<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-27341
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EV INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3679 52-2011193
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
602 CECIL STREET
BUCHANAN, MICHIGAN 49107
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
PAUL A. MCGUIRE
EV INTERNATIONAL, INC.
602 CECIL STREET
BUCHANAN, MICHIGAN 49107
(616) 695-2207
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copy to:
STEVEN OSTNER, ESQ.
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
EV INTERNATIONAL, INC.
OFFER TO EXCHANGE 11% SENIOR SUBORDINATED NOTES DUE 2007,
SERIES A FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 2,
1997, UNLESS EXTENDED.
EV International, Inc., a Delaware corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus (this "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal") to exchange up to $100,000,000
aggregate principal amount of its 11% Senior Subordinated Notes due 2007, Series
A (the "New Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement of
which this Prospectus is a part, for a like principal amount of its issued and
outstanding 11% Senior Subordinated Notes due 2007 (the "Existing Notes"). The
New Notes and the Existing Notes, as the case may be, are referred to herein as
the "Notes". The Existing Notes were originally issued and sold in a transaction
that was exempt from registration under the Securities Act (the "Offering") and
resold to certain qualified institutional buyers in reliance on, and subject to
the restrictions imposed pursuant to, Rule 144A under the Securities Act ("Rule
144A"). The terms of the New Notes are identical in all material respects to the
terms of the Existing Notes for which they may be exchanged pursuant to the
Exchange Offer except that the New Notes will have been registered under the
Securities Act, and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act.
Interest on each New Note issued pursuant to the Exchange Offer will accrue from
the last interest payment date on which interest was paid on the Existing Notes
surrendered in exchange therefor or, if no interest has been paid, from the
original date of issuance of the Existing Notes.
Interest on the Notes will be payable semi-annually on March 15 and September 15
of each year, commencing on September 15, 1997. The Notes will mature on March
15, 2007. Except as described below, the Company may not redeem the Notes prior
to March 15, 2002. On or after such date, the Company may redeem the Notes, in
whole or in part, at any time at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to March 15, 2000, the Company may, subject to
certain requirements, redeem up to 33 1/3% of the original aggregate principal
amount of the Notes with the Net Cash Proceeds (as defined) of one or more
Public Equity Offerings (as defined) at a redemption price equal to 111% of the
principal amount to be redeemed, together with accrued and unpaid interest, if
any, to the date of redemption, provided that at least 66 2/3% of the original
aggregate principal amount of the Notes remains outstanding after each such
redemption. The Notes will not be subject to any sinking fund requirement. Upon
the occurrence of a Change of Control (as defined), (i) the Company will have
the option at any time prior to March 15, 2002, to redeem the Notes, in whole,
at a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined), together with accrued and unpaid interest, if
any, to the date of redemption, and (ii) if the Company does not redeem the
Notes, or if such Change of Control occurs on or after March 15, 2002, each
holder will have the right to require the Company 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. See "Description of Notes."
The Notes will be unsecured and will be subordinated to all existing and future
Senior Indebtedness (as defined) of the Company and will be effectively
subordinated to all obligations of the subsidiaries of the Company. The Notes
will rank pari passu with any future Senior Subordinated Indebtedness (as
defined) of the Company and will rank senior to all other Subordinated
Indebtedness (as defined) of the Company. The Notes will be unconditionally
guaranteed on an unsecured, senior subordinated basis by any future Domestic
Subsidiary that is a Significant Subsidiary (as defined) of the Company. The
Company has no present intention of creating or acquiring a Domestic Subsidiary
that is a Significant Subsidiary. The Indenture permits the Company to incur
additional indebtedness, including Senior Indebtedness, subject to certain
limitations. See "Description of Notes." As of May 31, 1997, the Company had
outstanding $18.0 million (exclusive of unused commitments) in aggregate amount
of Senior Indebtedness (all of which is secured) and no Senior Subordinated
Indebtedness other than the Notes. On July 11, 1997, the Company prepaid an
additional $5.0 million of Senior Indebtedness. See "Description of
Notes -- Ranking."
The Exchange Offer is not conditioned upon any minimum number of Existing Notes
being tendered. The Exchange Offer will expire at 5:00 p.m., New York City time,
on September 2, 1997, unless extended by the Company (such date as it may be so
extended, the "Expiration Date"). The date of acceptance for exchange of the
Existing Notes (the "Exchange Date") will be the first business day following
the Expiration Date, upon surrender of the Existing Notes. Existing Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date; otherwise such tenders are irrevocable. New Notes to be
issued in exchange for properly tendered Existing Notes will be delivered
through the facilities of The Depository Trust Company by the Exchange Agent (as
defined) promptly after the acceptance thereof.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
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 July 30, 1997.
<PAGE> 3
[ADD ART.]
2
<PAGE> 4
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") as set forth in no-action letters issued to third
parties (including Exxon Capital Holdings Corporation (available May 13, 1988),
Morgan Stanley & Co. Incorporated (available June 5, 1991), K-III Communications
Corporation (available May 14, 1993) and Shearman & Sterling (available July 2,
1993)), the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for the Existing Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder which is
(i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Existing Notes directly from
the Company or (iii) a broker-dealer who acquired Existing Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that (a) such New Notes are acquired in the ordinary course of such holder's
business, (b) at the time of the commencement of the Exchange Offer such holder
has no arrangement or understanding with any person to participate in a
distribution of the New Notes and (c) such holder is not engaged in, and does
not intend to engage in, a distribution of the New Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and therefore there can be no assurance that the Staff of the Commission
would make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder of Existing Notes that desires to participate
in the Exchange Offer will be required to make certain representations described
in "The Exchange Offer -- Terms of the Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Existing Notes, where such Existing 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
meeting the requirements of the Securities Act and that it has not entered into
any arrangement or understanding with the Company or an affiliate of the Company
to distribute the New Notes in connection with any resale of such New Notes. A
broker-dealer that acquired Existing Notes in a transaction other than a part of
its market-making activities or other trading activities will not be able to
participate in the Exchange Offer. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Existing Notes where such Existing 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 90 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. Any holder that
cannot rely upon such interpretations by the staff of the Commission as set
forth in such no-action letters must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. See "The Exchange Offer" and "Plan of Distribution."
The New Notes will be represented by one or more Global Securities
registered in the name of a nominee of The Depository Trust Company, as
Depositary. Beneficial interest in the Global Securities will be shown on, and
transfers will be effected only through, records maintained by the Depositary
and its participants. See "Description of New Notes -- Book-Entry, Delivery and
Form."
There has not previously been any public market for the New Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the New Notes will develop. Moreover, to
the extent that Existing Notes are tendered and accepted in the Exchange Offer,
a holder's ability to sell untendered, and tendered but unaccepted, Existing
Notes could be adversely affected. See "Risk Factors -- Lack of Established
Market for the Existing Notes."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses of the Exchange Offer. No dealer manager
is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT SURRENDER
FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDIC-
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<PAGE> 5
TION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term includes any amendments thereto, the "Registration Statement") on Form S-4
under the Securities Act, with respect to the New Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information included in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to herein or therein
and filed as an exhibit to the Registration Statement are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the New Notes, reference is hereby
made to the Registration Statement and the exhibits and schedules thereto.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, the Company has agreed to file
with the Commission and provide to the holders of the Notes annual reports and
the information, documents and other reports that are specified in Sections 13
and 15(d) of the Exchange Act. Reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Suite 1400, Northwestern
Atrium Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates by writing to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549 and such material is contained on the worldwide web site maintained
by the Commission at http://www.sec.gov.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety 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 indicated herein or the context otherwise requires, references
to the "Company" or "EVI" shall mean EV International, Inc., a Delaware
corporation and its subsidiaries, including its predecessor companies. Unless
otherwise indicated, all references to fiscal years in this Prospectus are to
the fiscal years ending on the final day of February of each year. Altec
Lansing(R), Dynacord(R), Electro-Voice(R), Gauss(R), Klark-Teknik(R), Manifold
Technology(R), University Sound(R) and Vega(R) are registered trademarks of the
Company and DDA(TM), Midas(TM), Electro Sound(TM) and Merlin(TM) are trademarks
of the Company.
THE COMPANY
COMPANY OVERVIEW
EVI, founded in 1928, is one of the largest manufacturers and marketers of
high-quality, high-performance sound system products for the professional audio
market. The Company manufactures and markets a comprehensive range of products
worldwide for professional audio systems, including microphones, mixing
consoles, signal processors, amplifiers and loudspeaker systems. The Company's
brands, which include Electro-Voice, Altec Lansing, Midas and Vega, are widely
recognized and respected in the professional audio market. Since its founding,
the Company has developed a number of technological innovations which are now
commonly used throughout the industry and has received numerous industry awards,
including a 1996 Emmy for advances in wireless microphone technology. The
Company's net sales and EBITDA for the twelve months ended February 28, 1997
were $192.0 million and $22.3 million (before post-acquisition management fees),
respectively, and $44.7 million and $3.3 million, respectively, for the three
months ended May 31, 1997.
The Company's products are used in airports, theaters, sports arenas,
concert halls, cinemas, stadiums, convention centers, television and radio
broadcast studios, houses of worship and other venues where music or speech is
amplified. EVI products have been installed in a wide variety of large public
venues, including the Metropolitan Opera House at Lincoln Center, the Hong Kong
Convention Center, Camden Yards, Fenway Park and Disney theme parks, and are
used by professional musicians, including major concert and touring artists such
as Alanis Morissette, KISS, Elton John, Sting, Metallica and Hootie and the
Blowfish. In addition, the Company's microphones are widely used in the
television and radio broadcast industry, including by the major U.S. television
networks and many radio performers.
Products sold to the professional audio market are designed for all types
of commercial venues and all levels of professional musicians. These products
are distinguished from consumer audio products, which are generally not suited
for professional use, by the unique performance requirements and generally
higher price points of professional audio products. In addition, professional
audio products are typically sold through distribution channels targeted at
professional musicians and contractors who design sound systems for commercial
use. The professional audio market is highly fragmented, with only a few major
manufacturers and a larger number of smaller manufacturers, many of which have
limited product lines. The worldwide market for professional audio products
includes countries in the Americas, Europe and Asia, as well as many emerging
markets.
The Company targets three principal lines of business within the overall
professional audio market: (i) Fixed Installation, or permanently installed
sound systems in public venues; (ii) Professional Music Retail, or sound
products used by professional musicians and sold principally through retail
channels; and (iii) Concert/Recording/Broadcast, or sound products used in
professional concerts, recording projects and radio and television broadcast.
EVI targets the upper tier of these business lines in terms of performance,
quality and price.
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COMPETITIVE STRENGTHS
Management believes that the following competitive strengths have
contributed significantly to the Company's historical growth and serve as a
foundation for the Company's continued growth:
Leading Brand Names. The Company's brand names include Electro-Voice,
Dynacord, Altec Lansing, Klark-Teknik, Midas, University Sound, Vega, DDA, Gauss
and Electro Sound. Management believes that these brand names, which have earned
numerous technological and industry awards, are among the most recognized and
respected names in the high-end professional audio market. EVI products are used
by a wide variety of professional musicians, ranging from local and regional
bands to major touring artists and performers such as Gloria Estefan, Rod
Stewart and Aerosmith. In addition, the Company's products are critical to the
amplification of voice and sound in such major venues as Atlanta's Hartsfield
International Airport, Macy's Thanksgiving Day Parade, Chicago's Soldier Field
and numerous cinemas and houses of worship across the United States.
Technological Innovation. EVI has pioneered the development of a number of
new professional audio technologies now widely used in the industry and
continues its commitment to technological innovation through new product
research and development. In order to build on its position as a leader in
technological innovation, the Company has increased its spending on research and
development from $4.9 million in fiscal year 1992 (or approximately 2.9% of
total revenues) to $8.2 million for the twelve months ended February 28, 1997
(or approximately 4.3% of total revenues). During the quarter ended May 31,
1997, research and development expenditures were $2.5 million, or 5.5% of total
revenues. Management estimates that new products or product upgrades introduced
during fiscal years 1995 or 1996 accounted for approximately 13% of the
Company's sales in the twelve months ended February 28, 1997. A focus of the
Company's current research and development is the application of digital
technology, which is intended to exploit the industry-wide transition from
analog to digital processing. EVI is currently bringing to market its first
integrated digital signal processing system, which broadens the Company's
portfolio of approximately 20 other digital products.
International Marketing and Distribution. The Company's products are
marketed in over 50 countries worldwide, which reduces the Company's dependence
on any single geographic market. In recent years, over 50% of the Company's
sales have been made internationally. Unlike many of its competitors, which use
independent foreign distributors that generally sell a variety of competing
products, the majority of the Company's foreign sales efforts are conducted
through its foreign distribution subsidiaries. This network allows the Company
to control its international sales, marketing and operations and provides the
Company with an excellent platform from which to pursue its strategy of
penetrating new markets and expanding its worldwide presence.
Focus on Relationship Marketing. Since 1983, the Company has formally
pursued a strategy of developing market presence by building and maintaining
long-term relationships with its customers (which typically exceed ten years in
duration) through a number of customer-oriented initiatives. For example, a
number of the largest customers serve on Company advisory councils and meet with
the Company annually to exchange ideas regarding product development, design and
marketing. In addition, the Company regularly conducts training seminars
worldwide that provide technical training and marketing support to its customers
and end users. These councils, seminars and other customer-oriented initiatives
are a key to its recognition as one of "the manufacturers with the best customer
relationships" (Sound and Communications 1996 Contractors Survey). This approach
to relationship marketing enables the Company to be more responsive to
customers' needs and to anticipate more accurately current trends in the market.
Comprehensive Product Offerings. The Company is one of only a few
manufacturers that produce and globally market a comprehensive line of products
for the professional audio market. Management believes that its broad range of
offerings enables it to compete more effectively against many of its competitors
who carry a more limited line of products because the Company's customers are
able to meet end users' requirements across a broader range of applications with
EVI products. In addition, the Company's volume discount incentives encourage
customers to concentrate their purchases on EVI products.
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<PAGE> 8
Integrated Manufacturing. EVI manufactures substantially all of the
products it sells and most of the active acoustic components that its products
contain, which distinguishes the Company from many of its competitors. This
substantial level of manufacturing integration enables the Company to reduce the
time to market of new product introductions, provide consistent, premium quality
to customers and respond more effectively to customer delivery and product
feature requirements. Management believes these factors result in a significant
advantage over competitors, who outsource a portion of their production.
BUSINESS STRATEGY
The Company's current strategy is to further increase revenues and improve
operating margins, thereby strengthening its position as a leading manufacturer
and distributor of products to the professional audio market. To achieve these
goals, the Company intends to: (i) enhance marketing efforts; (ii) expand
worldwide presence; (iii) increase operating efficiencies; and (iv) pursue
strategic acquisitions.
Enhance Marketing Efforts. The Company plans to stimulate demand for its
products and increase its brand equity by marketing directly to end users.
Currently, the Company's primary print advertising effort is directed to leading
trade magazines aimed at contractors, music retailers and distributors. A
strategic decision to influence end users as well as the Company's customers is
planned to begin in fiscal year 1998 with the objective of enhancing brand
awareness and brand equity of the Company's products among end users. Plans to
implement this strategy include advertising in consumer magazines, increased
public relations, direct mail, point-of-purchase campaigns, a Company web site
and increasing the frequency of product training programs.
Expand Worldwide Presence. The Company intends to increase its market
position by expanding its extensive distribution network and broadening its
product offerings in existing distribution channels. The Company is currently
focusing its expansion efforts on increasing sales in emerging markets,
including Argentina, Brazil, Chile, China, India and the former Soviet Union.
Management believes that its extensive experience in operating overseas
(including in emerging markets) and its network of foreign subsidiary
distributors provide a strong foundation for its future international expansion
and a significant competitive advantage.
Increase Operating Efficiencies. Management believes opportunities exist
to continue to reduce manufacturing costs and increase manufacturing
efficiencies and is planning to implement re-engineering programs at certain of
the Company's manufacturing facilities. Management estimates that planned
capital expenditures of approximately $2.9 million in fiscal years 1998 and 1999
will result in annual cost savings of approximately $1.8 million. For example,
the Company plans to establish a higher quality and more efficient electronics
production capability, which management expects will generate significant
operating savings and increase the Company's competitiveness in electronics
production. The Company continuously assesses its manufacturing operations to
control or reduce costs, and re-engineers production as necessary. The Company
also intends to continue its CARE process ("Customers Are the Real Employers"),
which utilizes total quality management principles to maximize operating
efficiencies.
Pursue Strategic Acquisitions. The professional audio industry is highly
fragmented, which management believes presents significant consolidation
opportunities. Subject to market conditions and the availability of financing,
the Company plans to pursue acquisition opportunities that complement and expand
its core businesses or that enable the Company to enter new markets. Management
believes that it can leverage the Company's production, distribution and
administrative capabilities to generate significant incremental revenue and cash
flow through strategic acquisitions. Since 1984, the Company has successfully
integrated six business acquisitions and eight brand names into its existing
operations.
THE TRANSACTIONS
On February 10, 1997 (the "Acquisition Closing Date"), an acquisition
subsidiary wholly owned by Greenwich Street Capital Partners, L.P. ("GSCP") and
certain affiliated investors acquired from Mark IV Industries, Inc. ("Mark IV")
and one of its subsidiaries all of the issued and outstanding capital stock of
the Company (the "Acquisition") for an initial cash purchase price of $151.5
million, plus $4.9 million in
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<PAGE> 9
estimated adjustments paid on the Closing Date (subject to further post-closing
adjustment). See "The Acquisition." Additionally, on the same date the Company
entered into a Transition Services Agreement with Mark IV under which Mark IV
provides certain financial and tax accounting assistance and other services to
the Company for a period of up to twelve months from the Acquisition Closing
Date. See "Relationships with Mark IV--Transition Services Agreement."
Financing for the Acquisition, and the related fees and expenses, consisted
of (i) $57.6 million of equity capital (the "GSCP Equity Investment") provided
by GSCP and certain affiliated investors, (ii) a $60.0 million senior secured
credit facility (the "Senior Credit Facility"), consisting of (a) a $35.0
million term loan facility (the "Term Loan Facility"), all of which was drawn
down on the Acquisition Closing Date, and (b) a $25.0 million revolving credit
facility (the "Revolving Credit Facility"), none of which has been drawn, and
(iii) a $75.0 million senior subordinated credit facility issued as interim
financing (the "Senior Subordinated Facility"). The Acquisition, the financing
thereof (not including the Offering) and the payment of the related fees and
expenses are herein referred to as the "Transactions." See "The Acquisition" and
"Description of Credit Facilities--Senior Credit Facility."
The sources and uses of funds for the Transactions were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Sources:
Senior Credit Facility:
Revolving Credit Facility(a)........................................... $ --
Term Loan Facility..................................................... 35.0
Senior Subordinated Facility............................................. 75.0
GSCP Equity Investment................................................... 57.6
------
Total Sources....................................................... $ 167.6
======
Uses:
Purchase price of the acquisition:
Initial purchase price................................................. $ 151.5
Additional purchase price paid on the Closing Date(b).................. 4.9
Transaction fees and expenses............................................ 10.4
Working capital.......................................................... 0.8
------
Total Uses.......................................................... $ 167.6
======
</TABLE>
- ---------------
(a) On the Acquisition Closing Date, borrowings of up to $13.8 million under the
Revolving Credit Facility were available for working capital and general
corporate purposes, after giving effect to borrowing base restrictions and
to the issuance of letters of credit totalling $3.8 million. See
"Description of Credit Facilities--Senior Credit Facility."
(b) Subject to further post-closing adjustment. See "The Acquisition."
USE OF PROCEEDS OF THE OFFERING
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the issuance of the Notes (the "Offering") (approximately $96
million) were used to repay (i) all amounts outstanding under the Senior
Subordinated Facility ($75.0 million, plus accrued but unpaid interest) and (ii)
$17.0 million of indebtedness outstanding under the Term Loan Facility. The
Company will use the balance of such proceeds for working capital and general
corporate purposes. See "Use of Proceeds."
OWNERSHIP
GSCP is a private direct equity investment fund organized in 1994 to
provide long-term capital for and make acquisitions in companies in a variety of
industries. GSCP invests in management buyouts, leveraged
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<PAGE> 10
acquisitions, international investment opportunities and minority investments.
Upon completion of the Acquisition, GSCP and its co-investors became the owners,
indirectly, of 100% of the voting securities of the Company. See "Description of
Capital Stock." GSCP's significant portfolio investments include Marcus Cable
Company, L.P., Rifkin Acquisition Partners, L.L.L.P., Mercury Radio
Communications, L.P., Seguros Comercial America, S.A. de C.V. and Telegroup,
Inc. GSCP has recently acquired control of Telex Communications Group, Inc.
THE EXCHANGE OFFERING
Registration Agreement..... The Existing Notes were issued on March 24, 1997 to
Chase Securities Inc. and Smith Barney Inc. (the
"Initial Purchasers"). The Initial Purchasers
resold the Existing Notes to certain qualified
institutional buyers in reliance on, and subject to
the restrictions imposed pursuant to, Rule 144A of
the Securities Act. In connection therewith, the
Company and the Initial Purchasers entered into the
Exchange and Registration Rights Agreement, dated
as of March 24, 1997 (the "Exchange and
Registration Rights Agreement"), providing, among
other things, for the Exchange Offer. See "The
Exchange Offer."
The Exchange Offer......... New Notes are being offered in exchange for an
equal principal amount of Existing Notes. As of the
date hereof, $100,000,000 aggregate principal
amount of Existing Notes is outstanding. Existing
Notes may be tendered only in integral multiples of
$1,000.
Resale of New Notes........ Based on interpretations by the Staff of the
Commission as set forth in no-action letters issued
to third parties (including Exxon Capital Hold-
ings Corporation (available May 13, 1988), Morgan
Stanley & Co. Incorporated (available June 5,
1991), K-III Communications Corporation (available
May 14, 1993) and Shearman & Sterling (available
July 2, 1993)) the Company believes that the New
Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred
by any holder thereof (other than any such holder
that is a broker-dealer or 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 (i) such New
Notes are acquired in the ordinary course of
business, (ii) at the time of the commencement of
the Exchange Offer such holder has no arrangement
or understanding with any person to participate in
a distribution of the New Notes and (iii) such
holder is not engaged in, and does not intend to
engage in, a distribution of the New Notes. By
tendering Existing Notes in exchange for New Notes,
each holder will represent to the Company that: (i)
it is not such an affiliate of the Company, (ii)
any New Notes to be received by it will be acquired
in the ordinary course of business and (iii) at the
time of the commencement of the Exchange Offer it
had no arrangement or understanding with any person
to participate in a distribution of the New Notes
and, if such holder is not a broker-dealer, it is
not engaged in, and does not intend to engage in, a
distribution of New Notes. If a holder of Existing
Notes is unable to make the foregoing
representations, such holder may not rely on such
interpretations by the staff of the Commission as
set forth in such no-action letters and must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any secondary resale transaction.
9
<PAGE> 11
Each broker-dealer that receives New Notes for its
own account pursuant to the Exchange Offer in
exchange for Existing Notes, where such Existing
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 meeting the requirements of the
Securities Act and that it has not entered into any
arrangement or understanding with the Company or an
affiliate of the Company to distribute the New
Notes in connection with any resale of such New
Notes. A broker-dealer that acquired Existing Notes
in a transaction other than as part of its
market-making activities or other trading
activities will not be able to participate in the
Exchange Offer. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection
with resales of New Notes where such Existing Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading
activities. The Company has agreed that, starting
on the Expiration Date and ending on the close of
business 90 days after the Expiration Date, it will
make this Prospectus available to any participating
broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or
selling such New Notes. The Company has agreed,
pursuant to the Registration Agreement and subject
to certain specified limitations therein, to
register or qualify the New Notes for offer or sale
under the securities or "blue sky" laws of such
jurisdictions as may be necessary to permit the
holders of New Notes to trade the New Notes without
any material restrictions or limitations under the
securities laws of the several states of the United
States.
Consequences of Failure to
Exchange Existing
Notes.................... Upon consummation of the Exchange Offer, subject to
certain limited exceptions, holders of Existing
Notes who do not exchange their Existing Notes for
New Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be
able to offer or sell their Existing Notes, unless
such Existing Notes are subsequently registered
under the Securities Act (which, subject to certain
limited exceptions, the Company will have no
obligation to do), except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. See "The Exchange Offer -- Terms of the
Exchange Offer" and "-- Consequences of Failure to
Exchange."
