have been included in the
consolidated financial statements from the date of acquisition.
The following table summarizes the composition of the acquisitions
described above and consideration paid therefore:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 NINE MONTHS ENDED
---------------------------- ------------------------------
1995 1996 1997 DEC. 21, 1996 DEC. 19, 1997
------ -------- ------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Merger value.................... $ -- $176,250 $ -- $ -- $ --
Cash paid or withheld pending
collection of acquired
accounts receivable........... 2,886 11,292 7,491 7,491 1,823
Notes issued to sellers......... 2,170 9,169 1,001 1,001 475
------ -------- ------ ------ ------
Total consideration........... 5,056 196,711 8,492 8,492 2,298
Assets acquired................. 4,182 252,361 9,204 9,204 2,389
------ -------- ------ ------ ------
Liabilities assumed............. $ 874 $ 55,650 $ 712 $ 712 $ 91
====== ======== ====== ====== ======
</TABLE>
F-33
<PAGE> 151
4. RESTRUCTURING AND NONRECURRING CHARGES
In conjunction with the Merger, the Company recorded a restructuring charge
of $9,532 and an additional $3,966 reserve in purchase accounting primarily for
the closure of duplicative Windshields and Globe stores, warehouses and offices
and for the estimated costs related to the concurrent decisions to change the
Company's name (ultimately to Vistar, Inc.) and to change from a procurement
practice of warehousing inventory to a vendor-managed inventory program.
Estimated closure costs included (a) $2,371 for the severance of approximately
220 store, warehouse and corporate office employees, (b) $3,010 for future
noncancelable rental payments for facilities subsequent to the date of their
respective closure, (c) $1,199 for the write-off of abandoned assets and (d)
$3,570 for various other related costs necessary for or resulting from the
closure of the facilities, such as legal and brokerage fees to terminate and/or
sublet leases and building restoration costs.
Costs to tear down facility signs with the Windshields and Globe names
($500) and the estimated undepreciated carrying value of such signs ($645) were
also reserved. Based on the larger size of the merged company, management
elected to discontinue the warehousing of inventory prior to its shipment to
Company-owned stores. A program was established whereby certain vendors were
awarded a substantial portion of the Company's procurement requirements in
exchange for delivery directly to the stores. These vendors would acquire the
inventory at the Company's warehouses as the first step in implementing this
program. A $1,135 reserve was established for the estimated difference between
the aggregate carrying value and the bulk (versus retail) price that these
vendors would pay for this inventory. Additionally, the carrying value ($1,068)
of certain computer software systems under development by Windshields at the
time of the Merger was reserved as management elected to convert the Windshields
operations onto the Globe systems.
Total noncash charges, representing asset write-offs, were $4,047. By
December 19, 1997, all affected facilities were closed and all affected
employees were terminated. Actual severance, rental payments and other costs
were not materially different than those estimated when the reserves were
established.
In addition to the costs described above, the Company incurred $6,939,
$5,323 and $793 of nonrecurring costs in fiscal 1997 and the nine-month periods
ended December 21, 1996, and December 19, 1997, respectively, related to the
integration of the Windshields and Globe businesses, the identification of the
new name and the implementation of the vendor-managed inventory program. Such
costs included various consulting fees, temporary services fees, moving,
relocation and other costs. No such future nonrecurring costs are anticipated.
5. NOTES RECEIVABLE
A summary of notes receivable is as follows:
<TABLE>
<CAPTION>
MARCH 31
----------------
1996 1997 DEC. 19, 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Note receivable related to sale of a Globe
subsidiary, due on demand, plus interest at 10%
to 14.4%......................................... $ 833 $ 563 $455
Notes receivable from officers and employees with
interest at various amounts...................... 14 33 --
Other notes receivable, primarily with interest at
5% to 10%........................................ 925 881 122
------ ------ ----
Total notes receivable........................... 1,772 1,477 577
Less -- Current maturities......................... 972 677 452
------ ------ ----
Due by 1999...................................... $ 800 $ 800 $125
====== ====== ====
</TABLE>
F-34
<PAGE> 152
The carrying value of these notes receivable approximate their estimated
fair market value based on their interest rates and near-term maturities.