Expiration Date............ 5:00 p.m., New York City time, on September 2,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Interest on the New
Notes...................... The New Notes will accrue interest at a rate of 11%
per annum from March 24, 1997, the issue date of
the Existing Notes. Interest on the New Notes is
payable on March 15 and September 15 of each year,
commencing on September 15, 1997.
10
<PAGE> 12
Conditions to the
Exchange Offer........... The Exchange Offer is not conditioned upon any
minimum principal amount of Existing Notes being
tendered for exchange. However, the Exchange Offer
is subject to certain customary conditions, which
may be waived by the Company. See "The Exchange
Offer -- Conditions." Except for the requirements
of applicable federal and state securities laws,
there are no federal or state regulatory
requirements to be complied with or obtained by the
Company in connection with the Exchange Offer.
Procedures for Tendering
Existing Notes............. Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with any other required documentation to the
Exchange Agent (as defined herein) at the address
set forth herein and effect a tender of Existing
Notes pursuant to the procedures for book-entry
transfer as provided for herein. See "The Exchange
Offer -- Procedures for Tendering" and "-- Book
Entry Transfer."
Guaranteed Delivery
Procedures............... Holders of Existing Notes who wish to tender their
Existing Notes and who cannot deliver their
Existing Notes and a properly completed Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Existing
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Existing Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Existing
Notes, a written or facsimile transmission notice
of withdrawal must be received by the Exchange
Agent at its address set forth herein under "The
Exchange Offer -- Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Existing
Notes and Delivery of New
Notes.................... Subject to certain conditions, any and all Existing
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date will be accepted for exchange.
The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
Certain U.S. Tax
Consequences............. The exchange of Existing Notes for New Notes should
not constitute a taxable exchange for U.S. federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
Exchange Agent............. The Bank of New York is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer.
Fees and Expenses.......... All expenses incident to the Company's consummation
of the Exchange Offer and compliance with the
Registration Agreement will be borne by the
Company. See "The Exchange Offer -- Fees and
Expenses."
11
<PAGE> 13
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the New Notes pursuant
to the Exchange Offer. The proceeds from the sale
of the Existing Notes were used to repay amounts
outstanding under the Senior Subordinated Facility
and the Term Loan Facility. The Company will use
the balance of such proceeds for working capital
and general corporate purposes. See "Use of
Proceeds".
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $100,000,000 aggregate
principal amount of Existing Notes for an equal aggregate principal amount of
New Notes. New Notes will be entitled to the benefits of the same Indenture (as
defined therein) that governs the Existing Notes and will govern the New Notes.
The form and terms of the New Notes are identical in all material respects to
the form and terms of the Existing Notes, except that the New Notes will have
been registered under the Securities Act, and thus will not bear restrictive
legends restricting their transfer pursuant to the Securities Act. See
"Description of Notes."
Maturity................... March 15, 2007.
Interest Payment Dates..... March 15 and September 15 of each year, commencing
on September 15, 1997.
Sinking Fund............... None.
Optional Redemption........ Except as described below, the Company may not
redeem the Notes prior to March 15, 2002. On or
after such date, the Company may redeem the Notes,
in whole or in part, at the redemption prices set
forth herein together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time and from time to time on or
prior to March 15, 2000 the Company, at its option,
may redeem up to 33 1/3% of the original aggregate
principal amount of the Notes with the net cash
proceeds of one or more Public Equity Offerings (as
defined) by the Company following which there is a
Public Market (as defined), at a redemption price
equal to 111% of the principal amount of the Notes
to be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least 66 2/3% of the original
aggregate principal amount of the Notes remains
outstanding immediately after each such redemption.
See "Description of Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined), (i) the Company will have the option at
any time prior to March 15, 2002, to redeem the
Notes, in whole, at a redemption price equal to
100% of the principal amount thereof plus the
Applicable Premium (as defined), together with
accrued and unpaid interest, if any, to the date of
redemption, and (ii) if the Company does not redeem
the Notes, or if such Change of Control occurs on
or after March 15, 2002, each holder will have the
right to require the Company to repurchase the
Notes held by such holder at a price equal to 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
repurchase. The Senior Credit Facility prohibits
the repayment of indebtedness of the Notes by the
Company in the event of a Change of Control unless
and until such time as the indebtedness under the
Senior Credit facility is repaid in full. There can
be no assurance that the Company would have
sufficient assets to satisfy all of its obligations
under the Notes or the Senior Credit Facility in
the event of a Change of Control. See "Description
of Notes -- Change of Control."
12
<PAGE> 14
Subsidiary Guarantees...... The Notes will be unconditionally guaranteed on an
unsecured, senior subordinated basis by each
Subsidiary of the Company (other than Foreign
Subsidiaries and Unrestricted Subsidiaries) that is
a Significant Subsidiary (as defined) created or
acquired after the Issue Date (collectively, the
"Note Guarantors"). See "Description of Credit
Facilities" and "Description of Notes -- Additional
Note Guarantors."
Ranking.................... The Notes will be unsecured and will be
subordinated in right of payment to all existing
and future Senior Indebtedness (as defined) of the
Company and will be effectively subordinated to all
obligations of the subsidiaries of the Company. The
Notes will rank pari passu with any future Senior
Subordinated Indebtedness (as defined) of the
Company and will rank senior to all other
subordinated indebtedness of the Company. The Note
Guarantees will be general, unsecured obligations
of the Note Guarantors, subordinated in right of
payment to all existing and future Guarantor Senior
Indebtedness (as defined) of the Note Guarantors.
As of May 31, 1997, the Company had outstanding
$18.0 million (exclusive of unused commitments) of
Senior Indebtedness (all of which is secured) and
no Senior Subordinated Indebtedness other than the
Notes. On July 11, 1997, the Company prepaid an
additional $5.0 million of Senior Indebtedness. See
"Description of Notes -- Ranking."
Restrictive Covenants...... The indenture under which the Notes will be issued
(the "Indenture") will limit: (i) the incurrence of
additional Indebtedness (as defined) by the Company
and its Restricted Subsidiaries (as defined); (ii)
the layering of Indebtedness; (iii) the payment of
dividends on, and redemption of, capital stock of
the Company and its Restricted Subsidiaries and the
redemption of certain subordinated obligations of
the Company and its Restricted Subsidiaries; (iv)
investments; (v) sales of assets and Restricted
Subsidiary stock; (vi) certain transactions with
affiliates; (vii) the sale or issuance of preferred
stock of Restricted Subsidiaries; (viii) the
creation and existence of liens; and (ix)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. The
Indenture will also prohibit certain restrictions
on distributions from Restricted Subsidiaries.
However, all of these limitations and prohibitions
are subject to a number of important qualifications
and exceptions.
See "Description of Notes -- Certain Covenants" and
"-- Merger and Consolidation."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the factors
identified below and discussed in detail under "Risk Factors" for risks involved
with an investment in the Notes: (i) substantial leverage and debt service
obligations; (ii) subordination of Notes; restrictive financing covenants; (iii)
change of control; fraudulent transfer considerations; (iv) changing technology;
(v) risks relating to growth; (vi) intellectual property rights; (vii)
environmental matters; (viii) dependence on key personnel; (ix) competition; (x)
currency and other risks attendant to international operations; (xi) control of
the Company; (xii) no prior history as a stand-alone entity; inability to rely
on Mark IV for financial support; and (xiii) absence of public market;
restrictions on transfer.
13
<PAGE> 15
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary financial data of the Company for
each of the five fiscal years during the period ended February 28, 1997 and the
three months ended May 31, 1996 and 1997. The statement of operations and
balance sheet data set forth below are derived from and should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto and the unaudited interim consolidated financial statements and
notes thereto included elsewhere in this Prospectus. The statement of operations
data set forth below with respect to fiscal years ended February 28, 1994 and
1995, and February 29, 1996 have been audited by Coopers & Lybrand L.L.P.,
independent public accountants. The statement of operations data for the period
from March 1, 1996 through February 10, 1997 and for the period from February
11, 1997 through February 28, 1997 and the balance sheet data as of February 28,
1997 have been audited by Arthur Andersen LLP. The data presented for fiscal
year ended February 28, 1993 and for the three months ended May 31, 1996 and
1997 are derived from the 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 pro forma financial data have been derived from the Unaudited Pro
Forma Financial Information and the related notes thereto included elsewhere in
this Prospectus. The pro forma information does not purport to represent what
the Company's results would have actually been if the Transactions, the Offering
and the application of the proceeds therefrom had occurred on the dates
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 Financial Information,"
"Selected Historical and Pro Forma Financial Information," the audited
consolidated financial statements and notes thereto and the unaudited interim
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NEW BASIS OF ACCOUNTING
PREDECESSOR BASIS OF ACCOUNTING ----------------------------------------------------
--------------------------------------------------------------- PRO FORMA
PERIOD FROM PERIOD FROM THREE
FISCAL YEAR ENDED THE LAST DAY OF MARCH 1, 1996, FEBRUARY 11, MONTHS
FEBRUARY, THREE MONTHS THROUGH 1997, THROUGH PRO FORMA THREE MONTHS ENDED
--------------------------------- ENDED MAY FEBRUARY 10, FEBRUARY 28, FISCAL ENDED MAY 31, MAY 31,
1993 1994 1995 1996 31, 1996 1997 1997 1997 (a) 1997 1997 (A)
------ ------ ------ ------ ------------ -------------- ------------- --------- -------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
Net
sales.... $176.7 $173.6 $185.3 $195.5 $ 46.1 $177.1 $14.9 $ 192.0 $ 44.7 44.7
Cost of
products
sold..... 117.9 115.6 125.3 134.5 31.5 121.4 10.1 131.5 31.1 31.1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
profit... 58.8 58.0 60.0 61.0 14.6 55.7 4.8 60.6 13.6 13.6
Selling and
administration... 29.4 28.5 29.4 30.0 7.1 28.4 1.7 31.3 7.6 7.6
Research
and
development... 5.5 5.5 6.3 8.2 2.5 7.7 0.5 8.2 2.5 2.5
Depreciation
and
amortization... 4.5 4.4 4.8 5.1 1.3 5.1 0.3 5.9 1.6 1.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
income(b)... 19.4 19.6 19.5 17.7 3.7 14.5 2.3 15.2 2.0 2.0
Interest
expense... -- -- -- -- -- -- 0.8 13.3 3.5 3.3
Write-off
of
deferred
financing
costs.... -- -- -- -- -- -- -- -- 4.9 --
Foreign
exchange
losses... -- -- -- -- -- -- -- -- 0.2 0.2
Other
income... -- -- -- 0.4(c) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income
(loss)
before
income
taxes.... 19.4 19.6 19.5 18.1 3.7 14.5 1.5 1.9 (6.6) (1.6)
Income tax
provision
(benefit)... 7.4 7.3 7.5 7.1 1.4 6.2 0.7 1.4 (2.4) (0.4)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss)... $ 12.0 $ 12.3 $ 12.0 $ 11.0 $ 2.2 $ 8.3 $ 0.8 $ 0.5 $(4.2) $(1.2)
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
OTHER
FINANCIAL
DATA:
EBITDA(d)... $ 23.9 $ 24.0 $ 24.3 $ 22.8 $ 5.0 $ 19.6 $ 2.7 $ 21.1 $ 3.3 $ 3.3
EBITDA
margin(e)... 13.5% 13.8% 13.1% 11.7% 10.8% 11.1% 17.9% 11.0% 7.4% 7.4%
Capital
expenditures... $ 1.6 $ 2.6 $ 4.6 $ 3.7 $ 0.8 $ 3.3 $ 0.1 $ 3.4 $ 0.6 $ 0.6
Cash
interest
expense(f)... -- -- -- -- -- -- 0.6 $ 12.5 $ 3.0 $ 3.1
Ratio of
EBITDA to
cash
interest
expense(g)... -- -- -- -- -- -- -- 1.7x 1.1x 1.1x
Ratio of
EBITDA
minus
capital
expenditures
to cash
interest
expense(g)... -- -- -- -- -- -- -- 1.4x 0.9x 0.9x
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
AS OF AS OF
FEBRUARY 28, 1997 MAY 31, 1997
----------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................................. $ 77.5 $ 76.4
Total assets..................................................................................... 208.1 211.0
Total debt....................................................................................... 110.0 118.0
Stockholder's equity............................................................................. 58.4 54.5
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) The pro forma statement of income data for the fiscal year ended February
28, 1997 give effect to (i) the Acquisition and (ii) the Offering (and
application of proceeds therefrom) as though each had occurred as of the
first day of the fiscal year. The pro forma statement of income data for the
three months ended May 31, 1997 gives effect to the Offering (and
application of proceeds therefrom) as though it had occurred as of the first
day of the period.
(b) Represents income from operations before interest expense, the write-off of
deferred financing costs, foreign exchange losses, other income and
provision for income taxes.
(c) Represents a one-time gain on the sale of land in Germany.
(d) EBITDA represents earnings before interest expense, the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization. EBITDA is included because management understands that such
information is considered by certain investors to be an additional basis on
which to evaluate the Company's ability to pay interest, repay debt and make
capital expenditures. Excluded from EBITDA are interest, the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization, each of which can significantly affect the Company's results
of operations and liquidity and should be considered in evaluating the
Company's financial performance. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative to,
measures of operating performance as determined in accordance with generally
accepted accounting principles.
(e) Represents EBITDA as a percentage of net sales.
(f) Represents the interest expense exclusive of bank agency fees and
amortization of deferred financing costs. Due to the absence of interest
expense in the Company's Predecessor Basis Financial statements, no amounts
are presented for periods prior to the Acquisition.
(g) Due to the absence of interest expense in the Company's Predecessor Basis
Financial statements, these ratios are not presented for periods prior to
the Acquisition. For the period from February 11, 1997 through February 28,
1997, these ratios are not meaningful.
See Notes to Summary Historical and Pro Forma Financial Information.
15
<PAGE> 17
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Existing Notes for New Notes, holders of Existing Notes should
consider carefully the following factors, which are generally applicable to the
Existing Notes and the New Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As a result of the Transactions, the Company is highly leveraged, with
indebtedness that is substantial in relation to its stockholder's equity. The
Company's aggregate outstanding indebtedness and shareholder's equity as of May
31, 1997 were $118.0 million and $54.5 million, respectively. The Senior Credit
Facility will permit the Company to incur or guarantee certain additional
indebtedness, subject to certain limitations. See "Selected Historical and Pro
Forma Financial Information" and "Description of Credit Facilities -- Senior
Credit Facility."
The Company's high degree of leverage could have important consequences,
including but not limited to the following: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired in the future; (ii)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; and (iii) the
Company's flexibility to adjust to changing market conditions and ability to
withstand competitive pressures could be limited, and the Company may be more
vulnerable to a downturn in general economic conditions or its business or may
be unable to carry out capital spending that is important to its growth
strategy.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its financial and operating performance,
which, in turn, is subject to prevailing economic and competitive conditions and
to certain financial, business and other factors, many of which are beyond the
Company's control. These factors could include operating difficulties, increased
operating costs, product prices, the response of competitors, regulatory
developments, and delays in implementing strategic projects. The Company's
ability to meet its debt service and other obligations may depend in significant
part on the extent to which the Company can implement successfully its business
strategy. There can be no assurance that the Company will be able to implement
fully its strategy or that the anticipated results of its strategy will be
realized. See "Business -- Strategy."
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, seek to obtain additional equity capital or
restructure its debt. There can be no assurance that the Company's cash flow and
capital resources will be sufficient for payment of interest on and principal of
its indebtedness in the future, or that any such alternative measures would be
successful or would permit the Company to meet its scheduled debt service
obligations. In addition, because the Company's obligations under the Senior
Credit Facility will bear interest at floating rates, an increase in interest
rates could adversely affect, among other things, the Company's ability to meet
its debt service obligations. In the absence of sufficient cash flow or capital
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to whether the Company's
lenders would consent thereto, or as to the timing of such sales or the proceeds
which the Company could realize therefrom.
SUBORDINATION OF NOTES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness of the Company, including
all amounts owing or guaranteed under the Senior Credit Facility. Consequently,
in the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to the Company, assets of the Company will be
available to pay obligations on the Notes only after all Senior
16
<PAGE> 18
Indebtedness of the Company has been paid in full, and there can be no assurance
that there will be sufficient assets to pay amounts due on any or all of the
Notes.
EVI Audio Holding, Inc. ("Holding"), the Company's direct parent company,
has guaranteed the Company's obligations under the Senior Credit Facility. The
Indenture will permit the Company and Holding to incur or have outstanding
certain secured indebtedness, including indebtedness under the Senior Credit
Facility. See "Description of Senior Credit Facilities -- Senior Credit
Facility -- Security, Guarantees." Accordingly, if an event of default occurs
under the Senior Credit Facility the lenders thereunder will have a prior right
to the assets of the Company and the assets of Holding, and may foreclose upon
such collateral to the exclusion of the holders of the Notes, notwithstanding
the existence of an event of default with respect thereto. In such event, such
assets would first be used to repay in full amounts outstanding under the Senior
Credit Facility, resulting in all or a portion of the Company's assets and the
assets of Holding being unavailable to satisfy the claims of the holders of the
Notes and other unsecured indebtedness.
RESTRICTIVE FINANCING COVENANTS
The Senior Credit Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries to:
(i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee
obligations; (iv) prepay other indebtedness or amend certain other debt
instruments; (v) pay dividends; (vi) create liens on assets; (vii) enter into
sale and leaseback transactions; (viii) make investments, loans or advances;
(ix) make acquisitions; (x) engage in mergers or consolidations; (xi) change the
business conducted by the Company; (xii) make capital expenditures; or (xiii)
engage in certain transactions with affiliates, and otherwise restrict certain
corporate activities. In addition, under the Senior Credit Facility the Company
is required to comply with specified financial ratios and tests, including
minimum fixed charge coverage ratios, maximum leverage ratios and minimum EBITDA
requirements. See "Description of Credit Facilities -- Senior Credit Facility."
The Senior Credit Facility also has certain cross-default provisions, which
are triggered if, among other factors, Holding or any of its subsidiaries
defaults in the payment of any principal of or interest on any indebtedness in
excess of $1.0 million. There can be no assurance that these requirements will
be met in the future. The Company's ability to comply with these covenant
requirements may be affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any such covenants or
restrictions could result in a default under the Senior Credit Facility that
would permit the lenders thereunder to declare all amounts outstanding
thereunder to be immediately due and payable, together with accrued and unpaid
interest, and the commitments of the lenders under the Revolving Credit Facility
to make further extensions of credit thereunder could be terminated.
The Indenture contains a number of significant covenants that limit the
discretion of the Company's management with respect to certain business matters.
These covenants place significant restrictions on, among other things, the
ability of the Company to incur additional indebtedness, incur liens, make
investments, pay dividends or make certain other restricted payments, consummate
certain asset sales, consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company. See "Description of Notes -- Certain Covenants." The
Indenture also provides that the failure by the Company or its subsidiaries to
pay when due, upon acceleration, $5.0 million or more of other indebtedness
(including indebtedness under the Senior Credit Facility) will result in an
event of default under the Indenture. See "Description of Notes -- Defaults."
CHANGE OF CONTROL
The occurrence of certain events that constitute a Change of Control (as
defined) may result in a default, or otherwise require repayment of indebtedness
under both the Notes and the Senior Credit Facility. The Indenture provides that
"Change of Control" includes the occurrence of any of the following events: (i)
prior to the first public offering of Voting Stock (as defined in the Indenture)
of the Company, either (x) Permitted Holders (as defined in the Indenture) cease
to be the "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of more than 35% of the total voting
power of the
17
<PAGE> 19
Voting Stock of the Company, or (y) Permitted Holders cease to be entitled by
voting power, contract or otherwise to elect or cause the election of directors
of the Company having a majority of the total voting power of the Board of
Directors; (ii) following the first public offering of Voting Stock of the
Company, any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner, directly or indirectly, of more than 35% of the Voting Stock
of the Company; or (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors cease for
any reason to constitute a majority of the Board of Directors then in office.
See "Description of Notes -- Change of Control" for a detailed definition of
these events.
Upon the occurrence of a Change in Control, each Holder will have the right
to require the Company to repurchase all or any part of such Holder's Notes at a
cash purchase price of 101% of the principal amount thereof plus accrued and
unpaid interest thereon. In addition, the Senior Credit Facility prohibits the
repayment of indebtedness of the Notes by the Company in such an event, unless
and until such time as the indebtedness under the Senior Credit Facility is
repaid in full. The Company's failure to make such repayments in such instances
would result in a default under both the Notes and the Senior Credit Facility.
The inability to repay the indebtedness under the Senior Credit Facility, if
accelerated, would also constitute an event of default under the Indenture,
which could have materially adverse consequences to the Company and to the
holders of the Notes. Future indebtedness of the Company may also contain
restrictions or repayment requirements with respect to certain events or
transactions that could constitute a Change of Control. In the event of a Change
of Control, there can be no assurance that the Company would have sufficient
assets to satisfy all of its obligations under the Notes or the Senior Credit
Facility. See "Description of Notes -- Change of Control."
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence by the Company of indebtedness, such as the Notes, to
finance or refinance the Acquisition may be subject to review under federal
bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case
or lawsuit is commenced by or on behalf of unpaid creditors of the Company.
Under these laws, if, in a bankruptcy or reorganization case or a lawsuit by or
on behalf of unpaid creditors of the Company, a court were to find that, at the
time the Company incurred indebtedness, (i) the Company incurred such
indebtedness with the intent of hindering, delaying or defrauding current or
future creditors or (ii) (a) the Company received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and (b)
the Company (1) was insolvent or was rendered insolvent by reason of any of the
Transactions, including the incurrence of the indebtedness to fund the
Acquisition, (2) was engaged, or about to engage, in a business or transaction
for which its assets constituted unreasonably small capital, (3) intended to
incur, or believed that it would incur, debts beyond its ability to pay as such
debts matured (as all of the foregoing terms are defined in or interpreted under
the relevant fraudulent transfer or conveyance statutes) or (4) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment the judgment is
unsatisfied), then such court could avoid or subordinate the amounts owing under
the Notes to presently existing and future indebtedness of the Company and take
other actions detrimental to the holders of the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurred the indebtedness, either (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present 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. There can be no assurance as to what standards a court would use to
determine whether the Company was solvent at the relevant time, or whether,
whatever standard was used, the Notes would not be avoided or further
subordinated on another of the grounds set forth above. In rendering their
opinions in connection with the initial borrowings and the issuance of the
Notes, counsel for the Company and counsel for the lenders will not express any
opinion as to the applicability of Federal or State fraudulent transfer and
conveyance laws.
18
<PAGE> 20
The Company believes that at the time the indebtedness constituting the
Notes will initially be incurred by the Company, the Company (i) was (a) neither
insolvent nor rendered insolvent thereby, (b) in possession of sufficient
capital to run its businesses effectively and (c) incurring debts within its
ability to pay as the same mature or become due and (ii) had sufficient assets
to satisfy any probable money judgment against it in any pending action. In
reaching the foregoing conclusions, the Company has relied upon its analyses of
internal cash flow projections and estimated values of assets and liabilities of
the Company. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions.
CHANGING TECHNOLOGY
Technological innovation and leadership are among the important factors in
competing successfully in the professional audio market. The Company's future
results will depend in part upon its ability to make timely and cost-effective
enhancements and additions to its technology and to introduce new products that
meet customer demands, including products utilizing digital technology, which
are increasingly being introduced in the professional audio industry. The
success of current and new product offerings is dependent on several factors,
including proper identification of customer needs, technological development,
cost, timely completion and introduction, differentiation from offerings of the
Company's competitors and market acceptance. Maintaining flexibility to respond
to technological and market dynamics may require substantial expenditures. There
can be no assurance that the Company will successfully identify and develop new
products in a timely manner, that products or technologies developed by others
will not render the Company's products obsolete or noncompetitive or that
constraints on the Company's financial resources will not adversely affect its
ability to develop and implement technological advances. See
"Business -- Product Development."
RISKS RELATING TO GROWTH
The Company's business strategy includes plans for pursuing growth in
certain foreign markets. See "Business -- Strategy." The Company's international
prospects could be adversely affected by factors such as reversals or delays in
the opening of foreign markets, exchange controls and other trade regulation,
currency and political risks, taxation and economic and market conditions in
targeted foreign markets. There can be no assurance as to the extent, if at all,
that the Company's plans to pursue growth in international markets will be
successful. The Company's business strategy also includes plans to pursue growth
through strategic acquisitions. See "Business -- Strategy." The Senior Credit
Facility prohibits making certain acquisitions in an aggregate amount over $7.5
million and incurring additional indebtedness greater than 65% of the purchase
price of any such acquisition. In addition, acquisitions that the Company may
make or enter into will involve risks, including the successful integration and
management of acquired technology, operations and personnel. The integration of
acquired businesses may also lead to the loss of key employees of the acquired
companies and diversion of management attention from ongoing business concerns.
There can be no assurance that any acquisition will be made, that the Company
will be able to obtain additional financing needed to finance such transactions
and, if any acquisitions are so made, that they will be successful.
INTELLECTUAL PROPERTY RIGHTS
Among the Company's significant assets are its intellectual property
rights. The Company relies on a combination of copyright, trademark and patent
laws to protect these assets, and to a significant degree, on trade secrets,
confidentiality procedures and contractual provisions which may afford more
limited legal protections. In addition, the laws of some foreign jurisdictions
may provide less protection than the laws of the United States for the Company's
proprietary rights.
The Company has not registered its significant trademarks in all foreign
jurisdictions in which it does business and there can be no assurance that
attempts at registration in every foreign jurisdiction would be successful. The
Company is aware that, in certain foreign jurisdictions, unaffiliated third
parties have applied for and/or obtained registrations for marks identical with
or similar to the Company's marks. Use or registration of the Company's
trademarks by the Company in such jurisdictions may be prohibited, and the
Company's business may be materially adversely affected thereby. In addition,
unauthorized use of the Company's intellectual property could have a material
adverse effect on the Company, and there can be no
19
<PAGE> 21
assurance that the Company's legal remedies would adequately compensate it for
the damages to its business caused by such use.
The Company does not believe that any of its products currently infringe
upon the proprietary rights of third parties in any material respect. There can
be no assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. Any such claim, with or
without merit, could result in substantial costs and diversion of management
resources, and a successful claim could restrict or block the Company's ability
to manufacture, distribute or license its products or otherwise have a material
adverse effect on the financial condition and results of operations of the
Company.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to extensive and changing U.S.
federal, state and local and foreign environmental laws and regulations,
including, but not limited to, laws and regulations that impose liability on
responsible parties to remediate, or contribute to the costs of remediating,
current or formerly owned or leased sites or other sites where solid or
hazardous wastes or substances were disposed of or released into the
environment. These remediation requirements may be imposed without regard to
fault or legality at the time of the disposal or release. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, however, operations of the Company have
resulted, and may result in the future, in non-compliance or liability with
respect to such laws and regulations.
The Company (or, for certain sites, Mark IV, on behalf of the Company) has
undertaken or currently is undertaking remediation of contamination at certain
of its currently or formerly owned sites (some of which are unrelated to the
audio business) and the Company has agreed it is a de minimis responsible party
at a number of other such sites which have been designated as Superfund sites
under U.S. environmental laws. The Company recently had Phase I Environmental
Site Assessment and Compliance Reviews conducted by a third-party environmental
consultant at all of its manufacturing sites and is aware of environmental
conditions at certain of such sites that require or may require remediation or
continued monitoring. Mark IV has agreed to indemnify the Company for the costs
of remediation or monitoring at all the Superfund sites and certain other sites.
See "Business -- Environmental" and "Relationships with Mark IV -- Purchase
Agreement."
There can be no assurance that the Company's estimated environmental
expenditures, which the Company believes to be reasonable, will cover in full
the actual amounts of environmental obligations the Company does incur, that
Mark IV will pay in full the indemnified environmental liabilities when they are
incurred, that new or existing environmental laws will not affect the Company in
currently unforeseen ways or that present or future activities undertaken by the
Company will not result in additional environmentally related expenditures.
However, the Company does not believe that the costs to the Company of
environmental compliance under current laws and regulations will have a material
adverse effect on the financial condition or results of operations of the
Company. See "Business -- Environmental."
DEPENDENCE ON KEY PERSONNEL
On May 6, 1997, the employment of Messrs. Pabst, Bolstetter and Graham, who
had been, respectively, the Chief Executive Officer and President, Vice
President-Finance and Vice President-Administration of the Company, was
terminated. The success of the Company depends in large part on the Company's
ability to find suitable replacements and retain such replacements and other
highly qualified management personnel. There can be no assurance that the
Company will be successful in hiring or retaining key personnel. The Company has
entered into employment agreements with certain of its senior managers in
connection with the Transactions. See "Management -- Employment Agreements."
COMPETITION
The professional audio market is highly competitive and fragmented. Certain
of the Company's competitors are substantially larger than the Company and have
financial and other resources greater than those of the Company. There can be no
assurance that the Company will continue to compete effectively
20
<PAGE> 22
against existing competitors or new competitors that may enter its market in the
future. See "Business -- Competition."
CURRENCY AND OTHER RISKS ATTENDANT TO INTERNATIONAL OPERATIONS
The Company has substantial assets located outside of the United States and
a substantial portion of the Company's sales and earnings are attributable to
operations conducted abroad and to export sales. As of May 31, 1997, 19% and 11%
of the Company's assets were in Western Europe and Asia, respectively, including
approximately 10%, 6%, 5% and 6% in Germany, Great Britain, Japan, and Hong
Kong, respectively. In the quarter ended May 31, 1997, approximately 59% of the
Company's gross revenues consisted of sales made outside the United States,
predominantly in Western Europe and Asia. The Company's international operations
subject the Company to certain risks, including increased exposure to currency
exchange rate fluctuations. The Company plans to hedge a portion of its foreign
currency exposure by incurring liabilities, including bank debt, denominated in
the local currencies of those countries where its subsidiaries are located and
plans to develop systems to manage and control its currency risk exposure. The
Company's international operations also subject it to certain other risks,
including adverse political or economic developments in the foreign countries in
which it conducts business, foreign governmental regulation, dividend
restrictions, tariffs and potential adverse tax consequences, including payment
of taxes in jurisdictions that have higher tax rates than does the United
States. Although the Company's international operations have generally been
profitable in the past, there can be no assurance that one or more of these
factors will not have a material adverse effect on the Company's financial
position or results of operations in the future.
CONTROL OF THE COMPANY
All of the outstanding shares of the Company's Common Stock are currently
owned by Holding and all of the outstanding shares of Holding are owned by EVI
Audio, LLC, which is controlled by GSCP. Accordingly, GSCP controls the Company
and has the power to elect all of the Company's directors, appoint new
management and approve any action requiring the approval of the holders of the
Company's Common Stock, including adopting amendments to the Company's
Certificate of Incorporation and approving mergers or sales of substantially all
of the Company's assets. From time to time GSCP considers possible combinations
or dispositions of its portfolio companies as a means of optimizing investment
value. GSCP is an affiliate of Travelers Group Inc., which wholly owns the
general partner of GSCP's general partner. See "Management" and "Ownership of
Capital Stock."
GST Acquisition Corp., a controlled affiliate of GSCP, recently acquired
control of Telex Communications Group, Inc. ("Telex") for total consideration of
approximately $375 million, including the refinancing of $100.0 million of
Telex's outstanding debt, subject to post-closing adjustment. Telex designs,
manufactures and markets sophisticated audio, wireless and multimedia
communications devices to commercial, professional and individual markets. The
Company and Telex do not currently have a business relationship, and although it
is possible that they, together with GSCP, may explore building such a
relationship or combining their businesses, there are no current plans or other
arrangements to do so.
NO PRIOR HISTORY AS A STAND-ALONE ENTITY; INABILITY TO RELY ON MARK IV FOR
FINANCIAL SUPPORT
The Company has had no prior operating history as a stand-alone entity and
prior to the consummation of the Acquisition, the business of the Company was
conducted as a part of the business of Mark IV. Prior to the consummation of the
Acquisition, substantially all of the cash needs of the Company were
historically funded through interest-free cash requisitions from Mark IV. The
Company is not able to rely on Mark IV for financial support or for other
services, except as provided in agreements entered into as part of the
Acquisition. However, during the period from March 1, 1996 through February 10,
1997, cash generated from operations amounted to $5.3 million, of which $2.0
million was transferred to Mark IV. During the years ended the last days of
February 1996 and 1995, cash generated from operations amounted to $0.4 million
and $8.4 million, respectively. During the year ended the last day of February
1996, net cash transferred from Mark IV to the Company was $3.3 million. During
the year ended the last day of February 1995, net cash transferred from the
Company to Mark IV was $3.8 million. See "Relationships with Mark IV." The loss
of certain of the rights
21
<PAGE> 23
and benefits provided under these agreements prior to their scheduled
termination dates could have a material adverse effect on the Company's
business.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The New Notes are new securities for which there presently is no market.
Although the Initial Purchasers have informed the Company that they currently
intend to make a market in the New Notes, the Initial Purchasers are not
obligated to do so and any such market making may be discontinued at any time
without notice. In addition, such market making activity may be limited during
the pendency of the Exchange Offer. Accordingly, there can be no assurance as to
the development or liquidity of any market for the New Notes. The Company does
not intend to apply for listing of the New Notes on any securities exchange or
for quotation of the New Notes through the National Association of Securities
Dealers Automated Quotation System. See "Plan of Distribution." The liquidity
of, and trading market for, the New Notes also may be adversely affected by
general declines in the market or by declines in the market for similar
securities. Such declines may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange such
Existing Notes for New Notes due to the absence of restrictions on the resale of
New Notes under the Securities Act, the Company anticipates that the liquidity
of the market for any Existing Notes remaining after the consummation of the
Exchange Offer may be substantially limited.
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. Net proceeds from the Offering
(approximately $96 million) were used to repay (i) all amounts outstanding under
the Senior Subordinated Facility ($75.0 million, plus accrued but unpaid
interest) and (ii) $17.0 million of indebtedness outstanding under the Term Loan
Facility. The Company will use the balance of such proceeds for working capital
and general corporate purposes. The Term Loan Facility has a maturity date of
August 10, 2002. At May 31, 1997, the interest rate on the Term Loan Facility
was 8.31%.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 28, 1997 and May 31, 1997. See "Use of Proceeds." This table should be
read in conjunction with "Selected Historical and Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited Consolidated Financial Statements and the
notes thereto and the unaudited interim Consolidated Financial Statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997 MAY 31, 1997
----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Revolving Credit Facility(a)................................ $ -- $ --
Term Loan Facility(b)....................................... 35,000 18,000
Senior Subordinated Facility................................ 75,000 --
11% Senior Subordinated Notes due 2007...................... -- 100,000
-------- --------
Total Debt.......................................... 110,000 118,000
-------- --------
Common stockholder's equity:
Common Stock, $.01 par value, 1,000 shares authorized; 110
shares outstanding.......................................... -- --
Capital in excess of par value................................ 57,600 57,600
Retained earnings (deficit)................................... 841 (3,341)
Cumulative translation adjustments............................ (49) 286
-------- --------
Total common stockholder's equity............................. 58,392 54,545
-------- --------
Total capitalization.......................................... $ 168,392 $172,545
======== ========
</TABLE>
- ---------------
(a) Borrowings of up to $25.0 million under the Revolving Credit Facility are
available for working capital and general corporate purposes, including up
to $10.0 million for letters of credit ($3.8 million of which were issued on
the Acquisition Closing Date). As of May 31, 1997, the Company's unused
availability under the Revolving Credit Facility was approximately $15
million. See "Description of Credit Facilities--Senior Credit Facility."
(b) The Term Loan Facility will mature in the year 2002 and requires quarterly
principal payments through that year. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity" and "Description of Credit Facilities--Senior Credit
Facility."
23
<PAGE> 25
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information include the unaudited pro
forma consolidated statements of income for the fiscal year ended February 28,
1997 and the three months ended May 31, 1997 (the "Pro Forma Consolidated
Statements of Income").
The Pro Forma Consolidated Statement of Income for the fiscal year ended
February 28, 1997 is based on the audited consolidated statements of income of
the Company for the period March 1, 1996 to February 10, 1997 and February 11,
1997 to February 28, 1997 and are adjusted to give effect to the Transactions as
though they had occurred as of the first day of the period presented. The Pro
Forma Consolidated Statement of Income for the fiscal year ended February 28,
1997 reflects pro forma adjustments to give effect to (i) the Acquisition and
(ii) the Offering and the application of the proceeds therefrom.
The Pro Forma Consolidated Statement of Income for the three months ended
May 31, 1997 is based on the Company's unaudited interim consolidated financial
statement of income for the three months ended May 31, 1997 and is adjusted to
give effect to the Offering as though it had occurred as of March 1, 1997.
The Acquisition was accounted for by the purchase method of accounting. The
purchase price paid for the Acquisition is subject to adjustment in the event
that the Company's working capital, cash flow and net intercompany transfers of
cash between Mark IV and its affiliates (other than the Company and its
subsidiaries), on the one hand, and the Company and its subsidiaries, on the
other hand, as calculated based on the audited financial statements as of and
for the ten-month period ended December 31, 1996, differ from amounts estimated
by Mark IV as of the Acquisition Closing Date, which amounts were based upon
available unaudited financial information at that date. The Sellers provided a
draft of the audited financial information on May 9, 1997 and have requested a
further purchase price payment of $405,000, which may be disputed.
The Pro Forma Consolidated Statements of Income and the accompanying notes
should be read in conjunction with the Company's audited consolidated financial
statements and related notes thereto and unaudited interim consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The Pro Forma Consolidated Statements of Income do not purport to be
indicative of the Company's financial condition or the results that would have
actually been obtained had such transactions been consummated as of the assumed
dates and for the periods presented, nor are they indicative of the Company's
results of operation or financial condition for any future period or date.
24
<PAGE> 26
EV INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED FEBRUARY 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 11,
MARCH 1, 1996 1997 TO PRO FORMA ADJUSTMENTS
TO FEBRUARY 28, FULL ------------------------ FULL YEAR
FEBRUARY 10, 1997 1997 YEAR ACQUISITION OFFERING PRO FORMA
------------------ ------------ -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $177,130 $ 14,916 $192,046 $ -- $ -- $192,046
Operating costs:
Costs of products
sold............... 121,380 10,081 131,461 -- -- 131,461
Selling and
administration..... 28,408 1,705 30,113 1,213(a) -- 31,326
Research and
development........ 7,712 454 8,166 -- -- 8,166
Depreciation and
amortization....... 5,083 331 5,414 490(b) -- 5,904
-------- ------- -------- ------- ------- --------
Total operating
costs............ 162,583 12,571 175,194 1,703 -- 176,857
-------- ------- -------- ------- ------- --------
Operating income...... 14,547 2,345 16,892 (1,703) -- 15,189
Interest Expense........ -- 843 843 1,471(c) (843)(d) 13,256
200(c) 11,000(d)
175(c) 410(d)
Foreign Exchange
Losses................ -- 10 10 -- -- 10
-------- ------- -------- ------- ------- --------
Income before taxes... 14,547 1,492 16,039 (3,548) (10,567) 1,924
Provision for income
taxes................. 6,200 651 6,851 (1,223)(e) (4,227)(e) 1,401
-------- ------- -------- ------- ------- --------
Net income......... $ 8,347 $ 841 $ 9,188 $(2,325) $ (6,340) $ 523
======== ======= ======== ======= ======= ========
Other data:
EBITDA(f)............... $ 22,306 $ 21,093
EBITDA margin(g)........ 11.6% 11.0%
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
25
<PAGE> 27
EV INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MAY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE THREE
FOR THE THREE MONTHS PRO FORMA MONTHS ENDED
ENDED MAY 31, 1997 ADJUSTMENTS MAY 31, 1997
--------------------- ------------ --------------
<S> <C> <C> <C>
Net Sales..................................... $44,672 $ -- $ 44,672
Operating costs:
Costs of products sold...................... 31,089 -- 31,089
Selling and administration.................. 7,623 -- 7,623
Research and development.................... 2,450 -- 2,450
Depreciation and amortization............... 1,555 -- 1,555
------- ------- -------
Total operating costs............... 42,717 -- 42,717
------- ------- -------
Operating income............................ 1,955 -- 1,955
Interest Expense.............................. 3,467 (153)(h) 3,314
Write-off of deferred financing costs......... 4,869 (4,869)(i) --
Foreign Exchange Losses....................... 205 -- 205
------- ------- -------
Loss before taxes........................... (6,586) 5,022 (1,564)
Benefit for income taxes...................... (2,404) 2,008(e) (396)
------- ------- -------
Net loss............................ $(4,182) $ 3,014 $ (1,168)
======= ======= =======
Other data:
EBITDA(f)..................................... $ 3,305 $ 3,305
EBITDA margin(g).............................. 7.4% 7.4%
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income.
26
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(a) Reflects management fees to be charged to the Company by Greenwich
Street Capital Partners, Inc. plus incremental future corporate costs to be
incurred by the Company as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
FEBRUARY 28, 1997
-----------------
<S> <C>
Management fee to be charged to the Company.................. $ 750
Less portion included in historical financial statements..... (37)
Estimate of incremental future corporate costs............... 500
------
Additional selling, general, and administrative expenses..... $ 1,213
======
</TABLE>
Estimated future corporate costs principally reflect senior management
personnel, corporate staff positions, costs associated with public reporting
requirements and other costs for services previously provided by Mark IV which
the Company will incur on a stand alone basis. For a period not to exceed twelve
months following the Acquisition, Mark IV is providing certain services to the
Company and its affiliates that it provided to the Company prior to the
Acquisition Closing Date. These services include accounting assistance and tax
planning and consultation. In addition, until a transfer of certain pension plan
assets is completed, Mark IV will continue to hold such assets and to cause its
record keeper and administrator to continue to service in such roles with
respect to such assets. Actual costs incurred on a stand-alone basis may differ
from costs reflected in the Pro Forma Financial Statements.
(b) Reflects additional amortization of goodwill incurred by the Company as
a result of the allocation of the excess of the purchase price over identified
tangible and intangible net assets acquired (the excess purchase price of $27.7
million together with the existing net goodwill balance of $29.9 million is
being amortized over 40 years).
(c) Reflects interest expense associated with the financing for the
Acquisition, net of amounts to be repaid or written off in connection with the
Offering (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
FEBRUARY 28, 1997
-----------------
<S> <C>
Interest on the Term Loan Facility of $18.0 million at an
assumed weighted average interest rate of 8.17% per
annum...................................................... $ 1,471
Amortization of deferred financing costs related to the
above...................................................... 200
Bank agency and commitment fees.............................. 175
------
Total.............................................. $ 1,846
======
</TABLE>
(d) To reflect the incremental interest expense resulting from the Offering
for the fiscal year ended February 28, 1997 (in thousands):
<TABLE>
<S> <C>
Elimination of interest on the Senior Subordinated Facility........ $ (453)
Elimination of interest on the Term Loan Facility.................. (148)
Elimination of amortization of deferred financing cost related to
the above........................................................ (234)
Elimination of bank agency and commitment fees..................... (8)
Interest on the Notes at a rate of 11.00% per annum................ 11,000
Amortization of deferred financing costs related to the Offering... 410
-------
Total.................................................... $10,567
=======
</TABLE>
(e) Reflects the pro forma provision for income taxes associated with pro
forma adjustments. The nondeductibility of the goodwill arising on the
Acquisition has a significant impact on the Company's effective tax rate.
(f) EBITDA represents earnings before interest expense, the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization. EBITDA data is included because management
27
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
understands that such information is considered by certain investors an
additional basis on which to evaluate the Company's ability to pay interest,
repay debt and make capital expenditures. Excluded from EBITDA are interest
expense, the write-off of deferred financing costs, other income, income taxes,
depreciation and amortization, each of which can significantly affect the
Company's results of operations and liquidity and should be considered in
evaluating the Company's financial performance. EBITDA is not intended to
represent and should not be considered more meaningful than, or an alternative
to, measures of operating performance as determined in accordance with generally
accepted accounting principles.
(g) EBITDA margin represents EBITDA as a percentage of net sales.
(h) To reflect the incremental interest expense resulting from the Offering
for the three months ended May 31, 1997 (in thousands):
<TABLE>
<S> <C>
Elimination of interest on the Senior Subordinated Facility......... $ (511)
Elimination of interest on the portion of the Term Loan Facility
repaid with proceeds of the Offering at an assumed weighted
average rate of 8.17% per annum................................... (91)
Elimination of amortization of deferred financing costs related to
the above......................................................... (301)
Incremental interest on the Notes at a rate of 11.00% per annum..... 723
Incremental amortization of deferred financing costs related to the
Offering.......................................................... 27
-------
$ (153)
=======
</TABLE>
(i) To eliminate the write-off of deferred financing fees related to the
Senior Subordinated Facility and the portion of the Term Loan Facility
repaid with proceeds of the Offering.
28
<PAGE> 30
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary financial data of the Company for
each of the five fiscal years during the period ended February 28, 1997 and for
the three months ended May 31, 1996 and 1997. The statement of operations and
balance sheet data set forth below are derived from and should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto and the unaudited interim consolidated financial statements and
notes thereto included elsewhere in this Prospectus. The statement of operations
data set forth below with respect to fiscal years ended February 28, 1994 and
1995, and February 29, 1996 have been audited by Coopers & Lybrand L.L.P.,
independent public accountants. The statement of operations data for the period
from March 1, 1996 through February 10, 1997 and for the period from February
11, 1997 through February 28, 1997 and the balance sheet data as of February 28,
1997 have been audited by Arthur Andersen LLP. The statement of operations data
presented for fiscal year ended February 28, 1993 and for the three months ended
May 31, 1996 and 1997 and the balance sheet data as of May 31, 1997 are derived
from the 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 pro forma financial
data have been derived from the Unaudited Pro Forma Financial Information and
the related notes thereto included elsewhere in this Prospectus. The pro forma
information does not purport to represent what the Company's results would have
actually been if the Transactions, the Offering and the application of the
proceeds therefrom had occurred on the dates 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 Financial Information," "Selected Historical and Pro Forma Financial
Information" and the audited consolidated financial statements and notes thereto
and the unaudited interim consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
29
<PAGE> 31
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR BASIS OF ACCOUNTING NEW BASIS OF ACCOUNTING
------------------------------------------------------------ ---------------------------------------------------
PERIOD FROM PERIOD FROM THREE PRO FORMA
THREE MARCH 1, FEBRUARY 11, MONTHS THREE
FISCAL YEAR ENDED THE MONTHS 1996, 1997, ENDED MONTHS
LAST DAY OF FEBRUARY, ENDED THROUGH THROUGH PRO FORMA MAY ENDED
--------------------------------- MAY 31, FEBRUARY 10, FEBRUARY 28, FISCAL 31, MAY 31,
1993 1994 1995 1996 1996 1997 1997 1997(a) 1997 1997
------ ------ ------ ------ ------- -------------- ------------------ --------- ------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME
STATEMENT
DATA:
Net sales.... $176.7 $173.6 $185.3 $195.5 $ 46.1 $177.1 $ 14.9 $ 192.0 $ 44.7 $ 44.7
Cost of
products
sold....... 117.9 115.6 125.3 134.5 31.5 121.4 10.1 131.5 31.1 31.1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
profit..... 58.8 58.0 60.0 61.0 14.6 55.7 4.8 60.6 13.6 13.6
Selling and
administration... 29.4 28.5 29.4 30.0 7.1 28.4 1.7 31.3 7.6 7.6
Research and
development.. 5.5 5.5 6.3 8.2 2.5 7.7 0.5 8.2 2.5 2.5
Depreciation
and
amortization... 4.5 4.4 4.8 5.1 1.3 5.1 0.3 5.9 1.6 1.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
income(b)... 19.4 19.6 19.5 17.7 3.7 14.5 2.3 15.2 2.0 2.0
Interest
expense.... -- -- -- -- -- -- 0.8 13.3 3.5 3.3
Write-off of
deferred
financing
costs...... -- -- -- -- -- -- -- -- 4.9 --
Foreign
exchange
losses..... -- -- -- -- -- -- -- -- 0.2 0.2
Other
income..... -- -- -- 0.4(c) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
before
income
taxes...... 19.4 19.6 19.5 18.1 3.7 14.5 1.5 1.9 (6.6) (1.6)
Income tax
provision
(benefit)... 7.4 7.3 7.5 7.1 1.4 6.2 0.7 1.4 (2.4) (0.4)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss)..... $ 12.0 $ 12.3 $ 12.0 $ 11.0 $ 2.2 $ 8.3 $ 0.8 $ 0.5 $ (4.2) $ (1.2)
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
OTHER
FINANCIAL
DATA:
EBITDA(d).... $ 23.9 $ 24.0 $ 24.3 $ 22.8 $ 5.0 $ 19.6 $ 2.7 $ 21.1 $ 3.3 $ 3.3
EBITDA
margin(e)... 13.5% 13.8% 13.1% 11.7% 10.8% 11.1% 17.9% 11.0% 7.4% 7.4%
Capital
expenditures... $ 1.6 $ 2.6 $ 4.6 $ 3.7 $ 0.8 $ 3.3 $ 0.1 $ 3.4 $ 0.6 $ 0.6
Cash interest
expense(f)... -- -- -- -- -- -- $ 0.6 $ 12.5 $ 3.0 $ 3.1
Ratio of
EBITDA to
cash
interest
expense(g)... -- -- -- -- -- -- -- 1.7x 1.1x 1.1x
Ratio of
EBITDA
minus
capital
expenditures
to cash
interest
expense(g).. -- -- -- -- -- -- -- 1.4x 0.9x 0.9x
Ratio of
earnings to
fixed
charges(h)... -- -- -- -- -- -- -- 1.0x (i) (i)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
FEBRUARY 28, MAY 31,
1997 1997
------------ -------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 77.5 $ 76.4
Total assets.................................................................... 208.1 211.0
Total debt...................................................................... 110.0 118.0
Stockholder's equity............................................................ 58.4 54.5
</TABLE>
See Notes to Selected Historical and Pro Forma Financial Information.