6. OTHER CURRENT LIABILITIES
A summary of other current liabilities is as follows:
<TABLE>
<CAPTION>
MARCH 31
------------------
1996 1997 DEC. 19, 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and wages............................... $ 8,483 $ 4,711 $ 4,266
Vacation......................................... 3,501 964 50
Restructuring.................................... 13,100 5,695 1,075
Customer rebates................................. 3,350 9,796 5,275
Other............................................ 6,002 13,959 15,442
------- ------- -------
Total other current liabilities................ $34,436 $35,125 $26,108
======= ======= =======
</TABLE>
7. FINANCING ARRANGEMENTS
On March 31, 1996, the Company had two lines of credit, a temporary
unsecured demand loan providing for borrowings of $50,000 and a $10,000 credit
line secured by receivables and inventory that had been superseded and limited
to zero borrowings by the demand loan but not canceled. Outstanding borrowings
on the demand loan bore interest of LIBOR plus 0.5% or, at the Company's
discretion, the bank's prime rate (averaging 8.25% at March 31, 1996). The
demand loan had no significant covenants. Aggregate borrowings on the demand
loan as of March 31, 1996, were $38,869.
Subsequent to March 31, 1996, the $10,000 credit line was canceled. On May
9, 1996, the demand loan was replaced by a credit facility allowing aggregate
borrowings of $50,000 until March 31, 1998, after which maximum borrowings were
required to be reduced by $5,000 each April 1 down to $35,000 and paid in full
by May 9, 2001. Pursuant to this refinancing, the outstanding borrowings on the
demand note as of March 31, 1996, were classified as long term. Borrowings on
the credit facility bore interest at LIBOR plus applicable margin or, at the
Company's discretion, the bank's prime rate (averaging 6.4% at December 18,
1997). The covenants under the agreement required the Company to maintain, among
other things, minimum profitability, liquidity and net worth levels. Aggregate
borrowings under this credit line were $13,000 as of March 31, 1997. In
connection with the December 19, 1997, merger of the Company with and into
Safelite, as described in Note 14, the Company's borrowings under this line of
credit were paid off by Safelite on December 18, 1997. The amount paid on behalf
of the Company, including accrued interest, was $11,597.
The Company also has various unsecured notes payable related to
acquisitions, with interest rates ranging from 6.4% to 8.33%, and prime plus
1.0% which totaled $10,991 (current maturity $4,772), $7,530 (current maturity
$2,906) and $6,216 (current maturity $1,371) as of March 31, 1996, March 31,
1997, and December 19, 1997, respectively. Principal payments on this debt are
due in various increments through September, 2003. As of December 19, 1997, the
Company was in compliance with all the covenants governing its indebtedness.
Based upon borrowing rates currently available to the Company for
borrowings with similar terms and maturities, the fair value of the Company's
debt was approximately equal to its carrying value as of March 31, 1996, March
31, 1997, and December 19, 1997.
F-35
<PAGE> 153
The aggregate maturities of long-term debt as of March 31, 1997, are as
follows:
<TABLE>
<S> <C>
Year ending March 31 --
1998.................................................. $ 2,906
1999.................................................. 1,010
2000.................................................. --
2001.................................................. 1,200
2002.................................................. 14,200
Thereafter............................................ 1,214
-------
$20,530
=======
</TABLE>
The Company had letters of credit outstanding totaling $10,312, $8,621 and
$0 as of March 31, 1996, March 31, 1997, and December 19, 1997, respectively.
These letters of credit were issued primarily to guarantee various promissory
notes and insurance activities.