30
<PAGE> 32
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) The pro forma statement of income data for the fiscal year ended
February 28, 1997 give effect to (i) the Acquisition and (ii) the Offering (and
application of proceeds therefrom) as though each had occurred as of the first
day of the fiscal year. The pro forma statement of income data for the three
months ended May 31, 1997 give effect to the Offering (and application of
proceeds therefrom) as though it had occurred as of the first day of the period.
(b) Represents income from operations before interest expense, the
write-off of deferred financing costs, foreign exchange losses, other income and
provision for income taxes.
(c) Represents a one-time gain on the sale of land in Germany.
(d) EBITDA represents earnings before interest expense, the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization. EBITDA is included because management understands that such
information is considered by certain investors to be an additional basis on
which to evaluate the Company's ability to pay interest, repay debt and make
capital expenditures. Excluded from EBITDA are interest,the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization, each of which can significantly affect the Company's results of
operations and liquidity and should be considered in evaluating the Company's
financial performance. EBITDA is not intended to represent and should not be
considered more meaningful than, or an alternative to, measures of operating
performance as determined in accordance with generally accepted accounting
principles.
(e) Represents EBITDA as a percentage of net sales.
(f) Represents the interest expense exclusive of bank agency fees and
amortization of deferred financing costs. Due to the absence of interest expense
in the Company's Predecessor Basis financial statements, no amounts are
presented for periods prior to the Acquisition.
(g) Due to the absence of interest expense in the Company's Predecessor
Basis financial statements, these ratios are not presented for periods prior to
the Acquisition. For the period from February 11, 1997 through February 28,
1997, these ratios are not meaningful.
(h) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before the write-off of deferred financing
costs, income taxes and fixed charges. Fixed charges consist of interest expense
on all indebtedness, amortization of deferred financing costs and one third of
rental expense on operating leases (the portion deemed representative of the
interest factor). Due to the absence of interest expense in the Company's
Predecessor Basis financial statements, the ratio of earnings to fixed charges
is not presented for periods prior to the Acquisition. For the period from
February 11, 1997 through February 28, 1997, this ratio is not meaningful.
(i) Earnings were inadequate to cover fixed charges by $1.8 million and
$1.9 million on a pro forma basis.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations covers periods both before and after completion of the
Offering. The results of operations for the three months ended May 31, 1997 were
prepared under the new basis of accounting, which includes adjustments giving
effect to the Acquisition under the purchase method of accounting. The results
of operations for the fiscal year ended February 28, 1997 are based on the
Company's statement of income for the period ended February 10, 1997, under the
predecessor basis of accounting, and the Company's statement of income for the
eighteen-day period ended February 28, 1997, under the new basis of accounting.
The impact of the new basis of accounting in the period ended February 28, 1997
on the results of operations for the fiscal year ended February 28, 1997 was not
significant. However, the results of operations for the three months ended May
31, 1997 were not comparable to the three months ended May 31, 1996 due to the
Company's significant new financing arrangements and as a result of the
Acquisition. See "Capitalization," "The Acquisition" and "Description of Credit
Facilities." For further discussion relating to the impact that the Transactions
may have on the Company, see "Risk Factors," "Selected Historical and Pro Forma
Financial Information," "Unaudited Pro Forma Financial Information" and the
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company is one of the largest manufacturers and worldwide marketers of
high-quality, high-performance sound systems products for the professional audio
market, manufacturing microphones, mixing consoles, signal processors,
amplifiers and loudspeaker systems.
The Company targets three principal business lines within the professional
audio market: Fixed Installation, Professional Music Retail and
Concert/Recording/Broadcast. See "Business -- Industry Overview." The Fixed
Installation business line, which management estimates accounted for
approximately 40% of the Company's fiscal year 1996 sales, has continued to
achieve steady growth, partially fueled by sales in emerging markets. The
Professional Music Retail line, which by management estimates accounted for
approximately 35% of the Company's sales in fiscal year 1996, has experienced
moderate growth. Within the Concert/Recording/Broadcast business line, which
management estimates represents approximately 15% of the Company's sales, sales
to concert applications have grown rapidly in recent years, due in large part to
the Company's introduction in 1993 and 1995, respectively, of the Midas XL3 and
XL4 mixing consoles and the demand for certain Electro-Voice loudspeaker systems
featuring Manifold Technology aimed at the concert touring market.
Over 50% of the Company's sales are made internationally. Sales in non-U.S.
countries, particularly throughout the Pacific region, China and South America,
have grown steadily during the reported period.
The Company manufactures most of the products it sells and most of the
active acoustic components that its products contain. The Company does its own
die casting, produces fiberglass horns and buys certain electrical components,
magnets, lumber and plastics. See "Business--Manufacturing." The Company's costs
and expenses include cost of sales, selling and administrative and research and
development expenses. Cost of sales includes product costs (material, direct
labor and manufacturing overhead) and variable selling costs, such as freight
and commissions paid to sales representatives. Selling and administration
expenses include costs of the Company's sales and marketing forces, advertising
and other promotional expenses, and other general and administrative functions.
Overall, the Company's business is not subject to significant seasonal
fluctuations. In general, sales during the fourth fiscal quarter are the
strongest, due to annual major trade shows during that period and preparation
for the spring-through-fall touring season. Sales during the summer period are
the weakest due to vacation periods in Europe.
Management does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
Consolidated Financial Statements included herein. The Company has generally
been able to effect price increases equal to, or moderately exceeding, the
inflationary increase in costs.
32
<PAGE> 34
The Company maintains assets and/or operations in a number of foreign
jurisdictions, the most significant of which are Germany, the United Kingdom,
Japan and Hong Kong. As disclosed on page F-27, the Company's predecessor
financial statements excluded realized foreign currency transaction gains and
losses since these transactions were viewed as an integral part of Mark IV's
consolidated risk management program. For the fiscal years ended the last day of
February 1995 and 1996 and the eleven month and ten day period ended February
10, 1997, realized foreign exchange (gains) losses would have (increased)
reduced operating income by ($0.724 million), $1.065 million and $1.482 million,
respectively, which were principally related to changes in the dollar/yen
exchange rate. Sales denominated in yen represent approximately 11% of
consolidated sales. Sales denominated in German marks, the Hong Kong dollar, and
British pounds represent approximately 21%, 9% and 5% of consolidated sales,
respectively. Exposure to dollar/mark and dollar/pound exchange rate volatility
are mitigated by the Company's ability to source its production needs with
existing manufacturing capacity in Germany and Great Britain. Nevertheless, the
Company has a direct and continuing exposure to both positive and negative
foreign currency movements. The Company plans to develop a risk management
program that will hedge a portion of this foreign currency exposure. Various
alternatives are presently under consideration, including the use of financial
instruments such as forward contracts, options and foreign currency swaps,
natural hedges such as foreign currency debt or some combination thereof. The
Company expects to implement a formal system to manage and control its foreign
currency exposure before this fiscal year-end.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
historical income statement data for the Company expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
PREDECESSOR NEW
BASIS OF BASIS OF
ACCOUNTING ACCOUNTING
----------- -----------
THREE THREE
MONTHS MONTHS
FOR THE LAST DAY OF FEBRUARY, ENDED ENDED
-------------------------------- MAY 31, MAY 31,
1994 1995 1996 1997 1996 1997
----- ----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold.............................. 66.6 67.6 68.8 68.5 68.4 69.6
----- ----- ----- -----
Gross profit....................................... 33.4 32.4 31.2 31.5 31.6 30.4
Selling and administration......................... 16.4 15.9 15.3 15.7 15.4 17.1
Research and development........................... 3.2 3.4 4.2 4.3 5.3 5.5
Depreciation and amortization...................... 2.5 2.6 2.6 2.8 2.9 3.5
----- ----- ----- -----
Operating income................................... 11.3 10.5 9.1 8.7 7.9 4.4
Interest expense................................... -- -- -- 0.4 -- 7.8
Write-off of deferred financing costs.............. -- -- -- -- -- 11.0
Foreign exchange losses............................ -- -- -- -- -- 0.5
Other income....................................... -- -- 0.2 -- -- --
----- ----- ----- -----
Income (Loss) before income taxes.................. 11.3 10.5 9.3 8.3 7.9 (14.7)
Income tax provision (benefit)..................... 4.2 4.1 3.6 3.6 3.1 (5.4)
----- ----- ----- -----
Net Income (Loss).................................. 7.1 6.4 5.7 4.7 4.8 (9.4)
===== ===== ===== =====
EBITDA(a).......................................... 13.8 13.1 11.7 11.5 10.8 7.4
===== ===== ===== =====
</TABLE>
- ---------------
(a) EBITDA represents earnings before interest expense, the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization. EBITDA is included because management understands that such
information is considered by certain investors to be an additional basis on
which to evaluate the Company's ability to pay interest, repay debt and make
capital expenditures. Excluded from EBITDA are interest, the write-off of
deferred financing costs, other income, income taxes, depreciation and
amortization, each of which can significantly affect the Company's results
of operations and liquidity and should be considered in evaluating the
Company's financial performance. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative to,
measures of operating performance as determined in accordance with generally
accepted accounting principles.
33
<PAGE> 35
THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THREE MONTHS ENDED MAY 31, 1996
Net Sales. Net sales decreased $1.4 million, or 3.1% from $46.1 million
for the quarter ended May 31, 1996 to $44.7 million for the quarter ended May
31, 1997. During the comparable periods, net sales to customers in the United
States increased $0.1 million, or 1.0% from $18.9 million to $19.0 million, and
net sales to customers outside the United States decreased $1.6 million, or
5.9%, from $27.2 million to $25.6 million. Net intra-segment sales from the
United States to foreign affiliates decreased $1.0, or 15.4%, from $7.5 million
to $6.5 million. The overall sales decrease is primarily attributable to
unfavorable movements in the dollar/yen and the dollar/mark exchange rates,
which reduced the translated value of foreign currency denominated profits.
Additionally, delays in the introduction of certain new products had an
unfavorable impact. Offsetting this in part were strong sales in Hong Kong, as
well as by Gauss and Vega, both domestic entities.
Gross Profit. Gross profit decreased $1.0 million, or 6.7%, from $14.6
million for the quarter ended May 31, 1996 to $13.6 million for the quarter
ended May 31, 1997. As a percentage of net sales, gross profit decreased from
31.6% to 30.4% during the comparable periods. The overall decrease in gross
profit is primarily attributable to unfavorable movements in the dollar/yen and
the dollar/mark exchange rates, which reduced the translated value of foreign
currency denominated profits. Profit margins were adversely impacted in Japan
and Germany by the higher cost of goods that were produced in the United States.
Additionally, the Company's aggressive pricing strategy, which was implemented
to maintain foreign market position, and the delay in the introduction of
certain new products had unfavorable impacts.
Selling and Administration. Selling and administration expenses increased
by $0.5 million, or 7.1%, from $7.1 million for the quarter ended May 31, 1996
to $7.6 million for the quarter ended May 31, 1997. As a percentage of net
sales, selling and administration expenses increased from 15.4% to 17.1% during
the comparable periods. The overall increase is the result of the GSCP
management fee as well as general inflationary increases throughout the Company.
Additionally, a portion of the increase, as a percentage of net sales, reflects
the impact on reported sales of unfavorable movements in foreign currencies
discussed above.
Research and Development. Research and development expenses during the
quarter ended May 31, 1997 were essentially flat versus the comparable period of
1996. As a percentage of net sales, research and development expenses increased
from 5.3% to 5.5% during the comparable periods reflecting the impact on
reported sales of unfavorable movements in foreign currencies discussed above.
Income Taxes. The Company's benefit for income taxes as a percentage of
loss before benefit for taxes was 36.5% for the quarter ended May 31, 1997. By
comparison, the Company's provision for income taxes as a percentage of income
before provision for taxes was 39.5% for the quarter ended May 31, 1996. The
lower effective rate was principally due to the amortization of nondeductible
goodwill (which reduces the level of taxable loss) and taxes payable in certain
foreign jurisdictions.
YEAR ENDED FEBRUARY 28, 1997 COMPARED TO YEAR ENDED FEBRUARY 29, 1996
Net Sales. Net sales decreased $3.5 million, or 1.8%, from $195.5 million
in the fiscal year ended February 29, 1996 to $192.0 million in the fiscal year
ended February 28, 1997. During the comparable periods, net sales to customers
in the United States remained flat at $88.2 million, and net sales to customers
outside the United States decreased $3.4 million, or 3.2%, from $107.3 million
to $103.9 million. In addition, net intra-segment sales from the United States
to foreign affiliates decreased $7.2 million, or 19.2%, from $37.5 million to
$30.3 million. Principal factors accounting for the overall decrease in sales
included the relative strengthening of the U.S. dollar against certain European
currencies, the termination by the Company of several unauthorized exporters in
the U.S., the Company's decision to cease production of certain low-margin items
under its University Sound brand and the effect of business dislocations due to
a fire at the Company's Swiss facility. These factors were offset in part by
increased sales in the Pacific region, Argentina and Brazil and an out-of-cycle
price increase introduced at the end of fiscal 1996.
Gross Profit. Gross profit decreased $0.4 million, or 0.7%, from $61.0
million during the fiscal year ended February 29, 1996 to $60.6 million for the
fiscal year ended February 28, 1997. As a percentage of net
34
<PAGE> 36
sales, gross profit increased from 31.2% to 31.5% during the same periods.
Principal factors for this gross margin improvement included sales of
high-margin loudspeaker systems and products into foreign markets, a reduction
of sales of certain low-margin University Sound products, manufacturing cost
reductions during the second and third quarters of fiscal 1997 and the
continuing effects of the out-of-cycle price increase. This was offset in part
by product mix shifts and unfavorable currency exchange rates.
Selling and Administration. Selling and administration expenses increased
by $0.1 million, or 0.3%, from $30.0 million during the fiscal year ended
February 29, 1996 to $30.1 million during the fiscal year ended February 28,
1997. As a percentage of net sales, selling and administration expenses
increased from 15.3% to 15.7%. These expenses increased slightly because the
Company has not yet realized the full benefit of its continuing effort to lower
expenses and to streamline support functions, including the consolidation of
certain selling and administration functions from Oklahoma City, Oklahoma into
Buchanan, Michigan and from Ipsach, Switzerland into Straubing, Germany.
Research and Development. Research and development expenses remained flat
at $8.2 million during the fiscal years ended the last day of February 1997 and
1996. As a percent of net sales, research and development expenses increased
from 4.2% to 4.3% during the same period. The Company continues to emphasize the
development of digital technologies, systems and products.
Income Taxes. The Company's provision for income taxes as a percentage of
income before provision for taxes was 42.7% for the fiscal year ended February
28, 1997 compared to 39.2% for the fiscal year ended February 29, 1996. The
higher rate principally relates to the amortization of nondeductible goodwill
recorded as a result of the Acquisition and certain other nondeductible
expenses.
YEAR ENDED FEBRUARY 29, 1996 COMPARED TO YEAR ENDED FEBRUARY 28, 1995
Net Sales. Net sales increased $10.2 million, or 5.5%, from $185.3 million
in the fiscal year ended February 28, 1995 to $195.5 million in the fiscal year
ended February 29, 1996. During the comparable periods, net sales to customers
in the United States decreased $2.8 million, or 3.1%, from $91.0 million to
$88.2 million, and net sales to customers outside the United States increased
$13.0 million, or 13.8%, from $94.3 million to $107.3 million. In addition, net
intra-segment sales from the United States to foreign affiliates increased $8.0
million, or 27.1%, from $29.5 million to $37.5 million. Principal factors
accounting for the overall sales increase were new product introductions in the
Klark-Teknik and Midas lines, improved effectiveness brought about by the
streamlining of the Company's worldwide marketing functions and strong sales in
Australia and Japan. There were also foreign currency shifts in Germany, Japan
and the United Kingdom during the period that were favorable to the Company.
Offsetting this in part were monetary policies in China that tightened the
availability of hard currency, the weakness of the Mexican economy, and slow
sales of products in the Vega line.
Gross Profit. Gross profit increased $1.0 million, or 1.7%, from $60.0
million in the fiscal year ended February 28, 1995 to $61.0 million in the
fiscal year ended February 29, 1996. As a percent of net sales, gross profit
decreased from 32.4% to 31.2% during the same periods. This margin decrease
resulted from the Company's aggressive pricing strategy, which was implemented
to maintain foreign market position and to defend market share from unauthorized
imports.
Selling and Administration. Selling and administration expenses increased
by $0.6 million, or 2.0%, from $29.4 million during the fiscal year ended
February 28, 1995 to $30.0 million during the fiscal year ended February 29,
1996. As a percent of net sales, selling and administration expenses decreased
from 15.9% to 15.3% during the same periods. This percentage decrease was the
result of the Company's continuing efforts to maintain tight control on expenses
and to integrate support functions.
Research and Development. Research and development expenses increased by
$1.9 million, or 30.2% from $6.3 million during the fiscal year ended February
28, 1995 to $8.2 million during the fiscal year ended February 29, 1996. As a
percent of net sales, research and development expenses increased from 3.4% to
4.2% during the same periods. The dollar-base increase reflected the Company's
increased commitment to the development of digital products.
35
<PAGE> 37
Income Taxes. The Company's provision for income taxes as a percentage of
income before provision for taxes increased to 39.2% for the fiscal year ended
February 29, 1996 from 38.5% for the fiscal year ended February 28, 1995. The
higher rate in fiscal 1996 was primarily the result of increased income in
foreign jurisdictions with higher statutory tax rates than in the U.S.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on
indebtedness incurred in connection with the Acquisition and the Offering,
working capital and capital expenditure requirements. The Company incurred
substantial indebtedness in connection with the Acquisition. See "Description of
Credit Facilities" and "Description of Notes." On a pro forma basis, as of
February 28, 1997, the Company would have had outstanding approximately $118.0
million of indebtedness, consisting of $100.0 million of Notes and $18.0 million
under the Term Loan Facility. Prior to the consummation of the Acquisition, the
Company operated as a division of Mark IV and substantially all of its cash
needs were historically funded through interest-free cash requisitions from Mark
IV.
Principal and interest payments under the Senior Credit Facility and the
Notes represent significant liquidity requirements for the Company. Pursuant to
the Term Loan Facility and after giving effect to the Offering and application
of proceeds therefrom, including the prepayment of $17.0 million of the Term
Loan Facility with the proceeds of the Offering and $5.0 million prepaid on July
11, 1997, the Company will be required to make principal payments totaling
approximately $0.7 million, $1.4 million, $2.2 million, $2.6 million, $3.1
million and $2.9 million in each of fiscal year 1998, 1999, 2000, 2001, 2002 and
2003. In addition, under the terms of the Senior Credit Facility, the Company
will be required to make mandatory prepayments with (i) the debt portion of any
payments received from Mark IV pursuant to the purchase price adjustment (see
"The Acquisition"), (ii) non-ordinary asset sale proceeds, (iii) any additional
indebtedness and equity proceeds (with certain exceptions) and (iv) with 75% of
the excess cash flow of the Company and its subsidiaries for each fiscal year
commencing on May 31, 1998 and each May 31 thereafter. Outstanding balances
under the Senior Credit Facility will bear interest at floating rates based upon
the interest rate option selected by the Company; therefore, the Company's
financial condition is and will continue to be affected by changes in prevailing
interest rates.
The Company's investing activities consist mainly of capital expenditures
to maintain facilities, to acquire machines or tooling, to update certain
manufacturing processes and to improve efficiency. Capital expenditures totaled
$3.4 million, $3.7 million, $4.6 million and $2.6 million for fiscal years 1997,
1996, 1995 and 1994, respectively. The increase in capital spending in fiscal
1995 over the prior year reflects the Company's investment to expand its speaker
cabinet manufacturing capability. Capital expenditures totaled $615,000 for the
three months ended May 31, 1997, representing a $200,000 decrease from the three
month period ended May 31, 1996. This decrease is due to the timing of capital
spending and is not indicative of the trend for fiscal 1998. Management
estimates that total capital spending for fiscal 1998 will be approximately $5.5
million. This reflects an anticipated increase in the levels of discretionary
spending to increase capacity and initiate operating efficiencies. Included in
this amount, there is approximately $3.3 million that management estimates is
required for maintenance levels of capital expenditures. The Company's ability
to make capital expenditures is subject to certain restrictions under the Senior
Credit Facility.
Net cash provided by operating activities in the fiscal year ended February
28, 1997 was $4.9 million, as compared to net cash provided by operating
activities of $0.4 million in the fiscal year ended February 28, 1996. This
increase primarily reflects improvements in operating income and working capital
management, particularly in receivables and inventories. Net cash provided by
operating activities in fiscal year 1996 was $0.4 million, as compared to net
cash provided by operating activities of $8.4 million in fiscal year 1995. This
decrease resulted primarily from higher receivables and inventory levels
associated with increased sales levels. Net cash provided by operating
activities for the three months ended May 31, 1997 was $2.2 million, as compared
to net cash provided by operating activities of $5.6 million for the three
months ended May 31, 1996. This overall decrease primarily reflects the decline
in operating income caused by unfavorable foreign currency exchange rate
changes. Additionally, further investment in inventories and the timing of
payments to certain vendors adversely impacted quarterly cash flow.
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The Company relies mainly on internally generated funds and, to the extent
necessary, borrowings under the Revolving Credit Facility and foreign working
capital lines, to meet its liquidity needs. Availability under the Revolving
Credit Facility as of February 28, 1997 was $13.8 million and availability under
the foreign working capital lines as of February 28, 1997 was $4.4 million.
Availability under the Revolving Credit Facility as of May 31, 1997 was $15.0
million and availability under the foreign working capital lines was $4.7
million as of May 31, 1997. Amounts available under the Revolving Credit
Facility are subject to borrowing base availability and may be used for working
capital and general corporate purposes, including letters of credit, subject to
certain limitations. In addition, the Senior Credit Facility limits the Company
from making acquisitions in an aggregate amount over $7.5 million and incurring
significant additional debt to finance acquisitions. See "Description of Credit
Facilities."
Management believes that cash generated from operations, together with
amounts available under the Revolving Credit Facility and the working capital
lines, will be adequate to meet its debt service and principal payment
requirements, capital expenditure needs and working capital requirements for at
least the next three years. However, no assurance can be given in this regard
and working capital requirements may change. The Company's high degree of
leverage could have important consequences on its future operating performance.