8. INCOME TAXES
Components of the (provision) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 NINE MONTHS ENDED
-------------------------- ------------------------------
1995 1996 1997 DEC. 21, 1996 DEC. 19, 1997
----- ------ ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable --
Federal......................... $(132) $ (168) $(1,870) $(5,465) $ --
State........................... (43) (17) (823) (1,210) 952
Deferred.......................... -- 1,992 (5,543) (1,741) (1,220)
----- ------ ------- ------- -------
$(175) $1,807 $(8,236) $(8,416) $ (268)
===== ====== ======= ======= =======
</TABLE>
The principal items comprising the difference between income taxes on the
income (loss) before income taxes computed at the federal statutory rate and the
actual (provision) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 NINE MONTHS ENDED
---------------------------- ------------------------------
1995 1996 1997 DEC. 21, 1996 DEC. 19, 1997
------ ------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax benefit (expense) computed
at the statutory rate......... $ (607) $ 3,751 $(2,453) $(3,914) $ 3,003
Nondeductible amortization of
excess costs.................. (779) (530) (2,503) (1,890) (1,858)
State income taxes, net of
federal benefit............... (45) 416 (964) (875) (37)
Change in valuation allowance... 1,316 (1,298) -- -- --
Other........................... (60) (532) (2,316) (1,737) (1,376)
------ ------- ------- ------- -------
$ (175) $ 1,807 $(8,236) $(8,416) $ (268)
====== ======= ======= ======= =======
</TABLE>
F-36
<PAGE> 154
The tax effects of temporary differences that give rise to significant
portions of deferred income tax benefits (obligations) are as follows:
<TABLE>
<CAPTION>
MARCH 31
------------------
1996 1997 DEC. 19, 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for doubtful accounts.......................... $ 1,154 $ 1,027 $ 5,500
Inventory bases differences.............................. 1,863 848 540
Property, plant and equipment bases differences.......... 552 948 (191)
Intangible assets bases differences...................... 2,034 3,548 4,502
Accrued vacation......................................... 1,322 64 20
Accrued rent............................................. 742 944 572
Accrued insurance........................................ 1,064 940 2,460
Restructuring reserve.................................... 5,568 2,278 430
Alternative minimum tax credit carryforwards............. 247 274 483
Net operating loss carryforwards......................... 14,417 10,353 10,244
Valuation allowances..................................... (1,693) -- --
Other, net............................................... (729) 1,467 (3,089)
------- ------- -------
Total net deferred income tax benefits......... $26,541 $22,691 $21,471
======= ======= =======
</TABLE>
In the accompanying consolidated balance sheet, these net deferred income
tax benefits are classified as current or noncurrent based on the classification
of the related asset or liability for financial reporting. A deferred income tax
obligation or benefit that is not related to an asset or liability for financial
reporting, including deferred income tax assets related to carryforwards, are
classified according to the expected reversal date of the temporary difference.
As of the date of the Merger, Windshields had net deferred income tax
assets of $22,403, primarily due to net operating loss carryforwards. All such
assets were fully offset by a valuation allowance. Based on Windshields'
historical operating results, management concluded that realization of any
benefit from these income tax assets was not reasonably assured. However, due to
the merger with Globe and based on its historical operating results and the
Company's forecast of future operating results, management has concluded that
the Company will likely realize the benefit of these deferred income tax assets.
Accordingly, the valuation allowance of $22,403 was eliminated and, pursuant to
purchase accounting, the resulting net deferred income tax assets were
considered as additional assets acquired in the Merger.
In addition to these carryforwards, the Company has recorded net operating
loss carryforwards attributable to Globe which relate to taxable losses in the
period just prior to the Merger. These taxable losses also created $11,682 of
federal and state income tax refunds from net operating loss carrybacks which
were recorded as receivables by the Company as of March 31, 1996, and
substantially collected in fiscal 1997. The net operating losses which could not
be carried back are subject to various state limitations and accordingly, the
Company had established a valuation allowance against such carryforwards.
However, during fiscal 1997, it was determined that such limitations would not
impair the realizability of these carryforwards and accordingly, the related
valuation allowance was reversed.
The remaining net federal operating losses of the Company as of December
19, 1997, aggregate to $25,780 and expire, if unutilized, in various increments
from 2004 to 2007. Utilization of such carryforwards in any particular year may
be limited under current income tax regulations regarding changes in ownership.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible subject to the limitations
noted above. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax
F-37
<PAGE> 155
planning strategies in making this assessment. In order to fully realize the
benefit of its deferred tax assets, the Company will need to generate
substantial future taxable income. Taxable income for the fiscal years ended
March 31, 1996 and 1997, was $7,873 and $11,461, respectively (before the effect
of net operating loss carryforwards). Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these unreserved deductible
differences.
9. PROFIT-SHARING/401(K) PLAN
Through December 31, 1996, the Company had two defined contribution 401(k)
profit-sharing plans covering substantially all Windshield employees who had
completed 90 days of service and all Globe nonunion employees. Employees were
allowed to make contributions to the 401(k) plans up to certain specified
limits. The Company matched the employee contributions at specified rates up to
certain percentages of the employee's compensation. These plans were merged into
a single plan, with similar provisions, effective January 1, 1997. The Company
contributed approximately $254, $255, $596, $418 and $468 to these 401(k) plans
during fiscal 1995, fiscal 1996, fiscal 1997 and the nine months ended December
21, 1996, and December 19, 1997, respectively.