See "Risk Factors -- Substantial Leverage and Debt Service Obligations." In
addition, the Company's ability to service or refinance the Notes and to extend
or refinance the Senior Credit Facility will be subject to future economic
conditions and financial, business and other factors, many of which are beyond
the Company's control.
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BUSINESS
GENERAL
EVI, founded in 1928, is one of the largest manufacturers and marketers of
high-quality, high-performance sound system products for the professional audio
market. The Company manufactures and markets a comprehensive range of products
worldwide for professional audio systems, including microphones, mixing
consoles, signal processors, amplifiers and loudspeaker systems. The Company's
brands, which include Electro-Voice, Altec Lansing, Midas and Vega, are widely
recognized and respected in the professional audio market. Since its founding,
the Company has developed a number of technological innovations which are now
commonly used throughout the industry and has received numerous industry awards,
including a 1996 Emmy for advances in wireless microphone technology.
The Company's products are used in airports, theaters, sports arenas,
concert halls, cinemas, stadiums, convention centers, television and radio
broadcast studios, houses of worship and other venues where music or speech is
amplified. EVI products have been installed in a wide variety of larger public
venues, including the Metropolitan Opera House at Lincoln Center, the Hong Kong
Convention Center, Camden Yards, Fenway Park and Disney theme parks, and are
used by professional musicians, including major concert and touring artists such
as Alanis Morissette, KISS, Elton John, Sting, Metallica and Hootie and the
Blowfish. In addition, the Company's microphones are widely used in the
television and radio broadcast industry, including by the major U.S. television
networks and many radio performers.
Products sold to the professional audio market are designed for all types
of commercial venues and all levels of professional musicians. These products
are distinguished from consumer audio products, which are generally not suited
for professional use, by the unique performance requirements and generally
higher price points of professional audio products. In addition, professional
audio products are typically sold through distribution channels targeted at
professional musicians and contractors who design sound systems for commercial
use. The professional audio market is highly fragmented, with only a few major
manufacturers and a larger number of smaller manufacturers, many of which have
limited product lines. The worldwide market for professional audio products
includes countries in the Americas, Europe and Asia, as well as many emerging
markets.
The Company has its principal executive offices at 602 Cecil Street,
Buchanan, Michigan, 49107, telephone number (616) 695-2207.
INDUSTRY OVERVIEW
The Company targets three principal lines of business within the overall
professional audio market: (i) Fixed Installation, or permanently installed
sound systems in public venues; (ii) Professional Music Retail, or sound
products used by professional musicians and sold principally through retail
channels; and (iii) Concert/Recording/Broadcast, or sound products used in
professional concerts, recording projects and radio and television broadcast.
EVI targets the upper tier of these business lines in terms of performance,
quality and price.
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[CHART]
Fixed Installation. Fixed Installation encompasses permanently installed
sound systems in airports, sports arenas, theaters, concert halls, cinemas,
stadiums, convention centers, houses of worship and other venues where music or
speech is amplified. Within the Fixed Installation line of business there are
varying requirements, ranging from concert halls and theaters, which need the
highest quality of fidelity output and broad frequency response, to mass transit
facilities and office buildings, where sound communication is important but need
not be full-range output. The products sold for each type of installation vary
widely in characteristics and price; however, management estimates that the
majority of Fixed Installation contracts generally generate less than $25,000 of
product sales. In this business line, sales for fiscal year 1997 were made to
over 700 customers and prices for the Company's products range from $65 for a
basic microphone to $110,000 for a large-scale, multi-functional mixing console.
The Company's products in the Fixed Installation line of business are sold
through professional audio contractors and distributors. For example, in the
high growth area of cinema sound, the Company's products are purchased by seven
of the ten largest movie theater chains (by number of screens) in the U.S.
The market for Fixed Installation products is generally driven by new
construction and upgrades of existing installations. In the United States, new
uses of audio products are spurring growth. More dynamic sound and music,
requiring more sophisticated audio products, are increasingly being used in
cinemas, religious services and sporting events. Abroad, the development of
infrastructure and upgrade of existing facilities, such as auditoriums, public
places, theaters and sports facilities, in emerging economies is also a source
of increasing demand. Another source of growth in the Fixed Installation
business line is the U.S. cinema market, where the number of U.S. movie screens
is forecast to grow by approximately 12% during the years 1995 through 2000.
Many cinemas update their sound amplification systems to realize fully the new
sound technology in motion pictures. Management believes that houses of worship
are another important source of retrofits. Historically, sound technology has
been used in houses of worship to provide sound reinforcement to the sermon. In
contemporary worship services, the sermon is increasingly complemented by music
that demands more sophisticated sound. In general, management believes that
public awareness of the enhanced abilities of audio equipment increase demand
for improved sound output.
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Management estimates that net sales by the Company for products used in the
Fixed Installation line of business were approximately 40% of net sales in
fiscal year 1997 and 43% for the quarter ended May 31, 1997.
Professional Music Retail. Professional Music Retail products are used
mainly by musicians for live performance, recording and reproduction of
recording material and are generally sold directly to end users through
specialized retail stores that market to musicians, bands and local
entertainment venues. Professional Music Retail products appeal to performers
seeking an improved level of sound system performance, reliability and quality.
The Company's Professional Music Retail products generally range from $85 for a
basic microphone to $1,800 for a loudspeaker system and are sold through its
sales representatives and distributors to retail outlets.
The demand for Professional Music Retail products is driven primarily by an
increase in both the number of new users and the number of users upgrading to
take advantage of enhanced sound technology. Most of the end users targeted in
this business line are 18 to 30 years old. Management believes that the expected
growth in the 12-to-25-year-old population should increase future demand for
Professional Music Retail products. In addition, sales are also driven by demand
for smaller and lighter weight products which are easier to perform with and
transport.
Management estimates that net sales by the Company of Professional Music
Retail products were approximately 35% of net sales in fiscal year 1997 and 33%
for the quarter ended May 31, 1997.
Concert/Recording/Broadcast. The Concert/Recording/Broadcast lines of
business include sound systems for musical concerts and theater productions,
sound recording and radio and television broadcast and production. The Company's
sales of these products are generally made through its distributors and
retailers or directly to touring companies. The Company's
Concert/Recording/Broadcast products range from $65 for a basic microphone to
$110,000 for a large scale, multi-functional mixing console. Management believes
that sales in the Concert/Recording/Broadcast line of business to established,
high-profile touring companies influence and stimulate purchases of products by
smaller groups and lesser known professional musicians. Management estimates
that the Company produces over 50% of the microphones used for electronic news
gathering by major U.S. television networks and radio station personalities
including Rush Limbaugh and Paul Harvey.
Concert/Recording/Broadcast demand is driven by a combination of the
factors that determine growth in the Fixed Installation and Professional Music
Retail lines of business, including technological improvement and an increase in
product applications. For example, most professional sporting events now include
musical performances that require increased sound quality and amplification.
Management believes that audiences have become increasingly accustomed to
improved sound quality while event producers and live musicians have become
accustomed to more advanced technology. The demand for smaller, lighter weight
products is another driver of growth as such products reduce operating costs for
touring applications. In addition, an increase in popularity of remote
electronic news gathering is driving the demand for wired and wireless
microphones as well as portable broadcast mixers.
Management estimates that net sales by the Company of
Concert/Recording/Broadcast products were approximately 15% of net sales in
fiscal year 1997 and 15% for the quarter ended May 31, 1997.
Other Applications. The Company also produces hand-held microphones and
earphones for field and aircraft communications, both military and civilian, and
equipment for high-speed duplication of audio tapes. In addition, the Company
sells its components to original equipment manufacturers for incorporation into
their products. Management estimates that net sales by the Company of products
used for other applications were approximately 10% of net sales in fiscal year
1997 and 9% for the quarter ended May 31, 1997.
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COMPETITIVE STRENGTHS
Management believes that the following competitive strengths have
contributed significantly to the Company's historical growth and serve as a
foundation for the Company's continued growth:
Leading Brand Names. The Company's brand names include Electro-Voice,
Dynacord, Altec Lansing, Klark-Teknik, Midas, University Sound, Vega, DDA, Gauss
and Electro Sound. Management believes that these brand names, which have earned
numerous technological and industry awards, are among the most recognized and
respected names in the high-end professional audio market. EVI products are used
by a wide variety of professional musicians, ranging from local and regional
bands to major touring artists and performers such as Gloria Estefan, Rod
Stewart and Aerosmith. In addition, the Company's products are critical to the
amplification of voice and sound in such major venues as Atlanta's Hartsfield
Airport, Macy's Thanksgiving Day Parade, Chicago's Soldier Field and numerous
cinemas and houses of worship across the United States.
Technological Innovation. EVI has pioneered the development of a number of
new professional audio technologies now widely used in the industry and
continues its commitment to technological innovation through new product
research and development. In order to build on its position as a leader in
technological innovation, the Company has increased its spending on research and
development from $4.9 million in fiscal year 1992 (or approximately 2.9% of
total revenues) to $8.2 million for fiscal year 1997 (or approximately 4.3% of
total revenues). During the quarter ended May 31, 1997, research and development
expenditures were $2.5 million, or 5.5% of total revenues. Management estimates
that new products or product upgrades introduced during fiscal years 1995 or
1996 accounted for approximately 13% of the Company's sales in fiscal year 1997.
A focus of the Company's current research and development is the application of
digital technology, which is intended to exploit the industry-wide transition
from analog to digital processing. EVI is currently bringing to market its first
integrated digital signal processing system, which broadens the Company's
portfolio of approximately 20 other digital products.
International Marketing and Distribution. The Company's products are
marketed in over 50 countries worldwide, which reduces the Company's dependence
on any single geographic market. In recent years, over 50% of the Company's
sales have been made internationally. Unlike many of its competitors, which use
independent foreign distributors that generally sell a variety of competing
products, the majority of the Company's foreign sales efforts are conducted
through its foreign distribution subsidiaries. This network allows the Company
to control its international sales, marketing and operations and provides the
Company with an excellent platform from which to pursue its strategy of
penetrating new markets and expanding its worldwide presence.
Focus on Relationship Marketing. Since 1983, the Company has formally
pursued a strategy of developing market presence by building and maintaining
long-term relationships with its customers, (which typically exceed ten years in
duration) through a number of customer-oriented initiatives. For example, a
number of the largest customers serve on Company advisory councils and meet with
the Company annually to exchange ideas regarding product development, design and
marketing. In addition, the Company regularly conducts training seminars
worldwide that provide technical training and marketing support to its customers
and end users. These councils, seminars and other customer-oriented initiatives
are a key to its recognition as one of "the manufacturers with the best customer
relationships" (Sound and Communications 1996 Contractors Survey). This approach
to relationship marketing enables the Company to be more responsive to
customers' needs and to anticipate more accurately current trends in the market.
Comprehensive Product Offerings. The Company is one of only a few
manufacturers that produce and globally market a comprehensive line of products
for the professional audio market. Management believes that its broad range of
offerings enables it to compete more effectively against many of its competitors
who carry a more limited line of products because the Company's customers are
able to meet EVI end users' requirements across a broader range of applications
from among EVI products. In addition, the Company's volume discount incentives
encourage customers to concentrate their purchases on EVI products.
Integrated Manufacturing. EVI manufactures substantially all of the
products it sells and most of the active acoustic components that its products
contain, which distinguishes the Company from many of its
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competitors. This substantial level of manufacturing integration enables the
Company to reduce the time to market of new product introductions, provide
consistent, premium quality to customers and respond more effectively to
customer delivery and product feature requirements. Management believes these
factors result in a significant advantage over competitors, who outsource a
portion of their production.
BUSINESS STRATEGY
The Company's current strategy is to further increase revenues and improve
operating margins, thereby strengthening its position as a leading manufacturer
and distributor of products to the professional audio market. To achieve these
goals, the Company intends to: (i) enhance marketing efforts; (ii) expand
worldwide presence; (iii) increase operating efficiencies; and (iv) pursue
strategic acquisitions.
Enhance Marketing Efforts. The Company plans to stimulate demand for its
products and increase its brand equity by marketing directly to end users.
Currently, the Company's primary print advertising effort is directed to leading
trade magazines aimed at contractors, music retailers and distributors. A
strategic decision to influence end users as well as the Company's customers is
planned to begin in fiscal year 1998 with the objective of enhancing brand
awareness and brand equity of the Company's products among end users. Plans to
implement this strategy include advertising in consumer magazines, increased
public relations, direct mail, point-of-purchase campaigns, a Company web site
and increasing the frequency of product training programs.
Expand Worldwide Presence. The Company intends to increase its market
position by expanding its extensive distribution network and broadening its
product offerings in existing distribution channels. The Company is currently
focusing its expansion efforts on increasing sales in emerging markets,
including Argentina, Brazil, Chile, China, India and the former Soviet Union.
Management believes that its extensive experience in operating overseas
(including in emerging markets) and its network of foreign subsidiary
distributors provide a strong foundation for its future international expansion
and a significant competitive advantage.
Increase Operating Efficiencies. Management believes opportunities exist
to continue to reduce manufacturing costs and increase manufacturing
efficiencies and is planning to implement re-engineering programs at certain of
the Company's manufacturing facilities. Management estimates that planned
capital expenditures of approximately $2.9 million for fiscal years 1998 and
1999 will result in annual cost savings of approximately $1.8 million. For
example, the Company plans to establish a higher quality and more efficient
electronics production capability, which management expects will generate
significant operating savings and increase the Company's competitiveness in
electronics production. The Company continuously assesses its manufacturing
operations to control or reduce costs, and re-engineers production as necessary.
The Company also intends to continue its CARE process ("Customers Are the Real
Employers"), which utilizes total quality management principles to maximize
operating efficiencies.
Pursue Strategic Acquisitions. The professional audio industry is highly
fragmented, which management believes presents significant consolidation
opportunities. Subject to market conditions and the availability of financing,
the Company plans to pursue acquisition opportunities that complement and expand
its core businesses or that enable the Company to enter new markets. Management
believes that it can leverage the Company's production, distribution and
administrative capabilities to generate significant incremental revenue and cash
flow through strategic acquisitions. Since 1984, the Company has successfully
integrated six business acquisitions and eight brand names into its existing
operations.
BRANDS AND PRODUCTS
The Company has built a broad and diverse product line through the
development of new products and the selective acquisition of product lines. The
following table sets forth the Company's primary product offerings and brands
and the business lines to which they relate. Management estimates that worldwide
sales of its Electro-Voice brand in fiscal year 1997 and the quarter ended May
31, 1997 accounted for approximately half of its net sales and that the balance
of net sales are approximately evenly split among the Company's other brands.
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<TABLE>
<CAPTION>
BRAND PRIMARY PRODUCTS BUSINESS LINE
- -------------------- ------------------------------------------ ------------------------------
<S> <C> <C>
Electro-Voice Microphones, mixing consoles, signal Fixed Installation
processors and amplifiers, loudspeaker Professional Music Retail
systems Concert/Recording/Broadcast
Other Applications
Dynacord Mixing consoles, signal processors and Fixed Installation
amplifiers, loudspeaker systems Professional Music Retail
Altec Lansing Mixing consoles, signal processors and Fixed Installation
amplifiers, loudspeaker systems
Klark-Teknik Signal processors Fixed Installation
Concert/Recording/Broadcast
Midas Mixing consoles Concert/Recording/Broadcast
University Sound Microphones, signal processors and Fixed Installation
amplifiers, loudspeaker systems
Vega Wireless microphones Fixed Installation
Professional Music Retail
Concert/Recording/Broadcast
Other Applications
DDA Mixing consoles Fixed Installation
Concert/Recording/Broadcast
Gauss/Electro-Sound High-speed audio tape duplicating Other Applications
equipment
</TABLE>
Microphones. Microphones are the most common method of converting audible
sound waves into electrical signals that can be processed, modified and
amplified. Microphones come in a variety of sizes and shapes, from handheld or
mounted models of all sizes to very small models meant to be hidden from view.
The Company also produces wireless microphones under the Vega brand name that
use radio instead of cable. The technology employed in the Company's wireless
microphones results in audio quality that, management believes, is
indistinguishable from that of a wired microphone. While targeted to the needs
of the working professional in broadcast and production, concert sound, live
theater, theme parks and related applications, Vega's advanced technology is
also used in government surveillance operations. Vega's wireless microphone
received an Emmy award in 1996 for advances in broadcast wireless technology.
Mixing Consoles. The primary function of a mixing console is to accept
input of electrical signals from a number of microphone sources, such as
multiple singers and instruments in a band, and blend them together to achieve
the desired balance of sound output. Other sound inputs can be fed into a mixing
console as well, such as recorded music. A mixing console also serves as the
center of a sound system, as it sends the electrical signals it receives back
out to the other components of the system. The Company's top-end mixing consoles
are marketed under the Midas brand name, which are used mainly for touring
applications. The Company also sells mixing consoles under the DDA brand.
Signal Processors and Amplifiers. Signal processors modify sound signals
to increase or decrease volume or mix them with other sound signals. The signal
processor with which most people are familiar is the bass and treble adjustment,
or "tone control." In a professional signal processor, the tone control may be
divided into 31 or more bands, allowing separate adjustment of each. The
controls used to effect these adjustments are called "equalizers." Another
familiar signal processor is called the reverberation unit, which can adjust a
signal to make a sound seem as if it were performed in a large hall. Yet another
function of a signal processor is to provide signal delay so that sound arrives
at the same time for an entire audience whether they sit in the back or front of
a venue. The Company markets signal processors under the Dynacord and
Klark-Teknik names, and was one of the first manufacturers, in 1987, to
introduce a reasonably priced signal processor using digital technology.
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The level of signal output from mixing consoles or signal processors is too
low to drive loudspeakers and must be increased by amplifiers. The Company
produces amplifiers under the Altec Lansing, Dynacord and Electro-Voice brands,
many of which contain built-in digital signal processors necessary to achieve
low-frequency output that is often missing in non-digital amplifiers.
Loudspeaker Systems. Loudspeaker systems convert the electrical signals
created from audible sound waves back into sound audible to the human ear. In a
large professional sound system, specialized loudspeakers called horns direct
sound to parts of the audience so that the level of sound in a large venue can
be equalized. The Company produces its high-end loudspeakers under the
Electro-Voice and Altec Lansing names. Certain of these products use
technologies developed by the Company, including "Constant Directivity" and
"Variable Intensity", which help deliver uniform frequency and level of output
across an audience, and Manifold Technology, which delivers louder output. See
"--Product Development." Management believes that its University Sound
loudspeaker is the only such product in the industry currently offering a
Constant Directivity paging speaker, which delivers uniform frequency response
in voice and background music applications.
High-Speed Audio Tape Duplicating Equipment. The Company is a leading
manufacturer of equipment used in commercial duplication of cassette tapes for
both consumer and professional markets and has been at the forefront of
increasing the speed of these products. These products are produced under the
Company's Gauss brand name.
The following diagram illustrates the use of the Company's products in a
complete professional audio system:
LOGO
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CUSTOMER RELATIONSHIPS
Management believes that the contractors, distributors and retailers to
which it sells its products play a significant role in promoting its products.
Since 1983, the Company has formally pursued a strategy of developing market
presence by building and maintaining long-term relationships with its customers.
A number of EVI's largest customers serve on the Company's "Blue Ribbon" and
contractor councils and meet with the Company annually to exchange ideas about
product development, design and marketing. These councils provide a valuable
platform for the exchange of ideas between customers and the Company. The
Company was recently recognized as one of the manufacturers with the best
customer relationships by Sound and Communications 1996 Contractors Survey and
enjoys customer relationships that typically exceed ten years in duration.
Proactive customer service and support is an important element of the
Company's sales strategy. The Company's customer service capability is designed
to enhance loyalty and brand image by building customer understanding of product
application, capability and quality. The Company maintains a staff of technical
support specialists at its headquarters to provide direct technical support to
both customers and end users. Telephone support is augmented by in-field
technical seminars conducted by marketing personnel trained in educating
customers on product features, installation techniques and computer-aided system
design programs for fixed installations. In addition, the Company operates
service stations at all its main distribution locations and has relationships
with a network of over 300 independently owned service stations worldwide, which
provide product repairs.
MARKETING AND SALES
Marketing. The Company's marketing, sales and business development
activities are divided into three regions -- the Americas, Europe and the
Pacific. Each region is structured with a business development team or teams
whose mission is to identify and pursue growth opportunities within the assigned
territory. This structure permits the Company to set worldwide strategies
centrally, but to implement them locally through marketing managers with the
same business practices, language and culture as the customers being served. The
Company believes that the proximity of the customer and the manager also results
in improved response time to customer inquiries and orders. As of May 31, 1997,
the Company's sales and marketing organization included 210 employees in nine
countries worldwide and an independent commissioned sales force of 80
individuals.
Sales. The Company sells its products through several channels. In the
United States, the Company employs independent, commissioned sales
representatives who sell to (i) sound contractors, who typically design and
install integrated sound systems, (ii) music retailers that sell directly to
individuals, bands or small establishments, (iii) independent distributors which
in turn sell to sound contractors or music retailers and (iv) in a few
circumstances, end users that generally are large institutional customers,
original equipment manufacturers or the U.S. military. Abroad, the Company sells
products through both Company-employed and independent, commissioned sales
representatives (a) in nine foreign locations where the Company has established
distribution facilities and (b) through more than 50 independent foreign
distributors. No single customer accounted for more than 5% of the Company's
total net sales in fiscal year 1997 and the quarter ended May 31, 1997. In Hong
Kong, China and Germany, the Company also serves as a sound contractor.
Unlike many of its competitors, which use independent foreign distributors
that generally sell a variety of competing products, the majority of the
Company's foreign sales are conducted through its eight foreign distribution
subsidiaries. Company-owned facilities are located in Germany, Japan, Hong Kong,
China, Canada, France, Switzerland, Australia and the United Kingdom and have
been in place for an average of 13 years. This network allows the Company
greater control over its international sales and marketing and provides an
excellent platform from which to pursue its strategy of penetrating new markets
and expanding its worldwide presence.
In limited instances, the Company sells directly to end users. Often the
end user is a rental company that rents equipment for varying uses, including
touring concerts and public address equipment for local events. The Company also
sells directly to large institutional customers such as the Walt Disney Company,
Club Med
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Resorts and the United States military. In addition, the Company sells certain
of its products directly to original equipment manufacturers for inclusion in
their products and systems. Specifically, several of the Company's Electro-Voice
and Vega brand products are sold to other audio system manufacturers such as
Zeck of Germany and Yamaha of Japan for use as components in their products and
systems. Management estimates that these sales were less than 5% of the
Company's net sales in fiscal 1997 and the quarter ended May 31, 1997. The
Company also licenses the Altec Lansing name for use in consumer loudspeaker
systems.
The Company plans to increase its brand equity and stimulate demand for its
products by marketing directly to end users, who often make the actual
purchasing decisions. Currently, the Company's primary print advertising effort
is directed to leading trade magazines aimed at contractors and distributors. A
strategic decision to influence the end user as well as the Company's customers
is planned for fiscal year 1998 with the objective of enhancing brand awareness
and brand equity among end users. Implementation plans include space advertising
in consumer magazines, increased public relations, direct mail, point of
purchase campaigns, a Company web site and increasing the number and frequency
of product training programs. The Company also exhibits its products at all
major industry trade shows worldwide.
PRODUCT DEVELOPMENT
Management believes the Company is a strong product innovator. The Company
has introduced numerous technologies that are used throughout the audio
industry, including Constant Directivity and Variable Intensity horns, Manifold
Technology in loudspeaker systems, the application of Neodymium in loudspeaker
systems and microphone magnets and Titanium in compression driver diaphragms.
The concept of Constant Directivity in horn design was introduced to
professional audio by Electro-Voice, Incorporated in the 1970's. Constant
directivity is a characteristic of horn performance that distributes frequencies
evenly over the coverage pattern of the horn. Variable Intensity is a
characteristic of horn performance that distributes sound pressure (the level of
the sound) evenly over the coverage pattern of the horn. In combination,
Constant Directivity and Variable Intensity provide accurate and uniform sound
throughout the listening area. Manifold Technology is the practice of coupling
multiple loudspeakers to a single acoustic horn resulting in significantly
higher sound pressure as compared to the case of one loudspeaker and one horn.