10. OTHER RELATED-PARTY TRANSACTIONS
Prior to the Merger, Belron's parent charged the Company a fee equal to
0.5% of net sales for management services. Such charges amounted to $574 and
$744 during the years ended March 31, 1995 and 1996. Concurrent with the Merger,
the management fee for such services was changed to $1,000 annually, plus
expenses incurred by Belron's parent in providing such services. Under this
arrangement, $80 was charged to the Company during the month ended March 31,
1996, $1,000 was charged during the year ended March 31, 1997 ($750 through
December 21, 1996), and $780 for the nine months ended December 19, 1997. The
arrangement was scheduled to be terminated on the fifth anniversary of the
Merger unless otherwise extended by agreement of the stockholders.
The amount due to Belron at March 31, 1996, was $2,574 (included in other
current liabilities). Such amounts were not material at March 31, 1997, or
December 19, 1997. In addition, since the Merger, the Company had a receivable
in the amount of $3,050 from a significant shareholder of the Company. This
receivable is due in accordance with the terms of the original Merger agreement.
Interest accrued and unpaid on this receivable amounted to $400 as of December
19, 1997.
11. LEASE COMMITMENTS
The Company leases certain of its operating facilities, offices and
equipment under long-term operating leases. Certain leases require the payment
of property taxes, insurance and maintenance and contain certain escalation
provisions and renewal options. The Company also leases vehicles under master
leases which typically contain three-year lease terms and expects to renew or
replace vehicle leases as they mature. At March 31, 1997, the Company's
commitments under leases with noncancelable terms of more than one year are as
follows:
<TABLE>
<S> <C>
Year ending March 31 --
1998...................................................... $13,405
1999...................................................... 10,583
2000...................................................... 7,925
2001...................................................... 5,187
2002...................................................... 2,967
Thereafter................................................ 4,134
-------
$44,201
=======
</TABLE>
F-38
<PAGE> 156
Total rent expense was approximately $8,436, $9,519 and $15,864 for the
years ended March 31, 1995, 1996 and 1997, respectively, and $10,084 and $10,783
for the nine months ended December 21, 1996, and December 19, 1997,
respectively.
12. SIGNIFICANT CUSTOMER
Revenues from a significant customer of the Company were approximately
$9,000 and $124,000 for the years ended March 31, 1996 and 1997, respectively,
and $111,000 and $117,000 for the nine months ended December 21, 1996, and
December 19, 1997, respectively. Trade accounts receivable related to this
significant customer were $6,580, $7,788 and $6,615 as of March 31, 1996, March
31, 1997, and December 19, 1997, respectively. As this customer was a
significant customer of Globe, the revenue amount listed above for fiscal 1996
primarily reflects one month's activity. Approximately 47% in fiscal 1995, 69%
in fiscal 1996, 70% in fiscal 1997 (61% through December 21, 1996) and 67% for
the nine months ended December 19, 1997, of total sales were derived from
customers in the insurance industry. The Company's exposure to credit risk is
mitigated by the financial strength of its insurance company customers and the
number of such customers.
13. CONTINGENCIES
The Company is involved in various legal actions arising in the ordinary
course of business. The liabilities, if any, associated with these matters are
not determinable as of December 19, 1997. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
14. SUBSEQUENT EVENT (UNAUDITED)
Effective December 19, 1997, the Company consummated a merger with Safelite
in a transaction which was accounted for under the purchase method of accounting
as an acquisition of the Company by Safelite. Stockholders of the Company
received cash, common and preferred shares of Safelite (aggregating to
approximately $269,434) in exchange for 100% of the outstanding common and
preference shares of the Company. Certain provisions related to the preference
shares were amended to facilitate the merger, and such shares are no longer
putable to or callable by the combined company. The Company had incurred $1,899
of transaction costs as of December 19, 1997. As Safelite will reimburse the
Company for such costs, the Company recorded this amount as an intangible asset.
15. SUBSEQUENT EVENT
On September 22, 1998, Safelite resolved a dispute with a customer
regarding certain billings made to the customer by the Company prior to the
Vistar Merger. On June 25, 1998, following a review of contract terms, the
customer had advised Safelite of its dispute and had provided Safelite with a
preliminary estimate of the disputed amount. The ultimate resolution included a
refund from Safelite to the customer of $4.6 million. This refund is not
reflected in the accompanying financial statements.
F-39
<PAGE> 157
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS 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 AN 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 PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY 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.................................... 16
The Exchange Offer.............................. 24
Transactions.................................... 31
Unaudited Pro Forma Financial Data.............. 36
Selected Consolidated Financial Data............ 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 42
Business........................................ 51
Management...................................... 63
Security Ownership of Certain Beneficial Owners
and Management................................ 71
Certain Relationships and Related
Transactions.................................. 74
Description of Capital Stock.................... 76
Description of Other Indebtedness............... 80
Description of Exchange Notes................... 82
Book-Entry; Delivery and Form................... 110
Description of the Initial Notes................ 111
Exchange and Registration Rights Agreement...... 112
Income Tax Considerations....................... 114
Plan of Distribution............................ 116
Legal Matters................................... 116
Independent Auditors............................ 116
Index to Financial Statements................... F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
$100,000,000
SAFELITE(R) GLASSCORP.
9 7/8% SERIES B
SENIOR SUBORDINATED
NOTES DUE 2006
--------------------
PROSPECTUS
--------------------
, 1998
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 158
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 corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
II-1
<PAGE> 159
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 Amended and Restated 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> 160
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 Amended and Restated By-Laws of the Company.
4.1 Indenture dated as of December 20, 1996 among the Company,
SGC Franchising Corp. and Fleet National Bank, as Trustee.
4.2 First Supplemental Indenture dated as of December 12, 1997
between the Company and State Street Bank and Trust Company,
as Trustee.
4.3 Second Supplemental Indenture dated as of December 18, 1997
among the Company, U.S.A. Glas, Inc., U.S. Auto Centers,
Inc., CarComp Services, Inc. and State Street Bank and Trust
Company.
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, amended and restated through December 17,
1997, 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 Safelite Glass Corp. 1996 Stock Option Plan.
10.7 Safelite Glass Corp. 1998 Stock Option Plan
10.8 Amended and Restated Management Agreement, dated as of
December 18, 1997, by and between the Company and Thomas H.
Lee Company.
10.9 Amended and Restated Management Agreement, dated as of
December 18, 1997, by and between the Company and Belron
International BV.
10.10 Amended and Restated Shareholders Agreement, dated as of
December 18, 1997, among the Company and the stockholders
named therein.
10.11 Pledge Agreement, dated as of December 17, 1997, made by the
Company in favor of The Chase Manhattan Bank, as Collateral
Agent.
10.12 Amendment No. 1 to the Amended and Restated Shareholders'
Agreement, dated as of March 26, 1998.
10.13 Amendment to the Safelite Glass Corp. 1998 Stock Option
Plan.
10.14 Registration Agreement, dated as of December 18, 1997, among
the Company and the stockholders named therein.
10.15 Security Agreement, as amended and restated through December
17, 1997, among the Company and The Chase Manhattan Bank, as
Collateral Agent.
</TABLE>
II-3
<PAGE> 161
<TABLE>
<C> <S>
10.16 Subsidiary Guaranty, as amended and restated through
December 17, 1997, made by each of the Company's
subsidiaries name therein, 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 Arthur Andersen LLP.
23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1).
24.1 Powers of Attorney (contained on the signature page hereto).
24.2* Powers of Attorney.
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
State Street Bank and Trust Company.
</TABLE>
- ---------------
* Filed herewith.
(b) Financial Statement Schedules.
Schedules 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
II-4
<PAGE> 162
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 required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. 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 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.
II-5
<PAGE> 163
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 2ND DAY OF OCTOBER, 1998.
SAFELITE GLASS CORP.
By: /s/ JOHN F. BARLOW
------------------------------------
John F. Barlow
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/ JOHN F. BARLOW Director, President and Chief October 2, 1998
- --------------------------------------------------- Executive Officer (principal
John F. Barlow executive officer)
* Director and Chairman of the October 2, 1998
- --------------------------------------------------- Board
Garen K. Staglin
/s/ DOUGLAS A. HERRON Senior Vice President, Treasurer October 2, 1998
- --------------------------------------------------- and Chief Financial Officer
Douglas A. Herron (principal financial and
accounting officer)
* Director October 2, 1998
- ---------------------------------------------------
Anthony J. DiNovi
* Director October 2, 1998
- ---------------------------------------------------
Selwyn Herson
* Director October 2, 1998
- ---------------------------------------------------
Adrian F. Jones
* Director October 2, 1998
- ---------------------------------------------------
Seth W. Lawry
* Director October 2, 1998
- ---------------------------------------------------
Thomas H. Lee
</TABLE>
II-6
<PAGE> 164
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director October 2, 1998
- ---------------------------------------------------
Gary Lubner
* Director October 2, 1998
- ---------------------------------------------------
Ronnie Lubner
* Director October 2, 1998
- ---------------------------------------------------
John E. Mason
* Director October 2, 1998
- ---------------------------------------------------
M. Louis Shakinovsky
* Director October 2, 1998
- ---------------------------------------------------
Scott M. Sperling
* Director October 2, 1998
- ---------------------------------------------------
Rodney Stansfield
</TABLE>
By: /s/ JOHN F. BARLOW
-------------------------------
John F. Barlow
as Attorney-in-Fact
II-7
<PAGE> 165
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, as
amended.