The advantages of Manifold Technology are the elimination of interferences often
found when using multiple sources and a considerably smaller size and lower
weight per unit of sound pressure. The technology is employed mainly in
loudspeaker systems used by concert musicians. The Company believes it was the
first to employ neodymium (N-DYM), a rare-earth element, in lieu of conventional
magnets in the manufacture of loudspeaker systems and microphones. This
innovation resulted in products achieving higher acoustic output and lighter
weight than previously possible. Titanium diaphragms represent an improvement
over conventional aluminum compression driver diaphragms because they have a
higher strength-to-weight ratio. Lighter weight diaphragms produce extended high
frequencies more efficiently than heavier ones.
Over the past 30 years, the Company's products have received a number of
awards from industry publications and other sources. These awards are based in
part on subjective criteria and accordingly should not be attributed undue
significance. The Company's most prominent awards are listed below:
<TABLE>
<CAPTION>
YEAR
AWARDED BRAND AND PRODUCT TYPE AWARD SOURCE
-------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
1996.................. Midas XL4 mixing Sound product of the Theatre Crafts
console year International
1996.................. Midas XL200 mixing Best front-of-house LiveSound!
console theater console International Awards
1996.................. Klark-Teknik DN510 Best noise gate LiveSound!
noise gate International Awards
1996.................. Klark-Teknik DN728 Best digital delay LiveSound!
digital delay line International Awards
1996.................. Klark-Teknik DN4000 Product excellence Plasa Awards UK
parametric equalizer
and delay
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
YEAR
AWARDED BRAND AND PRODUCT TYPE AWARD SOURCE
-------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
1996.................. Vega wireless Emmy for advances in National Academy of
microphone broadcast wireless Television Arts and
technology Sciences
1996.................. EV dX34 digital sound Best digital crossover LiveSound!
system controller International Awards
1996.................. Klark-Teknik DN500 Best dynamics control LiveSound!
signal processor International Awards
1996.................. Electro-Voice MT4 Best arena LiveSound!
loudspeakers loudspeakers International Awards
1995.................. Midas XL3 mixing Best live performance LIVE! Awards
console mixing console
1995.................. Midas XL4 mixing Best front-of-house LiveSound!
console concert console International Awards
1995.................. Klark-Teknik 3600 Best digital LiveSound!
equalizer programmable equalizer International Awards
1995.................. Electro-Voice 27 N/D Best percussion LiveSound!
microphone microphone International Awards
1994.................. Klark-Teknik DN410 Best parametric LiveSound!
equalizer equalizer International Awards
1994.................. Klark-Teknik DN360 Best graphic equalizer LiveSound!
equalizer International Awards
1994.................. Electro-Voice Delta Best club loudspeakers LiveSound!
Max loudspeakers International Awards
1993.................. Vega VegaNet control Sound product of the LDI
system year
1989.................. Electro-Voice Blue Ribbon Contractor US Army
headsets, handsets, Award Communications --
microphones and Electronics
speakers Communications Award
1988.................. Electro-Voice Sound Equipment Performance Magazine
Manufacturer of the
Year
1987.................. Electro-Voice N/D 757 Most innovative Music and Sound Awards
microphone product
1963.................. Electro-Voice Oscar for scientific Academy of Motion
microphone and technical Picture Arts and
achievement Sciences
</TABLE>
The Company has over 200 product development projects planned or currently
in progress. Of these, approximately 40 are designed to yield new technological
developments, including numerous applications of digital technology, which are
intended to exploit the industry-wide transition from analog to digital
processing. Other research and development projects principally are for design
maintenance or to achieve product enhancements that have been requested by
customers, both of which are important activities in sustaining the Company's
product lines. Because the Company produces a comprehensive range of products,
management believes the Company has the capacity to integrate easily
technologies from one product line to another product line, which ultimately
leads to new products that are often less expensive, lighter or otherwise more
desirable.
In professional audio products there is a growing trend toward broader use
of digital technology, which is more flexible and easier to manipulate than
analog technology. The Company offered its first digital product, a digital
signal processor, in 1987. During the intervening years, the Company has
introduced increasingly complex additional digital processing and control
products for a growing range of applications. These products have generally been
specialized signal processing components intended to fulfill a specific role in
a sound system. In the past, the high cost of digital devices has made it
impractical to utilize the technology fully.
47
<PAGE> 49
Recently, the cost of digital devices has decreased, and such devices have
become more powerful, which has enabled designers to develop products that more
fully integrate digital functions into a sound system. The first of the
Company's fully integrated digital products, an integrated signal processing,
routing and control system to be marketed under the name Merlin, is currently
being tested in selected customer installations.
As of May 31, 1997, the Company's research and development organization
consisted of 171 employees located in seven locations around the world,
including 80 engineers, each of whom specializes in a certain type of product
and application. In fiscal 1994, 1995, 1996 and 1997, research and development
expenses were $5.5 million, $6.3 million, $8.2 million and $8.2 million,
respectively. During the quarter ended May 31, 1997, research and development
expenditures were $2.5 million. Work involving applications of digital
technology represented approximately 22% of the Company's research and
development expenditures in fiscal year 1997 and the quarter ended May 31, 1997.
MANUFACTURING
The Company manufactures most of the products it sells, and most of the
active acoustic components that they contain. This is done in eleven facilities
located in the United States, Germany and the United Kingdom. Manufacturing
processes are substantially integrated and, in addition to the assembly
processes more typically found among the Company's competitors, include die
casting, fiberglass plastics molding, transformer and coil winding, sheet metal
stamping and forming, metal machining, cabinet fabrication, painting and
plating. The Company purchases certain electrical components, magnets, lumber
and plastics.
Management believes that the Company's integrated manufacturing
capabilities are important factors in maintaining and improving the quality,
performance, availability and cost of EVI products, and decreasing the time to
market of new product introductions. Management also believes that the Company
can respond more effectively to changing customer delivery and product feature
requirements by doing the majority of its own manufacturing and that this gives
it an advantage over many of its competitors. The Company continuously assesses
its manufacturing operations to control or reduce costs.
The Company is planning to implement re-engineering programs in certain of
its manufacturing facilities. Management estimates that planned capital
expenditures of approximately $2.9 million for fiscal years 1998 and 1999 will
result in annual cost savings of approximately $1.8 million. For example, the
Company plans to establish a higher quality and more efficient electronics
assembly capability, which management believes will generate operating savings.
The Company plans to achieve this by installing an automated printed circuit
board insertion operation, an automated finishing system and an automated
carousel stock room.
The Company also sells under its brand names a limited number of finished
products purchased from outside suppliers, including certain electronic products
and loudspeaker systems, where low cost is an essential attribute of the
product. In addition, certain other finished products of non-Company brands are
purchased to supplement the offerings of the Company's distribution operations
in Japan, Hong Kong, Switzerland, Australia and France.
48
<PAGE> 50
FACILITIES
The following table lists the Company's principal operating facilities:
<TABLE>
<CAPTION>
OWNED/ SIZE
LOCATION LEASED (SQUARE FEET) FACILITY TYPE
- ----------------------------------- ------- ------------- -----------------------------------
<S> <C> <C> <C>
UNITED STATES:
Buchanan, MI....................... Owned 144,000 Corporate
Headquarters/Manufacturing/
Sales/Marketing/Administration/
Distribution/Service Center
Buchanan, MI....................... Owned 28,500 Research & Development
Buchanan, MI....................... Leased 9,600 Sales/Marketing/Distribution/Service
Center
Oklahoma City, OK.................. Owned 143,000 Manufacturing/Research &
Development/Distribution/Service
Center
Austin, TX......................... Leased 95,000 Manufacturing/Distribution
Newport, TN........................ Owned 49,000 Manufacturing
Sevierville, TN.................... Owned 44,000 Manufacturing
Newport, TN........................ Leased 40,000 Distribution
Sun Valley, CA..................... Owned 27,000 Manufacturing/Sales/Marketing/
Administration/Research &
Development/Distribution/Service
Center
El Monte, CA....................... Leased 23,000 Manufacturing/Sales/Marketing/
Administration/Research &
Development/Distribution/Service
Center
Sun Valley, CA..................... Leased 20,600 Distribution
Mishawaka, IN...................... Leased 20,000 Manufacturing
INTERNATIONAL:
Straubing, Germany................. Owned 95,000 Manufacturing/Sales/Marketing/
Administration/Research &
Development/Distribution/Service
Center
Straubing, Germany................. Leased 10,700 Warehouse
Hohenwarth, Germany................ Leased 7,600 Manufacturing
Kidderminster, England............. Leased 35,000 Manufacturing/Sales/Marketing/
Administration/Research &
Development/Distribution/Service
Center
Hounslow, England.................. Leased 8,000 Research & Development
Kowloon, Hong Kong................. Leased 18,300 Sales/Marketing/Administration/
Distribution/Service Center
Tokyo, Japan....................... Leased 14,800 Sales/Marketing/Administration/
Distribution/Service Center
Osaka, Japan....................... Leased 1,200 Sales/Marketing
Nagoya, Japan...................... Leased 500 Sales/Marketing
Gananoque, Canada.................. Owned 16,000 Sales/Marketing/Administration/
Distribution/Service Center
Sydney, Australia.................. Leased 8,000 Sales/Marketing/Administration/
Distribution/Service Center
Ipsach, Switzerland................ Leased 3,400 Sales/Marketing/Administration/
Distribution/Service Center
Paris, France...................... Leased 3,500 Sales/Marketing/Administration/
Distribution/Service Center
Guangzhou, China................... Leased 280 Sales/Marketing
</TABLE>
The Company is committed to achieving International Organization for
Standardization ("ISO") certification at all its principal manufacturing
facilities. The Sevierville, Tennessee and Kidderminster,
49
<PAGE> 51
England facilities have been certified under ISO 9002 and the Straubing, Germany
facility has been certified under ISO 9001. The Company's Buchanan, Michigan and
Newport, Tennessee facilities are well into the certification process and expect
certification in 1997.
EMPLOYEES
As of May 31, 1997, the Company employed 1,720 persons worldwide, of which
1,088 were employed in the United States, 188 were employed in the United
Kingdom, 295 were employed in Germany and 149 were employed in other countries.
On a functional basis, approximately 1,222 were employed in manufacturing, 171
in research and development, 210 in sales and marketing and 117 in
administration and finance.
As of May 31, 1997 the Company employed approximately 876 unionized
employees, of whom approximately 611 were in the United States and 265 were in
Germany. In the United States, employees at the Company's manufacturing
facilities in Newport, Tennessee; Sevierville, Tennessee; Buchanan, Michigan;
and Oklahoma City, Oklahoma are covered by collective bargaining agreements that
expire in June 1998, July 1998, June 2000 and June 2000, respectively. The
Company is in the process of negotiating an initial collective bargaining
agreement at its Mishawaka, Indiana manufacturing facility. It is anticipated
that these negotiations will be concluded by September, 1997. There are no
material grievances pending with respect to any union employees. The Company has
not experienced any work stoppages in recent years and believes that its
relationship with its employees has been good.
PATENTS, LICENSES AND TRADEMARKS
Among the Company's significant assets are its intellectual property
rights. The Company relies on a combination of copyright, trademark and patent
laws to protect these assets, and to a significant degree, on trade secrets,
confidentiality procedures and contractual provisions which may afford more
limited legal protections.
The Company's operations are not dependent to any significant extent on any
single or related group of patents, licenses, franchises or concessions. The
Company believes its most significant patents are three patents relating to high
output compression drivers, manifold technology products and variable intensity
horns which expire in 2003, 2006 and 2009, respectively. The Company does not
believe that the expiration of any of these patents will have a material adverse
effect on the Company's financial condition or its results of operations.
The Company has, pursuant to a perpetual, royalty-bearing license, licensed
certain of its trademarks, including the Altec Lansing trademark, for use on
products such as consumer audio products not otherwise manufactured by the
Company. In addition, the Company from time to time has granted patent or
technology licenses to, and has licensed technology or patents from, other
parties. The amounts paid to or by the Company on an annual basis in relation to
its licensing activities have not been material.
The Company's operations are also not dependent upon any single trademark
other than the Electro-Voice, Altec Lansing and Dynacord trademarks. A number of
the trademarks used by the Company, however, are identified with and important
to the sale and marketing of the Company's products. See "-- Brands and
Products."
The Company has not registered its significant trademarks in all foreign
jurisdictions in which it does business, although management believes that the
Company's most significant marks generally have been registered in the
jurisdictions where their sales are the strongest. The Company does not believe
that any of its products currently infringe upon the proprietary rights of third
parties in any material respect.
As a result of the Acquisition, the Company restructured and renamed most
of its subsidiaries. The Company's corporate name is EV International, Inc. and
it is currently doing business under the name "EVI Audio."
50
<PAGE> 52
ENVIRONMENTAL REGULATION
The Company and its operations are subject to extensive and changing U.S.
federal, state and local and foreign environmental laws and regulations,
including, but not limited to, laws and regulations that impose liability on
responsible parties to remediate, or contribute to the costs of remediating,
current or formerly owned or leased sites or other sites where solid or
hazardous wastes or substances were disposed of or released into the
environment. These remediation requirements may be imposed without regard to
fault or legality at the time of the disposal or release. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, however, operations of the Company have
resulted, and may result in the future, in non-compliance or liability with
respect to such laws and regulations.
The Company recently had Phase I Environmental Site Assessment and
Compliance Reviews conducted by a third-party environmental consultant at all of
its manufacturing sites and is aware of environmental conditions at such sites
that require or may require remediation or continued monitoring. The Company is
undertaking or is planning to undertake remediation or monitoring at these
sites. In particular, the Company's site in Buchanan, Michigan has been
designated a Superfund site under U.S. environmental laws. Mark IV has agreed to
indemnify the Company fully for environmental liabilities resulting from the
Buchanan, Michigan Superfund site and certain of the other sites at which the
environmental consultant indicated monitoring or remediation was necessary. See
"Relationships with Mark IV."
The Company estimates that it will incur, in fiscal year 1998,
approximately $150,000 of environmentally related capital expenditures. The
Company's environmentally related expenditures in fiscal years 1996 and 1997
were not material. The Company does not believe that the costs to the Company of
environmental compliance under current laws and regulations will have a material
adverse effect on the financial condition or results of operations of the
Company.
COMPETITION
The professional audio market is highly competitive and fragmented. Certain
of the Company's competitors are substantially larger than the Company and have
greater financial resources. The principal competitive factors affecting the
market for the Company's products are product quality, reliability, price,
value, name recognition, performance and customer relationships. The Company
believes that it currently competes favorably overall with respect to each of
these factors.
The Company faces meaningful competition in all of its product categories
and markets. Management believes that its major competitor in providing a full
line of professional audio products is Harman International Industries,
Incorporated, one of whose three segments competes in the professional audio
products market. Management believes that it is one of a few manufacturers that
carries a comprehensive line of professional audio products.
LEGAL PROCEEDINGS
From time to time the Company is a party to various legal actions in the
normal course of business. Gulton Industries, Inc. ("Gulton"), a predecessor to
the holding company that was merged into and with the Company, was sued by a
company for infringement of a U.S. patent that Gulton was using to produce
products unrelated to the business of the Company for a business line that was
transferred out of Gulton prior to the Acquisition. At trial, the plaintiff was
awarded $3,023,773 in damages. The matter was appealed and upheld with the issue
of calculation of damages remanded to the District Court. No decision has been
made by the District Court on this issue. Mark IV, which is prosecuting the
claim on behalf of Gulton, has agreed to indemnify the Company fully for any
losses or liabilities arising from this litigation. The Company believes that it
is not currently party to any litigation which, if adversely determined, would
have a material adverse effect on the liquidity or results of operations of the
Company.
51
<PAGE> 53
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each of the
executive officers, directors and persons nominated to become directors of the
Company. Each director of the Company will hold office until the next annual
meeting of shareholders of the Company or until his successor has been elected.
Qualified officers of the Company are elected by the Board of Directors of the
Company (the "Board") and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------ ---- ------------------------------------
<S> <C> <C>
Paul A. McGuire....................................... 55 Acting Co-Chief Executive Officer
Roger H. Gaines....................................... 56 Acting Co-Chief Executive Officer
F. Davis Merrey, Jr................................... 56 Vice President -- Research and
Development
Nicholas E. Somers.................................... 35 Chairman of the Board
Alfred C. Eckert III.................................. 49 Director
Edgar S. Woolard, Jr.................................. 63 Director
</TABLE>
Paul A. McGuire was elected Acting Co-Chief Executive Officer of the
Company effective May 6, 1997, prior to which he was Vice President of the
Company with responsibility for sales and marketing. He joined Electro-Voice,
Incorporated in 1972. He held positions in sales and marketing at Electro-Voice,
Incorporated and in 1990 was appointed President. In 1994, he was appointed
President of Mark IV Audio, Inc. with responsibility for the Americas. In 1995,
Mr. McGuire assumed the additional responsibility for Europe.
Roger H. Gaines was elected Acting Co-Chief Executive Officer of the
Company effective May 6, 1997, prior to which he was Vice President of the
Company with responsibility for manufacturing. He joined Electro-Voice,
Incorporated in 1981. In 1991, he was appointed Vice President of Manufacturing
of Mark IV Audio, Inc.
F. Davis Merrey, Jr. is Vice President of the Company with responsibility
for research and development. He joined Electro-Voice, Incorporated in 1976. In
1985, he was appointed President of Altec Lansing Corporation, a subsidiary of
Gulton Industries, Inc. In April 1994, he was appointed Vice President of
Research and Development of Electro-Voice, Incorporated.
Nicholas E. Somers has been the Chairman of the Board of the Company since
February 1997. Mr. Somers has been a Managing Director of GSCP since December
1993. Prior to that, he worked at Morgan Stanley & Co. in the Mergers &
Acquisitions and Corporate Finance Departments from June 1988 to June 1993.
Alfred C. Eckert III has been a director of the Company since February
1997. Mr. Eckert has been the President of GSCP since January 1994. Since 1991,
Mr. Eckert has been a general partner of Greycliff Partners. From 1984 to 1991,
Mr. Eckert was a general partner of Goldman, Sachs & Co. He is a director of
Georgia Gulf Corporation and HBO & Company.
Edgar S. Woolard, Jr. has been a director of the Company since February
1997. Mr. Woolard is Chairman of the Board of Directors of DuPont. He joined
DuPont in 1957 and held a variety of engineering, manufacturing and management
positions before being elected President and Chief Operating Officer in 1987 and
Chairman and Chief Executive Officer in 1989. He retired from the company in
1995. Mr. Woolard is also a director of Citicorp and the North Carolina Textile
Foundation, Inc., a member of the Business Council, a member of the Board of
Directors of Apple Computer, a member of the Board of Trustees of Winterthur
Museum and a member of the Board of Trustees of the Medical Center of Delaware.
DIRECTOR COMPENSATION
With the exception of Edgar S. Woolard, Jr., the current directors of the
Company receive no compensation. For his services as a director, the Company
intends to pay Mr. Woolard compensation of
52
<PAGE> 54
$10,000 annually and an additional $1,000 for each meeting of the Board he
attends. The Company also intends to pay Mr. Woolard a consulting fee of $50,000
for services rendered prior to the time when he became a director of the
Company. In addition, it is intended that Mr. Woolard will be granted a warrant
representing the right to purchase shares of common stock of the Company equal
to 6/10 of 1% of the issued and outstanding common stock determined as of the
date hereof. It is anticipated that the exercise price of the warrant will equal
the per share price of the GSCP Equity Investment for common equity of Holding.
The other terms and conditions of the warrant will be determined by the Company.
All of the directors are entitled to reimbursement of their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the Board.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to all
compensation paid or accrued by the Company for services rendered in all
capacities for the fiscal year ended February 28, 1997 by its Chief Executive
Officer and each of the other four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION
- ------------------------------------------------------- ----- -------- -------- ------------
<S> <C> <C> <C> <C>
Robert D. Pabst........................................ 1997 $230,000 $ 27,658 $ 45,513(a)
Former Chief Executive Officer and President
Paul A. McGuire........................................ 1997 170,577 16,696 3,067(b)
Acting Co-Chief Executive Officer
Roger H. Gaines........................................ 1997 112,800 9,242 2,410(b)
Acting Co-Chief Executive Officer
F. Davis Merrey, Jr.................................... 1997 135,200 8,550 2,824(b)
Vice President -- Research and Development
John G. Bolstetter..................................... 1997 100,577 8,975 990(b)
Former Vice President -- Finance
</TABLE>
- ---------------
(a) Includes (i) supplemental retirement benefits of $42,246 accrued by Mark IV
during fiscal year 1997 and (ii) $3,267 in matching contributions paid by
Mark IV under the Mark IV Savings and Retirement Plan and accrued by the
Company under the EV International, Inc. Savings and Retirement Plan (the
"Savings Plan") during fiscal year 1997.
(b) Represents matching contributions paid by Mark IV under the Mark IV Savings
and Retirement Plan and accrued by the Company under the Savings Plan during
fiscal year 1997.
DEFINED CONTRIBUTION PLAN
The Company maintains the Savings Plan, which is a defined contribution
plan with a cash or deferred arrangement (as described under Section 401(k) of
the Internal Revenue Code of 1986, as amended). All salaried employees and
certain employees covered by collective bargaining agreements are eligible to
participate in the Savings Plan after completion of one year of service.
Eligible employees may elect to contribute on a tax deferred basis from 1%
to 15% of their compensation (as defined in the Savings Plan), subject to
statutory limitations. In addition, the Company may make matching or
discretionary contributions, which vary in amount, to the Savings Plan. The
Company has committed for the first plan year (as defined in the Savings Plan)
to make a discretionary contribution on behalf of non-collectively bargained
employees in an amount which is substantially comparable to the amount of
contribution or benefits that such participants would have received if they were
participants in the Mark IV Savings and Retirement Plan or the Mark IV
Retirement Plan, had such plans continued in full force and effect after the
Acquisition.
53
<PAGE> 55
Under the terms of the Savings Plan, each participant has a fully vested
(nonforfeitable) interest in all contributions made by the individual, matching
contributions and all earnings thereon. A participant will vest in any
discretionary contributions made to his or her account upon completion of five
years of service.
THE ANNUAL BONUS PLAN
It is anticipated that the Company will adopt an annual bonus plan for the
Company's management employees that will provide that participants in such plan
be entitled to an annual bonus based on achievement of certain projected
earnings performance targets. Under the proposed terms of the bonus plan,
participants will be eligible to receive an annual bonus of between 25% and 100%
of his or her base salary depending on the level of achievement of the
performance targets.
AGGREGATED OPTION EXERCISES
The following table sets forth certain information with respect to the
options held by the named executive officers issued under the Mark IV
Industries, Inc. and Subsidiaries 1992 Incentive Stock Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
OPTIONS EXERCISED IN FISCAL UNDERLYING UNEXERCISED
YEAR 1996 UNEXERCISED IN-THE-MONEY
------------------------------ OPTIONS AT OPTIONS AT
NUMBER OF SHARES FEB. 28, 1997 FEB. 28, 1997
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ---------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Robert D. Pabst....................... 55,594 $ 720,770 -- --
Paul A. McGuire....................... 8,172 130,325 8,722/0 $49,773/0
F. Davis Merrey, Jr. ................. 8,764 76,454 -- --
Roger H. Gaines....................... 6,622 39,570 2,430/0 30,455/0
John G. Bolstetter.................... -- -- 10,355/0 97,524/0
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. McGuire, Merrey and Gaines have entered into three-year employment
agreements with the Company (the "Employment Agreements"), which automatically
extend for successive one-year terms, subject to termination upon notice.
Pursuant to the Employment Agreements, each officer receives (i) an annual base
salary of $185,000, $145,000 and $150,000, respectively, (ii) an annual cash
bonus in an amount determined under the Company's Annual Bonus Plan based on the
achievement of targeted performance objectives and (iii) certain other benefits,
including eligibility to participate in employee pension and welfare benefit
plans sponsored by the Company. If the employment with the Company of Messrs.