3.2 Amended and Restated By-Laws of the Company.
4.1 Indenture dated as of December 20, 1996 among the Company,
SGC Franchising Corp. and Fleet National Bank, as Trustee.
4.2 First Supplemental Indenture dated as of December 12, 1997
between the Company and State Street Bank and Trust Company,
as Trustee.
4.3 Second Supplemental Indenture dated as of December 18, 1997
among the Company, U.S.A. Glas, Inc., U.S. Auto Centers,
Inc., CarComp Services, Inc. and State Street Bank and Trust
Company.
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, amended and restated through December 17,
1997, 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 Safelite Glass Corp. 1996 Stock Option Plan.
10.7 Safelite Glass Corp. 1998 Stock Option Plan
10.8 Amended and Restated Management Agreement, dated as of
December 18, 1997, by and between the Company and Thomas H.
Lee Company.
10.9 Amended and Restated Management Agreement, dated as of
December 18, 1997, by and between the Company and Belron
International BV.
10.10 Amended and Restated Shareholders Agreement, dated as of
December 18, 1997, among the Company and the stockholders
named therein.
10.11 Pledge Agreement, dated as of December 17, 1997, made by the
Company in favor of The Chase Manhattan Bank, as Collateral
Agent.
10.12 Amendment No. 1 to the Amended and Restated Shareholders'
Agreement, dated as of March 26, 1998.
10.13 Amendment to the Safelite Glass Corp. 1998 Stock Option
Plan.
10.14 Registration Agreement, dated as of December 18, 1997, among
the Company and the stockholders named therein.
10.15 Security Agreement, as amended and restated through December
17, 1997, among the Company and The Chase Manhattan Bank, as
Collateral Agent.
10.16 Subsidiary Guaranty, as amended and restated through
December 17, 1997, made by each of the Company's
subsidiaries name therein, in favor of The Chase Manhattan
Bank, as Collateral Agent.
12.1* Computation of the Ratio of Earnings to Fixed Charges for
the Company.
</TABLE>
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<C> <S>
21.1* List of subsidiaries of the Company.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Arthur Andersen LLP.
23.3 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1).
24.1 Powers of Attorney (contained on the signature page hereto).
24.2* Powers of Attorney.
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
State Street Bank and Trust Company.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
Exhibit 8
October 2, 1998
Safelite Glass Corp.
1105 Schrock Road
Columbus, OH 43229
Re: Safelite Glass Corp. Exchange of Initial Notes for Exchange Notes
-----------------------------------------------------------------
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, as amended, in the form filed as an Exhibit to
the Registration Statement. All capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in 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,
and subject to the assumptions and qualifications set forth in the Registration
Statement under the heading "Income Tax Considerations," we are of the opinion
that:
1. 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.
2. 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.
<PAGE> 2
Safelite Glass Corp.
October 2, 1998
Page 2
3. 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 paragraph 5 below.
4. 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.
5. 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 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.
6. The summary 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
<PAGE> 3
Safelite Glass Corp.
October 2, 1998
Page 3
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 12.1
SAFELITE GLASS CORP.