McGuire, Merrey or Gaines is terminated without cause (as defined in the
Employment Agreements), all obligations of the Company to such officer will
cease except that (a) he will be entitled to payment of his earned salary,
accrued vacation and vested benefits (as defined in the Employment Agreements),
(b) he shall receive a pro rata annual bonus for the year of termination and (c)
the Company will continue to pay his then current salary and certain other
benefits then in effect for a period of twelve months. If such officer's
employment with the Company is terminated for cause (as defined in the
Employment Agreements), all obligations of the Company to him will cease, except
that he will be entitled to payment of his earned salary, accrued vacation and
vested benefits (as defined in the Employment Agreements). If such officer
terminates his employment with the Company upon the expiration of his Employment
Agreement because the Company opts not to renew his Employment Agreement, the
Company will continue to pay him his base salary for a period of six months and
he will be entitled to payment of his earned salary, accrued vacation and vested
benefits (as defined in the Employment Agreements). Messrs. McGuire, Merrey and
Gaines have agreed not to compete with the Company during their respective
employment periods and for a one-year period following the end of the earlier of
their employment with the Company and the termination of their respective
Employment Agreements, unless such officer is terminated without cause.
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<PAGE> 56
MANAGEMENT CHANGES
On May 6, 1997, the employment of Messrs. Pabst, Bolstetter and Graham, who
had been, respectively, the Chief Executive Officer and President, Vice
President-Finance and Vice President-Administration of the Company, was
terminated. The Company is currently conducting a search for senior executive
officers to carry out the functions previously performed by Messrs. Pabst,
Bolstetter and Graham. In the meantime, Messrs. McGuire and Gaines have been
elected Acting Co-Chief Executive Officers.
Under Employment Agreements with the Company, Messrs. Pabst and Bolstetter
are entitled to compensation upon their departure from the Company. Pursuant to
such Employment Agreements during the course of employment, each officer was
entitled to, among other items, an annual base salary of $230,000 and $140,000,
respectively, and an annual cash bonus in an amount determined under the
Company's Annual Bonus Plan based on the achievement of targeted performance
objectives. All obligations of the Company to each such officer cease upon
termination except that each (a) will be entitled to payment of his earned
salary, accrued vacation and vested benefits earned through the date of
termination and (b) shall receive a pro rata annual bonus for the year of
termination. Any severance payments due to Mssrs. Pabst and Bolstetter under
their respective Employment Agreements shall be paid by Mark IV, as provided in
such Employment Agreements and the Purchase Agreement. Mr. Graham is entitled to
receive severance payments pursuant to a severance agreement with Mark IV which
are paid by Mark IV.
55
<PAGE> 57
OWNERSHIP OF CAPITAL STOCK
The authorized common stock of the Company consists of 1,000 shares of
common stock, par value $.01 per share, of which 110 shares are issued and
outstanding and all of which are owned by Holding. The authorized common stock
of Holding consists of 300,000 shares of common stock, par value $.001 per
share, of which 85,000 shares are issued and outstanding. All of Holding's
issued and outstanding common stock is owned by EVI Audio, LLC, the parent
company of Holding. Holding is also authorized to issue 100,000 shares of the
Class A pay-in-kind preferred stock (the "PIK Preferred Stock"), par value $.01
per share, of which 15,000 shares are issued and outstanding to EVI Audio, LLC.
The entire class of PIK Preferred Stock is owned by EVI Audio LLC. See "Use of
Proceeds."
The Company expects to offer shares of common stock of the Company
representing approximately 3% of the total common stock of the Company to
certain officers, foreign managers and employees of the Company.
The following table sets forth the beneficial ownership of the limited
liability company interests of EVI Audio, LLC.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS INTERESTS CLASS
------------------------------------------------------------- --------- ----------
<S> <C> <C>
GSCP(a)(b)................................................... 72.42 72.42%
TRV Employees Fund, L.P.(c)(b)............................... 17.69 17.69%
Greenwich Street Capital Offshore Fund, Ltd.(d)(b)........... 4.41 4.41%
The Travelers Insurance Company(e)(b)........................ 3.67 3.67%
The Travelers Life and Annuity Company(e)(b)................. 1.81 1.81%
------ -------
100.00 100.00%
====== =======
</TABLE>
- ---------------
(a) The address for this person is 388 Greenwich Street, 36th Fl., New York,
N.Y. 10013. The managing general partner of the general partner of this
person is a wholly owned subsidiary of Travelers Group Inc. ("Travelers").
The manager of this person is Greenwich Street Capital Partners, Inc.
("GSCP, Inc."), which is also a wholly owned subsidiary of Travelers.
(b) By virtue of the relationships set forth in notes (a), (c) and (d),
Travelers may be deemed to share beneficial ownership of the securities held
of record by this person and may be deemed to share power to vote, or to
direct the voting of, and power to dispose of, or direct the disposition of,
the securities held of record by such person.
(c) The address for this person is 388 Greenwich Street, 36th Fl., New York,
N.Y. 10013. The general partner of this person and the manager of this
person, GSCP, Inc., are both wholly owned subsidiaries of Travelers.
(d) The address for this person is c/o Rawlinson & Hunter, Woodbourne Hall, P.O.
Box 3162, Road Town Tortola, British Virgin Islands. This person is managed
by GSCP, Inc. and all the voting securities of this person are owned by the
general partner of GSCP, whose managing general partner is a wholly owned
subsidiary of Travelers.
(e) The address for this person is 1 Tower Square, Hartford, CT. 06183-2030. The
person is an indirect wholly owned subsidiary of Travelers.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK OF EV INTERNATIONAL, INC. AND HOLDING
All of the Company's 110 issued and outstanding shares of common stock have
been pledged by Holding to secure Holding's guarantee of the Company's
obligations under the Senior Credit Facility. Each share of common stock of the
Company and Holding entitles the holder thereof to one vote on all matters to be
voted on by shareholders of the Company. Pursuant to restrictions contained in
the Senior Credit Facility and in the Notes, the Company is restricted in the
payment of dividends on its common stock for the foreseeable future. In the
event of a liquidation, dissolution or winding-up of the Company or Holding, the
holders of the common stock of the applicable company would be entitled to share
in the remaining assets of such company after payment of all liabilities
(including, in the case of the Company, payments required to be made to holders
of the Notes and, in the case of Holding, payment required to be made to holders
of the PIK Preferred Stock) in accordance with the General Corporation Law of
the State of Delaware. Neither the Common Stock of the Company nor Holding has
any preemptive or conversion rights or other subscription rights and no
applicable redemption or sinking fund provisions. All outstanding shares of the
common stock of the Company and Holding are fully paid and non-assessable.
THE ACQUISITION
On February 10, 1997, pursuant to the Purchase Agreement, an acquisition
subsidiary wholly owned by GSCP and certain affiliated investors acquired from
Mark IV and its wholly owned subsidiary, Mark IV PLC, all of the issued and
outstanding capital stock of the former parent of the Company and each of its
subsidiaries for an aggregate cash purchase price of $151.5 million, plus $4.9
million in estimated adjustments paid at the Acquisition Closing Date, which
aggregate amount is subject to further adjustment as described below. The
acquisition subsidiary subsequently merged with and into the parent of the
Company, and the parent then merged with and into the Company, with the Company
ultimately surviving. Prior to the Acquisition Closing Date, (i) EVI Audio LLC
purchased all the issued and outstanding shares of common stock and PIK
Preferred Stock of Holding for an aggregate amount of $57.6 million and (ii)
Holding, a Delaware corporation organized by GSCP to hold all the issued and
outstanding stock of the Company, contributed $57.6 million, the GSCP Equity
Investment, to the Company. See "Ownership of Capital Stock."
Financing for the Acquisition, and the related fees and expenses, consisted
of (i) the GSCP Equity Investment, (ii) the $60.0 million Senior Credit
Facility, among the Company, the several lenders from time to time parties
thereto, and The Chase Manhattan Bank ("Chase"), as Administrative Agent,
consisting of (a) the $35.0 million Term Loan Facility, all of which was drawn
down on the Acquisition Closing Date, and (b) the $25.0 million Revolving Credit
Facility, none of which was drawn down on the Acquisition Closing Date and (iii)
the $75.0 million Senior Subordinated Facility, among the Company, the Initial
Purchasers, and other lenders, issued as interim financing. See "Description of
Credit Facilities -- Senior Credit Facility." Of these amounts, $156.4 million
was used for the purchase price under the Purchase Agreement and $10.4 million
was for financing and transaction fees and expenses. See "Use of Proceeds."
Under the Purchase Agreement, the purchase price is subject to adjustment
on the basis of (i) the audited working capital and audited cash flow of the
Company as at and for the 10-month period ended December 31, 1996 and (ii) the
net intercompany transfers of cash between Mark IV and its affiliates (other
than the Company and its subsidiaries), on the one hand, and the Company and its
subsidiaries, on the other hand, during the period between December 31, 1996 and
the Acquisition Closing Date. Any additional amounts payable by the Company
pursuant to the adjustment are not expected to be material. Mark IV and Mark IV
PLC have submitted the audited financial statements, together with their
computations of the purchase price adjustments, and have requested a further
purchase price payment of $405,000.
In connection with the Purchase Agreement, Mark IV and the Company entered
into certain agreements pursuant to which Mark IV provides services to the
Company, licenses certain trademarks and subleases one property to the Company.
See "Relationships with Mark IV."
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THE SPONSOR
GSCP is a private direct equity investment fund organized in 1994 to
provide long-term capital for and make acquisitions of companies in a variety of
industries. GSCP invests in management buyouts, leveraged acquisitions,
international investment opportunities and minority investments. Upon completion
of the Acquisition, GSCP and its co-investors became the owners, indirectly, of
100% of the voting securities of the Company. See "Description of Capital
Stock." GSCP's significant portfolio investments include Marcus Cable Company,
L.P. and Rifkin Acquisition Partners, L.L.L.P., both of which own and operate
cable television systems; Mercury Radio Communications, L.P., which owns and
operates radio stations; Seguros Comercial America, S.A. de C.V., a Mexican
property, casualty and life insurance company; and Telegroup, Inc., a provider
of domestic and international long-distance telephone services. GSCP has
recently announced an agreement to acquire control of Telex Communications
Group, Inc.
RELATED TRANSACTIONS
The Company has also engaged Greenwich Street Capital Partners, Inc.
("Greenwich"), the manager of GSCP, to provide it with certain business,
financial and managerial advisory services, including developing and
implementing corporate and business strategy and providing other consulting and
advisory services. In exchange for such services, the Company has agreed to pay
Greenwich an annual fee of $750,000, payable quarterly in arrears, plus
Greenwich's reasonable out-of-pocket costs and expenses. This engagement is in
effect until the earlier to occur of the tenth anniversary of Acquisition
Closing Date and the date on which GSCP directly or indirectly no longer owns
any shares of the capital stock of Holding, and may be earlier terminated by
Greenwich in its discretion. In addition, on the Acquisition Closing Date,
Greenwich received $1.5 million in fees for providing services relating to the
structuring and financing of the Acquisition and the management compensation
package related thereto and is entitled to receive reimbursement for its
reasonable out-of-pocket costs and expenses relating to its provision of
services.
GSCP and Smith Barney Inc. are both affiliated companies of Travelers. An
affiliate of Chase Securities Inc. is a limited partner in GSCP. Chase
Securities Inc. is an affiliate of Chase.
RELATIONSHIPS WITH MARK IV
In connection with the Acquisition, the Company entered into a number of
agreements with Mark IV, which are summarized below.
TRANSITION SERVICES AGREEMENT
For a period not to exceed twelve months following the Acquisition, Mark IV
is providing certain services to the Company and its affiliates that it provided
to the Company prior to the Acquisition Closing Date. The services include:
accounting assistance; tax planning and advice; assistance on developing a
foreign currency hedging program and assistance with respect to establishing a
daily cash management program. In addition, until a transfer of certain pension
plan assets is completed, Mark IV will continue to hold such assets and to cause
its record keeper and administrator to continue to serve in such roles with
respect to such assets.
The Company has agreed to pay Mark IV a monthly fee per service. If Mark IV
performs each service under the Agreement for the entire twelve-month period,
which the Company does not anticipate to be necessary, the total fees under the
Agreement will be $100,000. The Company may cancel each service individually
upon 15 days written notice to Mark IV. Several of the services have already
been cancelled. The parties agreed that they will not hold each other liable for
any losses arising from the provision of the services except to the extent that
such losses arise out of the gross negligence, fraud or willful misconduct of a
party.
TRADEMARK LICENSES
Mark IV has granted to the Company a non-exclusive, royalty-free license to
use the names "Mark IV," "Mark IV Audio Control Technology," "Mark IV Audio
Systems," "Mark IV Audio North America,"
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"Mark IV Cinema Systems" and "Mark IV Pro Audio." Within six months of the
Acquisition Closing Date, the Company is required to change the corporate names
of its subsidiaries organized outside the United States to names that do not
include such names. In addition, the Company may continue to use such names on
stationery, signage, invoices, receipts, forms, packaging, products,
advertising, promotional materials, training and service literature and
inventory for a period of 18 months after the Acquisition Closing Date. The
Company may also use tooling bearing such names to manufacture its products for
a period of twelve months following the Acquisition Closing Date and,
thereafter, may sell any inventories of such products bearing such names until
the earlier to occur of the following (i) such inventories are exhausted or (ii)
36 months after the Acquisition Closing Date.
Mark IV has also granted a non-exclusive, royalty-free, perpetual license
to use certain portions of software owned by Mark IV and not authored by the
Company or its subsidiaries but used in connection with the business of the
Company prior to the Acquisition.
PURCHASE AGREEMENT
In the Purchase Agreement, Mark IV has agreed, for a period of five years
commencing on the Acquisition Closing Date, to indemnify the Company, subject to
a cap equal to the final purchase price (see "The Acquisition"), for (i)
liabilities arising in connection with the reorganization of the Company and its
subsidiaries undertaken by Mark IV prior to the Acquisition Closing Date; (ii)
taxes that are the responsibility of Mark IV (as provided in the Purchase
Agreement) and, (iii) additionally, to the extent such liabilities exceed $1.5
million, liabilities arising out of a breach of the representations, warranties,
covenants or agreements contained in the Purchase Agreement.
In addition, the Company (or, for certain sites, Mark IV, on behalf of the
Company) has undertaken or currently is undertaking remediation of contamination
at certain of its currently or formerly owned sites (some of which are unrelated
to the audio business) and the Company has agreed it is a de minimis responsible
party at a number of other such sites which have been designated as Superfund
sites under U.S. environmental laws. The Company's Buchanan, Michigan site has
also been designated as a Superfund site under U.S. environmental laws and is
currently being remediated. The Company recently had Phase I Environmental Site
Assessment and Compliance Reviews conducted by an environmental consultant at
all of its manufacturing sites and is aware of environmental conditions at
certain of such sites that may require remediation or continued monitoring.
In addition to the indemnities set forth above, in the Purchase Agreement,
Mark IV has agreed to indemnify the Company fully for environmental liabilities
resulting from (i) any operations, assets or businesses not related to the
business of the Company prior to the Acquisition Closing Date, (ii) certain
sites at which the Company is currently conducting remediation, including the
Superfund site discussed above, or is expected to conduct remediation in the
near term and (iii) certain sites not currently owned by or related to the
business of the Company but at which the Company presently or in the past has
incurred environmental liability or for which third parties have claimed the
Company has responsibility.
AUSTIN SUBLEASE
On the Acquisition Closing Date, the Company entered into a sublease from
Mark IV for certain premises in Austin, Texas that were being used by the
Company prior to the Acquisition Closing Date. The term of the sublease is five
years and the annual base rent is $249,900 plus costs of maintenance and other
expenses. Mark IV sublet most of the remaining space in the Austin building to
another of its former subsidiaries which historically has operated at the same
location and had significant access over and across the Company's premises. The
Company's sublease includes a provision requiring Mark IV to perform certain
work and provide certain equipment to separate further the operations of the
other former subsidiary from those of the Company. If Mark IV fails to complete
such work within a year, the Company has the right to terminate the sublease
after 18-months.
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STANDBY LETTER OF CREDIT
On the Acquisition Closing Date, a Letter of Credit in the amount of $1.4
million was issued under the Senior Credit Facility for the benefit of Mark IV
to provide security for Mark IV's continuing guarantee of certain performance
bonds for work to be performed by the Company's Hong Kong subsidiaries.
DESCRIPTION OF CREDIT FACILITIES
SENIOR CREDIT FACILITY
General. The Company entered into the Senior Credit Facility, dated as of
February 10, 1997, with the banks, financial institutions and other entities
selected in the syndication effort (the "Lenders") and Chase, as administrative
agent, syndication agent, documentation agent and lender, which provides for the
Term Loan Facility of $35.0 million and the Revolving Credit Facility of $25.0
million. The following is a summary of the principal terms of the credit
agreement governing the Senior Credit Facility and related loan documents (the
"Credit Documentation") and is subject to and qualified in its entirety by
reference to the Credit Documentation, copies of which are filed as Exhibits to
the Registration Statement of which this Prospectus forms a part.
Use of Facilities. On the Acquisition Closing Date, the Company borrowed
the full amount available under the Term Loan Facility and used the proceeds of
$35.0 million, together with the proceeds of the GSCP Equity Investment and the
Senior Subordinated Facility, for payment of the Purchase Price of the
Acquisition and related fees and expenses. On such date, the Company also
obtained letters of credit for use in the ordinary course of business in the
aggregate face amount of approximately $3.8 million. The remainder of the
Revolving Credit Facility is available (subject to borrowing base availability)
to service the working capital requirements of the Company and its subsidiaries
and for their general corporate purposes.
Security, Guarantees. The obligations of the Company under the Credit
Documentation are unconditionally guaranteed, jointly and severally, by Holding
and by each subsequently acquired or organized direct and indirect domestic
subsidiary of the Company. The obligations under the Senior Credit Facility and
the guarantees thereof are secured by a first priority security interest in
substantially all of the Company's tangible and intangible assets, including,
without limitation, intellectual property, owned U.S. real property, all of the
capital stock of the Company and each of its existing and subsequently acquired
or organized direct and indirect domestic subsidiaries, and 65% of the capital
stock of EVI Audio International Holding Corporation, Inc., a wholly owned
subsidiary of the Company organized to hold all of the foreign subsidiaries of
the Company.
Borrowing Base. Loans under the Revolving Credit Facility are subject to
maintenance by the Company of a borrowing base. At any time, amounts borrowed
under the Revolving Credit Facility may not exceed the sum of 80% of the
eligible accounts receivable and 50% of the eligible inventory of the Company,
provided that the portion of the borrowing base represented by eligible
inventory shall not be more than 50%. The borrowing base will be computed at
least monthly by the Company.
Amortization, Interest. The Term Loan Facility has a maturity date of
August 10, 2002. After giving effect to the $17.0 million prepayment with the
proceeds of the Offering and the $5.0 million prepaid on July 11, 1997, the Term
Loan Facility will amortize in quarterly installments aggregating $0.7 million,
$1.4 million, $2.2 million, $2.6 million, $3.1 million and $2.9 million in each
of fiscal year 1998, 1999, 2000, 2001, 2002 and 2003. The Term Loan Facility
bears interest at a rate per annum equal (at the Company's option) to (i) an
Alternate Base Rate (equal to the highest of (a) Chase's prime rate, (b) the
secondary market rate for certificates of deposit plus 1% and (c) the federal
funds effective rate plus 0.5% (the "ABR")) plus 1.75% (the "ABR Applicable
Margin") or (ii) the Eurodollar Rate (the rate at which Eurodollar deposits for
one, two, three or six months (at the Company's option) are offered to Chase in
the interbank Eurodollar market) in the approximate amount of Chase's share of
the relevant loan (the "Eurodollar Rate") plus 2.75% (the "Eurodollar Applicable
Margin"). The Revolving Credit Facility is available on a revolving basis during
the period commencing on the date of the Acquisition Closing and matures on
August 10, 2002. The Revolving
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Credit Facility bears interest at a rate per annum equal (at the Company's
option) to (i) the ABR plus the ABR Applicable Margin or (ii) the Eurodollar
Rate plus the Eurodollar Applicable Margin. The foregoing margins shall be
subject to reduction after the first anniversary of the Closing Date.
Prepayments and Reduction of Commitments. The Senior Credit Facility
permits the Company to prepay loans and to reduce permanently revolving credit
commitments in minimum amounts equal to $1.0 million or a whole multiple of
$500,000 in excess thereof. In addition, the Company shall be required to make
mandatory prepayments with (i) the debt portion of any payments received from
Mark IV pursuant to the purchase price adjustment (see "The Acquisition"), (ii)
non-ordinary asset sale proceeds, (iii) any additional indebtedness and equity
proceeds and (with certain exceptions) (iv) with 75% of the excess cash flow of
the Company and its subsidiaries for each fiscal year commencing on May 31, 1998
and each May 31 thereafter. All such amounts shall be applied, first, to the
prepayment of the Term Loan Facility and, second (other than prepayments with
excess cash flow), to the permanent reduction of the Revolving Credit Facility.
The Revolving Credit Facility must be prepaid and, when there are no loans
outstanding under the Revolving Credit Facility, all outstanding letters of
credit must be cash collateralized to the extent aggregate outstandings at any
time exceed the lesser of the amount of the Revolving Credit Facility or the
Borrowing Base.
Fees. The Company has agreed to pay the lenders the following fees: (i) an
annual administration fee of $50,000 for the first year, which was paid on
February 10, 1997, and $35,000 for each subsequent year, which will be payable
in advance each subsequent anniversary thereof prior to the maturity or early
termination of the Senior Credit Facility and the payment in full of all amounts
owing thereunder and (ii) a commitment fee equal to 0.50% per annum, payable
quarterly, on the average daily unused portion of the Senior Credit Facility.
The Company also pays a commission on the face amount of all outstanding letters
of credit at a per annum rate equal to the Eurodollar Applicable Margin then in
effect plus a fronting fee equal to 0.25% per annum, payable quarterly, on the
face amount of each letter of credit. In addition, the Company will be required
to pay to the issuing lender customary administrative, issuance, amendment,
payment and negotiation charges.
Covenants. The Senior Credit Facility contains a number of negative
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets; incur additional indebtedness or preferred
stock (other than indebtedness or preferred stock incurred (i) to finance the
acquisition of fixed or capital assets in an amount not to exceed $1.0 million;
(ii) to fund up to 65% of the purchase price of any acquisition otherwise
permitted pursuant to the Senior Credit Facility; (iii) for working capital
purposes in an amount not to exceed $10.0 million and (iv) for any other
purposes not otherwise permitted by the Senior Credit Facility in an amount not
to exceed $1.0 million guarantee obligations); merge, consolidate, liquidate or
dissolve; lease property; pay dividends or make distributions in respect of
capital stock; create liens on assets, other than liens (i) incurred to secure
obligations not in excess of $1.0 million in aggregate amount at any time
outstanding; and (ii) securing certain Guarantee Obligations (as defined in the
Senior Credit Facility) in excess of $1.0 million in aggregate amount at any
time outstanding; enter into sale and leaseback transactions; make investments,
loans or advances; make optional payments and modifications of the Notes; change
the business conducted by the Company or its subsidiaries; make capital
expenditures in the fiscal year ended February 28, 1998, in excess of $6.5
million and in any fiscal year thereafter, in excess of $6.0 million (subject to
certain carry-forward provisions); engage in certain transactions with
affiliates; agree to negative pledge clauses; or cause changes in the fiscal
year. The Senior Credit Facility also contains affirmative covenants that
require that the Company (i) provide certain information to Chase; (ii) continue
its business and maintain its material rights and privileges; (iii) comply with
laws and its material contractual obligations; (iv) maintain its property and
adequate insurance; (v) maintain certain books and records; (vi) allow the
Lenders to inspect its property and books and conduct field audits of its
accounts receivable and inventory; and (vii) agree to grant security interests
in after-acquired property.
The Company is also required to comply with specified financial covenants
and ratios, including (i) a minimum consolidated EBITDA requirement, which
commenced on May 31, 1997 at $20.0 million and increases to (a) $21.0 million on
May 31, 1998, (b) $22.0 million on May 31, 1999, (c) $23.0 million on May 31,
2000, (d) $24.0 million on November 30, 2000, (e) $25.0 million on May 31, 2001,
and
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(f) $26.0 million on August 31, 2002, (ii) a maximum consolidated debt to
consolidated EBITDA ratio, which commenced on May 31, 1997 at 6.00 to 1 and
decreases to (a) 5.75 to 1 on August 31, 1998, (b) 5.50 to 1 on February 28,
1999, (c) 5.25 to 1 on August 31, 1999, (d) 5.00 to 1 on February 28, 2000, (e)
4.75 to 1 on May 31, 2000, and (f) 4.00 to 1 on May 31, 2001, and (iii) a
minimum consolidated EBITDA to consolidated fixed charges ratio which commences
on November 30, 1997 at 1.00 to 1 and increases to (a) 1.05 to 1 on February 28,
1999, and (b) 1.10 to 1 on May 31, 2000.
Events of Default. The Senior Credit Facility contains customary events of
default, including defaults relating to non-payment, material breach of a
representation, warranty or covenant contained therein, cross-default and
acceleration, bankruptcy, certain ERISA events, material judgements, actual or
asserted invalidity of any guarantee or security document, subordination
provisions or security interest, and a change of control.
Expenses and Indemnification. Under the Senior Credit Facility, the
Company has agreed to pay (i) all reasonable out-of-pocket expenses of Chase and
the Initial Purchasers associated with the preparation, execution, delivery, and
administration of the Credit Documentation and any amendment or waiver with
respect thereto (including the reasonable fees and disbursements and other
charges of counsel) and (ii) all out-of-pocket expenses of Chase and the Lenders
in connection with the enforcement thereof (including the reasonable fees and
disbursements and other charges of counsel). In addition, the Company has agreed
to indemnify Chase, the Initial Purchasers, the Lenders and related parties
against any loss, liability, cost or expense incurred in respect of the
financing or the use or the proposed use of proceeds thereof, except for losses,
liability, costs or expenses resulting from the gross negligence or willful
misconduct of the indemnified party or any or its respective directors,
officers, employees and agents.
FOREIGN WORKING CAPITAL LINES
Certain foreign subsidiaries of the Company have entered into agreements
with banks to provide for local working capital needs. As of May 31, 1997, the
total aggregate availability of these arrangements, including for letter of
credit issuance, was $4.7 million. The rates of interest in effect on these
facilities as of May 31, 1997 ranged from 1.875% to 8.25%, and are generally
subject to change based upon prevailing local prime rates. In certain instances,
the facilities are secured by a lien on foreign real property, leaseholds or
accounts receivable and inventory or guaranteed by another subsidiary of the
Company.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Exchange and Registration
Rights Agreement does not purport to be complete and reference is made to the
provisions of the Exchange and Registration Rights Agreement, which has been
filed as an exhibit to the Registration Statement and a copy of which is
available as set forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Existing Notes pursuant to a
Securities Purchase Agreement, dated as of March 19, 1997, between the Company
and the Initial Purchasers, the Initial Purchasers and their respective
assignees became entitled to the benefits of the Exchange and Registration
Rights Agreement.
Under the Exchange and Registration Rights Agreement, the Company has
agreed (i) to file with the Commission within 60 days after the Issue Date, the
Registration Statement of which this Prospectus is a part with respect to a
registered offer to exchange the Existing Notes for the New Notes, (ii) to use
its reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act within 150 days after the Issue Date and
(iii) to use its reasonable best efforts to consummate the Exchange Offer within
165 calendar days after the Issue Date. The Company will keep the Exchange Offer
open for not less than 30 days after the date notice of the Exchange Offer is
mailed to holders of the Existing Notes. The Exchange Offer being made hereby,
if commenced and consummated within the time periods described in this
paragraph, will satisfy those requirements under the Exchange and Registration
Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Existing Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. New Notes will be issued in exchange for an equal
principal amount of outstanding Existing Notes accepted in the Exchange Offer.
Existing Notes may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of July 30, 1997. The Exchange Offer is not conditioned
upon any minimum principal amount of Existing Notes being tendered for exchange.
However, the obligation to accept Existing Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth herein under
"-- Conditions."
Existing Notes shall be deemed to have been accepted as validly tendered
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 Existing Notes for the purposes of receiving the New Notes and delivering New
Notes to such holders.
Based on interpretations by the staff of the Commission as set forth in
no-action letters issued to third parties (including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)) the Company believes
that the New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is a broker-dealer or 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 (i) such New Notes are acquired in the ordinary course of business, (ii) at
the time of the commencement of the Exchange Offer such holder has no
arrangement or understanding with any person to participate in a distribution of
such New Notes and (iii) such holder is not engaged in, and does not intend to
engage in, a distribution of such New Notes. The Company has not sought, and
does not intend to seek, a no-action letter from the Commission with respect to
the effects of the Exchange Offer, and there can be no assurance that the staff
would make a similar determination with respect to the New Notes as it has in
such no-action letters.
By tendering Existing Notes in exchange for New Notes and executing the
Letter of Transmittal, each holder will represent to the Company that: (i) it is
not an affiliate of the Company, (ii) any New Notes to be
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received by it will be acquired in the ordinary course of business and (iii) at
the time of the commencement of the Exchange Offer it had no arrangement or
understanding with any person to participate in a distribution of the New Notes
and, if such holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, a distribution of New Notes. If a holder of Existing Notes
is unable to make the foregoing representations, such holder may not rely on the
applicable interpretations of the staff of the Commission as set forth in no-
action letters issued to third parties (including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)) and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities Act and
that it has not entered into any arrangement or understanding with the Company
or an affiliate of the Company to distribute the New Notes in connection with
any resale of such New Notes. See "Plan of Distribution."
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Notes who do not exchange their Existing Notes
for New Notes in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Existing Notes, unless such
Existing Notes are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws.
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean September 2, 1997, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. Notwithstanding any extension of the Exchange Offer, if the Exchange
Offer is not consummated by September 5, 1997, the Company must pay liquidated
damages to each holder of Existing Notes in an amount equal to $0.192 per week
per $1,000 principal amount of the Existing Notes held by such holder until the
Exchange Offer is consummated.
To extend the Expiration Date, the Company will notify the Exchange Agent
of any extension by oral or written notice and will notify the holders of the
Existing Notes by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Existing
Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not
permit acceptance of Existing Notes not previously accepted if any of the
conditions set forth herein under "-- Conditions" shall have occurred and shall
not have been waived by the Company prior to the Expiration Date, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent,
or (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Existing Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the Exchange Agent. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Existing Notes of such
amendment.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
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INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 11% per annum from the
Issue Date of the Existing Notes. Interest on the New Notes is payable on March
15 and September 15 of each year, commencing September 15, 1997.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Existing Notes into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(ii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED DOCUMENTS
SHOULD BE SENT TO THE COMPANY. Delivery of all documents must be made to the
Exchange Agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of Existing Notes 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. Any beneficial
owner whose Existing Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct such registered holder to
tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Existing Notes tendered pursuant thereto is tendered for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by the Company, evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Existing Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Existing Notes not
properly tendered or any Existing Notes which, if accepted, would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
absolute right to waive any irregularities or conditions of tender as to
particular Existing Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Existing Notes must be
cured within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Existing Notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Existing Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Existing Notes received by the
Exchange Agent that is not properly tendered and as to which the defects or
irregularities have not been cured
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<PAGE> 67
or waived will be returned without cost to such holder by the Exchange Agent,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any
Existing Notes that remains outstanding subsequent to the Expiration Date or, as
set forth under "-- Conditions", to terminate the Exchange Offer in accordance
with the terms of the Exchange and Registration Rights Agreement, (ii) to redeem
Existing Notes as a whole or in part at any time and from time to time, as set
forth under "Description of Notes -- Optional Redemption" and (iii) to the
extent permitted by applicable law, purchase Existing Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Existing Notes properly tendered will be accepted promptly after the
Expiration Date, and the New Notes will be issued promptly after acceptance of
the Existing Notes. See "-- Conditions." For purposes of the Exchange Offer,
Existing Notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if the Company has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of a Book-Entry Confirmation of such Existing
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Existing Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer, such
unaccepted or such nonexchanged Existing Notes will be credited to an account
maintained with such Book-Entry Transfer Facility as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, the Letter of
Transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and received by
the Exchange Agent at one of the addresses set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC may utilize the Book-Entry Transfer Facility
Automated Tender Offer Program ("ATOP") procedures to tender Existing Notes.
Any DTC participant may make book-entry delivery of Existing Notes by
causing DTC to transfer such Existing Notes into the Exchange Agent's account in
accordance with DTC's ATOP procedures for transfer. However, the exchange for
the Existing Notes so tendered will only be made after a Book-Entry Confirmation
of such book-entry transfer of Existing 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 Existing Notes that are the subject of such Book-Entry Confirmation
that such participant has received and agrees to be bound by the
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terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Existing Notes and the amount of Existing Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent and (iii) a Book-Entry Confirmation and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL OF TENDERS
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "-- Exchange
Agent." Any such notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility from which the Existing Notes was
tendered, identify the principal amount of the Existing Notes to be withdrawn,
and specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Existing Notes and otherwise comply
with the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notice will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Existing Notes so withdrawn will be deemed not be have been validly tendered for
exchange for purposes of the Exchange Offer. Any Existing Notes which have been
tendered for exchange but which are not exchanged for any reason will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Existing Notes as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering" and "-- Book-Entry Transfer" above at any time on or prior to the
Expiration Date.
CONDITIONS
The Company has no obligation to consummate the Exchange Offer if the New
Notes to be received by such holder or holders of Existing Notes in the Exchange
Offer, upon receipt, will not be tradable by such holder without restriction
under the Securities Act and the Exchange Act and without material restrictions
under the "blue sky" or securities laws of the several states of the United
States. All conditions to the Exchange Offer (with the exception of certain
necessary governmental approvals) must be satisfied or waived prior to the
Expiration Date.
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EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand:
The Bank of New York Telephone: The Bank of New York
101 Barclay Street, 7E (212) 815-2742 101 Barclay Street
New York, NY 10286 Facsimile: Corporate Trust Services Window
Attention: Reorganization Section (212) 571-3080 Ground Level
Enrique Lopez New York, NY 10286
Attention: Reorganization
Section
Enrique Lopez
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Existing Notes, and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, New Notes or
Existing Notes for principal amounts not tendered or accepted for exchange are
to be registered or issued in the name of any person other than the registered
holder of the Existing Notes tendered, or if tendered Existing Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Existing Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing 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 Existing Notes
under the Securities Act. To the extent that Existing Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Existing Notes could be adversely affected.
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DESCRIPTION OF NOTES
GENERAL
The Existing Notes were issued, and the New Notes offered hereby will be
issued, under an Indenture, dated as of March 24, 1997 (the "Indenture"),
between the Company and The Bank of New York, as Trustee (the "Trustee"), a copy
of which is available upon request to the Company.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms to be made a part thereof
by the Trust Indenture Act of 1939, as amended ("TIA"). The Indenture is filed
as an Exhibit to the Registration Statement of which this Prospectus forms a
part. The term "Company" and the other capitalized terms defined in "-- Certain
Definitions" below are used in this "Description of Notes" as so defined.
Principal of, and premium, if any, and interest on, the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the principal corporate trust office of the Trustee, at The
Bank of New York, 101 Barclay Street, New York, New York 10286), except that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the registered holders of the Notes as such address appears in
the Note Register.
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 only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be limited to $100.0 million aggregate principal amount, and
will mature on March 15, 2007. Each Note will bear interest at a rate of 11% per
annum from the date of issuance, or from the most recent date to which interest
has been paid or provided for, payable semiannually in cash to Holders of record
at the close of business on the March 1 or September 1 immediately preceding the
interest payment date on March 15 and September 15 of each year, commencing
September 15, 1997.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
and from time to time on and after March 15, 2002 and prior to maturity, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed as a percentage of principal amount), plus accrued interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on March 15 of the
years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
----------------------------------------------------- ----------------
<S> <C>
2002................................................. 105.500%
2003................................................. 103.667%
2004................................................. 101.833%
2005 and thereafter.................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2000, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings by the Company following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount thereof) of 111%
plus accrued interest, if any, to the
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redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least 66 2/3% of the original aggregate principal
amount of the Notes must remain outstanding after each such redemption.
At any time on or prior to March 15, 2002, the Notes may also be redeemed
as a whole at the option of the Company upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days' prior notice (but in no
event more than 180 days after the occurrence of such Change of Control) mailed
by first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued but unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
In addition, as more fully described under "Change of Control," each Holder
will have the right to require the Company to repurchase all or any part of such
Holder's Notes following a Change of Control at a purchase price in cash equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating 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.
RANKING
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 the payment when due of all existing
and future Senior Indebtedness of the Company, including the Company's
obligations under the Senior Credit Facility, will rank pari passu in right of
payment with all existing and future Senior Subordinated Indebtedness of the
Company and will be senior in right of payment to all existing and future
Subordinated Obligations of the Company. The Notes will also be effectively
subordinated to any Secured Indebtedness of the Company and its Subsidiaries to
the extent of the value of the assets securing such Indebtedness. However,
payment from the money or the proceeds of U.S. Government Obligations held in
any defeasance trust described under "-- Defeasance" below is not subordinated
to any Senior Indebtedness or subject to the restrictions described herein.
At May 31, 1997, the outstanding Senior Indebtedness of the Company was
$18.0 million (exclusive of unused commitments), all of which was Secured
Indebtedness. On July 11, 1997, the Company prepaid an additional $5.0 million
of Secured Indebtedness. Although the Indenture contains limitations on the
amount of additional Indebtedness which the Company 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 Indebtedness" below.
Certain of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders (if any) of such Subsidiaries
will have priority with respect to the assets and earnings of such Subsidiaries
over the claims of creditors of the Company, including holders of the Notes. The
Notes, therefore, will be effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of Subsidiaries of the Company,
other than any such Subsidiary that may become a Note Guarantor in the future.
See "-- Note Guarantees" below. Although the Indenture limits the incurrence of
Indebtedness and preferred stock by certain of the Company's Subsidiaries, such
limitation is subject to a number of significant qualifications.
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"Senior Indebtedness" means the following obligations, whether outstanding
on the date of the Indenture or thereafter issued, without duplication: (i) all
obligations consisting of Bank Indebtedness; and (ii) all obligations consisting
of the principal of and premium, if any, and accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company regardless of whether
post-filing interest is allowed in such proceeding) on, and fees and other
amounts owing in respect of, all other Indebtedness of the Company, unless, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is expressly provided that the obligations in respect of such
Indebtedness are not senior in right of payment to the Notes; provided, however,
that Senior Indebtedness shall not include (1) any obligation of the Company to
any Subsidiary, (2) any liability for Federal, state, foreign, 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 (or Guarantee by the Company of any Indebtedness)
that is expressly subordinate in right of payment to any other Indebtedness of
the Company (or Guarantee by the Company of any Indebtedness) or (5) any Capital
Stock. If any Designated Senior Indebtedness is disallowed, avoided or
subordinated pursuant to the provisions of Section 548 of Title 11 of the United
States Code or any applicable state fraudulent conveyance law, such Designated
Senior Indebtedness nevertheless will constitute Senior Indebtedness.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu 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 that 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. Unsecured Indebtedness is not
deemed to be subordinate or junior to Secured Indebtedness merely because it is
unsecured, and Indebtedness that is not guaranteed by a particular Person is not
deemed to be subordinate or junior to Indebtedness that is so guaranteed merely
because it is not so guaranteed.
The Company may not pay principal of, or premium (if any) or interest on,
the Notes or make any deposit pursuant to the provisions described under
"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, (x) the default has been
cured or waived and any such acceleration has been rescinded in writing or (y)
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 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 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 such Designated Senior Indebtedness has
been repaid in full or (iii) because the default giving rise to such Blockage
Notice is no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of the immediately preceding paragraph), unless the holders of
such Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Notes after the end of such Payment Blockage Period. Not
more than
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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 Bank
Indebtedness, a Representative of Bank Indebtedness may give another Blockage
Notice within such period. In no event, however, may the total number of days
during which any Payment Blockage Period or Periods is in effect exceed 179 days
in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets 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, the
holders of Senior Indebtedness will be entitled to receive payment in full of
the Senior Indebtedness before the Noteholders are entitled to receive any
payment and until the Senior Indebtedness is paid in full, any payment or
distribution to which Noteholders 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 distribution is made to Noteholders that due
to the subordination provisions should not have been made to them, such
Noteholders 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 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 Noteholders, and trade
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, ratably, than the holders
of Senior Subordinated Indebtedness. In addition, as described above, the Notes
will be effectively subordinated to the claims of creditors of the Company's
Subsidiaries.
NOTE GUARANTEES
After the Issue Date, the Company may cause any Restricted Subsidiary, and
will cause each newly acquired or created Domestic Subsidiary that is a
Significant Subsidiary (each, a "Note Guarantor"), to execute and deliver to the
Trustee a supplemental indenture pursuant to which such Subsidiary will
guarantee (each, a "Note Guarantee") payment of the Notes. The Company has no
present intention of causing any Restricted Subsidiary to guarantee the Notes
nor any intention of creating or acquiring a Domestic Subsidiary that is a
Significant Subsidiary. Each such Note Guarantor as primary obligor and not
merely as surety, will jointly and severally, irrevocably and fully and
unconditionally Guarantee, on a senior subordinated basis, the performance and
punctual payment when due, whether at Stated Maturity, by acceleration or
otherwise, of all obligations of the Company under the Indenture and the Notes,
whether for principal of or interest on the Notes, expenses, indemnification or
otherwise (all such obligations guaranteed by such Note Guarantors being herein
called the "Guaranteed Obligations"). Such Note Guarantors will agree to pay, in
addition to the amount stated above, any and all expenses (including reasonable
counsel fees and expenses) incurred by the Trustee or the Holders in enforcing
any rights under the Note Guarantees.
The obligations of each Note Guarantor will be limited to the maximum
amount, as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor, result in the obligations of such Note
Guarantor under the Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each such Note Guarantee shall be a continuing Guarantee and shall (i)
remain in full force and effect until payment in full of the principal amount of
all outstanding Notes (whether by payment at maturity, purchase, redemption,
defeasance, retirement or other acquisition) and all other Guaranteed
Obligations then due and owing, unless earlier terminated as described below,
(ii) be binding upon such Note Guarantor and
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(iii) inure to the benefit of and be enforceable by the Trustee, the Holders and
their successors, transferees and assigns.
The Indenture will provide that, subject to the provisions described in the
next succeeding paragraph, no Note Guarantor may consolidate or merge with or
into (whether or not such Note Guarantor is the surviving Person) another Person
unless (i) the Person formed by or surviving any such consolidation or merger
(if other than a Note Guarantor or the Company) assumes all the obligations of
such Note Guarantor under the Note Guarantee and the Indenture pursuant to a
supplemental indenture, in form reasonably satisfactory to the Trustee, and (ii)
if such merger or consolidation is with a Person other than the Company or a
Restricted Subsidiary, (x) immediately after such transaction, no Default or
Event of Default exists and (y) the Company will, at the time of such
transaction after giving pro forma effect thereto, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a) under "Certain
Covenants -- Limitation on Indebtedness."
Notwithstanding the preceding paragraph, concurrently with any sale or
disposition (by merger or otherwise) of any Note Guarantor in accordance with
the terms of the Indenture (including the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets") by the Company or a Restricted
Subsidiary to any Person that is not an Affiliate of the Company, such Note
Guarantor will automatically and unconditionally be released from all
obligations under its Note Guarantee; provided, however, that any such release
shall occur only to the extent that all obligations of such Note Guarantor
under, and all of its guarantees of, and all of its pledges of assets or other
security interests which secure, any Bank Indebtedness of the Company shall also
terminate upon such release, sale or transfer (other than with respect to any
such Indebtedness that is assumed by any Person that is not an Affiliate of the
Company). In addition, any Note Guarantee of any Note Guarantor will be
automatically and unconditionally released and discharged upon the merger or
consolidation of such Note Guarantor with and into the Company or another Note
Guarantor that is the surviving Person in such merger or consolidation.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), provided, however, that notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to purchase the Notes pursuant to
this covenant in the event that it has exercised its right to redeem all of the
Notes as described under "Optional Redemption":
(i) prior to the first public offering of Voting Stock of the Company,
either (x) Permitted Holders cease to be the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of the Company, or (y) Permitted Holders cease to be
entitled by voting power, contract or otherwise to elect or cause the
election of directors of the Company having a majority of the total voting
power of the Board of Directors, in each case, whether as a result of
issuance of securities of the Company, any merger, consolidation,
liquidation or dissolution of the Company, any direct or indirect transfer
of securities by any Permitted Holder or otherwise (for purposes of this
clause (i) and clause (ii) below, Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity" held
by any other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, a majority of the
Voting Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the
Company, any "Person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire within one year), directly or indirectly,
of more than 35% of the Voting Stock of the Company, provided that the
Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser
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percentage of the Voting Stock of the Company than such other Person and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors; or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control (unless the Company has exercised its right to redeem all the
Notes as described under "Optional Redemption"), the Company shall (i) repay in
full all Bank Indebtedness or offer to repay in full all Bank Indebtedness and
repay the Bank Indebtedness of each lender who has accepted such offer or (ii)
obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Unless the Company has exercised its right to redeem all the Notes as
described under "Optional Redemption," the Company shall, within 30 days
following any Change of Control (or at the Company's option, prior to such
Change of Control but after the public announcement thereof), mail a notice to
each Holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred or will occur and that such Holder has (or upon such occurrence will
have) the right to require the Company to purchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of Holders of record on a record date to receive interest on the relevant
interest payment date); (2) the circumstances and relevant facts and financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); (4) the instructions determined by the Company, consistent
with this covenant, that a Holder must follow in order to have its Notes
purchased; and (5) that, if such Offer is made prior to such Change of Control,
payment is conditioned on the occurrence of such Change of Control.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other applicable securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant, including Rules 13e-4 and 14e-1 of the Exchange Act. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. The Company has no present plans to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or recapitalizations, that
would not constitute a Change of Control under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under the
Senior Credit Agreement. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no
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assurance that sufficient funds will be available when necessary to make any
required repurchases. As described above under "Optional Redemption," the
Company also has the right to redeem the Notes at specified prices, in whole but
not in part, upon a Change of Control.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company and the Note Guarantors may Incur Indebtedness if on the date of the
Incurrence of such Indebtedness the Consolidated Coverage Ratio would be greater
than (i) 2.00:1.00, if such Indebtedness is Incurred on or prior to the second
anniversary of the Issue Date, and (ii) 2.25:1.00 if such Indebtedness is
Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Senior Credit Facility in a
maximum principal amount not to exceed at any time
(A) an aggregate principal amount of $18.0 million under the Term
Loan Facility less the aggregate amount of all scheduled repayments of
principal, or mandatory prepayments of principal with Net Available Cash
from Asset Dispositions, applied to permanently reduce the Indebtedness
outstanding under the Term Loan Facility, plus (in the case of any
refinancing thereof) the aggregate amount of fees, underwriting
discounts, premiums and other costs and expenses incurred in connection
with such refinancing, and
(B) an aggregate principal amount outstanding at any time under the
Revolving Credit Facility not to exceed the greater of (x) $25.0 million
less the amount of all mandatory prepayments of principal with Net
Available Cash from Asset Dispositions, applied to permanently reduce
the commitments under the Revolving Credit Facility plus (in the case of
any refinancing thereof) the aggregate amount of fees, underwriting
discounts, premiums and other costs and expenses incurred in connection
with such refinancing, and (y) the Borrowing Base;
(ii) Indebtedness of Foreign Subsidiaries for working capital purposes
and any Guarantees in respect thereof, the aggregate principal amount of
which Indebtedness outstanding at any time does not exceed, as to all such
Foreign Subsidiaries, an amount (the "Foreign Subsidiary Amount") equal to
the greater of (A) $10.0 million and (B) an amount equal to 8% of
Consolidated Tangible Assets; provided, however, that the principal amount
of such Indebtedness may exceed the Foreign Subsidiary Amount by an amount
not to exceed the amount of Indebtedness permitted to be Incurred by clause
(i)(B) as of such date but the principal amount of Indebtedness permitted
to be Incurred by clause (i)(B) above shall be reduced by the amount by
which such Indebtedness Incurred pursuant to this clause (ii)(B) exceeds
the Foreign Subsidiary Amount;
(iii) Indebtedness (A) of the Company to any Restricted Subsidiary and
(B) of any Wholly Owned Subsidiary to the Company or any Restricted
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock or any other event that results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any other subsequent
transfer of any such Indebtedness (except to the Company or a Wholly