RATIO OF EARNINGS
TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
FISCAL YEAR (1) Three Months Three Months
Pro Forma Ended Ended
1993 1994 1995 1996 1997 1997 April 4, 1998 July 4, 1998
------ ------ ----- ----- ------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS & LOSSES:
PRE-TAX INCOME (LOSS) FROM
CONTINUING OPERATIONS ($21.6) ($2.9) $ 7.5 $19.2 $(0.4) $(46.1) $(5.9) $ 7.4
INTEREST EXPENSE 15.5 4.5 6.0 6.7 27.5 44.5 10.9 11.2
PORTION OF RENTAL EXPENSE
REPRESENTATIVE OF AN INTEREST
FACTOR 11.0 11.5 12.0 12.5 14.3 25.2 7.1 6.8
------ ----- ----- ----- ----- ------ ----- -----
TOTAL EARNINGS (LOSSES) $ 4.9 $13.1 $25.5 $38.4 $41.4 $ 23.6 $12.1 $25.4
FIXED CHARGES:
INTEREST EXPENSE $ 15.5 $ 4.5 $ 6.0 $6.7 $27.5 $ 44.5 $10.9 $11.2
PORTION OF RENTAL EXPENSE
REPRESENTATIVE OF AN INTEREST
FACTOR 11.0 11.5 12.0 12.5 14.3 25.2 7.1 6.8
------ ----- ----- ----- ----- ------ ----- -----
TOTAL FIXED CHARGES $ 26.5 $16.0 $18.0 $19.2 $41.8 $ 69.7 $18.0 $18.0
RATIO OF EARNINGS TO FIXED CHARGES -- -- 1.4x 2.0x -- -- -- 1.4x
</TABLE>
(1) Prior to 1998, the Company's fiscal year ended on the Saturday closest
to December 31 of each year. On May 18, 1998, the Company changed its
fiscal year to the Saturday closest to March 31.
<PAGE> 1
EXHIBIT 21.1
List of subsidiaries of the Company
None.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-21949 of Safelite Glass Corp. on Form S-4 of our report dated June 25, 1998
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
September 29, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated April 7, 1997 (except with respect
to the matter described in Note 15, as to which the date is September 22, 1998),
regarding Vistar, Inc. and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 1, 1998
<PAGE> 1
EXHIBIT 24.2
Power of Attorney
from Adrian F. Jones
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 COLOMBUS, STATE OF OHIO,
ON THE 14TH DAY OF AUGUST, 1998.
SAFELITE GLASS CORP.
By: ____________________
John F. Barlow
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John F. Barlow and Anthony J. DiNovi, and each
of them, with the power to act without the other, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him of her and his or her name, place and stead, in any and all capacities
to sign any or all amendments or post-effective amendments to this registration
statement, and to file the same, will all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
__________________ Director, President and Chief August __, 1998
John F. Barlow Executive Officer (principal
executive officer)
__________________ Director and Chairman of the Board August __, 1998
Garen K. Staglin
__________________ Senior Vice President, Treasurer and August __, 1998
Douglas A. Herron Chief Financial Officer (principal
financial and accounting officer)
__________________ Director August __, 1998
Anthony J. DiNovi
<PAGE> 2
SIGNATURE TITLE DATE
--------- ----- ----
____________________ Director August __, 1998
Selwyn Herson
/s/ ADRIAN F. JONES Director August 14, 1998
- --------------------
Adrian F. Jones
____________________ Director August __, 1998
Seth W. Lawry
____________________ Director August __, 1998
Thomas H. Lee
____________________ Director August __, 1998
Gary Lubner
____________________ Director August __, 1998
Ronnie Lubner
____________________ Director August __, 1998
John E. Mason
____________________ Director August __, 1998
M. Louis Shakinovsky
____________________ Director August __, 1998
Scott M. Perling
____________________ Director August __, 1998
Rodney Stansfield
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
----------------
SAFELITE GLASS CORP.
(Exact name of obligor as specified in its charter)
DELAWARE 13-3386709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1105 SCHROCK ROAD, COLUMBUS OHIO 43229
(Address of principal executive offices) (Zip Code)
9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment
No. 1 to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration Statement of
Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein
by reference thereto.
3. A COPY OF AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the existing by-laws of the trustee, as now in effect,
is on file with the Securities and Exchange Commission as
Exhibit 4 to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration Statement of
Eastern Edison Company (File No. 33-37823) and is incorporated
herein by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which
relates to matters peculiarly within the knowledge of the obligor or any
underwriter of the obligor, the trustee has relied upon the information
furnished to it by the obligor and the underwriters, and the trustee disclaims
responsibility for the accuracy or completeness of such information.
The answer to item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
as amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of the Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 24th of September 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ RUTH SMITH
-------------------------------
NAME: RUTH SMITH
TITLE: VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by SAFELITE
GLASS CORP. of its 9 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2006, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ RUTH SMITH
-------------------------------
NAME: RUTH SMITH
TITLE: VICE PRESIDENT
DATED: SEPTEMBER 24, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business JUNE 30,
1998, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
<S> <C> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................ 1,553,703
Interest-bearing balances ......................................... 12,440,716
Securities .......................................................... 9,436,138
Federal funds sold and securities purchased under
agreements to resell in domestic offices of
the bank and its Edge subsidiary .................................. 8,785,353
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................... 6,633,608
Allowance for loan and lease losses ............................... 92,999
Allocated transfer risk reserve ................................... 0
Loans and leases, net of unearned income
and allowances .................................................. 6,540,609
Assets held in trading accounts ..................................... 1,267,679
Premises and fixed assets ........................................... 491,928
Other real estate owned ............................................. 100
Investments in unconsolidated subsidiaries .......................... 1,278
Customers' liability to this bank on acceptance outstanding ......... 68,312
Intangible assets ................................................... 231,294
Other assets ........................................................ 1,667,282
----------
Total assets ........................................................ 42,484,392
==========
LIABILITIES
Deposits:
In domestic offices ............................................... 12,553,371
Noninterest-bearing ............................................. 10,204,405
Interest-bearing ................................................ 2,348,966
In foreign offices and Edge subsidiary ............................ 16,961,571
Noninterest-bearing ............................................. 154,792
Interest-bearing ................................................ 16,806,779
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices
of the bank and of its Edge subsidiary ............................ 8,182,794
Demand notes issued to the U.S. Treasury
and Trading Liabilities ........................................... 0
Trading liabilities ................................................. 883,096
Other borrowed money ................................................ 361,141
Subordinated notes and debentures ................................... 0
Bank's liability on acceptances executed and outstanding ............ 68,289
Other liabilities ................................................... 1,017,284
----------
Total liabilities ................................................... 40,027,546
EQUITY CAPITAL
Perpetual preferred stock and related surplus ....................... 0
Common stock ........................................................ 29,931
Surplus ............................................................. 455,288
Undivided profits and capital reserves/Net
unrealized holding gains (losses) ................................. 1,964,924
Net unrealized holding gains (losses)
on available-for-sale securities .................................. 15,557
Cumulative foreign currency translation adjustments ................. (8,854)
----------
Total equity capital ................................................ 2,456,846
----------
Total liabilities and equity capital ................................ 42,484,392
==========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SAFELIFE
CLASS CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED JANUARY 3, 1998, THREE MONTHS ENDED APRIL 4, 1998 AND THE THREE MONTHS
ENDED JULY 4, 1998 INCLUDED IN FORM S-4 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001033671
<NAME> SAFELITE GLASS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-03-1998 APR-04-1998 JUL-04-1998
<PERIOD-START> DEC-29-1996 JAN-04-1998 APR-05-1998
<PERIOD-END> JAN-03-1998 APR-04-1998 JUL-04-1998
<EXCHANGE-RATE> 1 1 1
<CASH> 7,404 10,254 8,798
<SECURITIES> 0 0 0
<RECEIVABLES> 70,755 74,622 82,768
<ALLOWANCES> (15,828) (12,622) (12,533)
<INVENTORY> 48,133 50,535 54,439
<CURRENT-ASSETS> 141,582 152,587 159,334
<PP&E> 120,667 134,088 125,249
<DEPRECIATION> (56,847) (72,094) (68,125)
<TOTAL-ASSETS> 558,054 576,355 575,243
<CURRENT-LIABILITIES> 111,773 112,268 106,175
<BONDS> 473,499 497,645 502,463
0 0 0
1 1 1
<COMMON> 142 142 142
<OTHER-SE> (47,017) (48,554) (45,105)
<TOTAL-LIABILITY-AND-EQUITY> 558,054 576,355 575,243
<SALES> 0 0 0
<TOTAL-REVENUES> 483,304 213,792 241,167
<CGS> 0 0 0
<TOTAL-COSTS> 331,658 155,545 170,732
<OTHER-EXPENSES> 125,802 53,337 51,968
<LOSS-PROVISION> 1,469 1,319 1,043
<INTEREST-EXPENSE> (27,517) (10,987) (11,187)
<INCOME-PRETAX> (419) (5,939) 7,417
<INCOME-TAX> 6,842 1,623 (3,968)
<INCOME-CONTINUING> 6,423 (4,316) 3,449
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (2,835) 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,588 (4,316) 3,449
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
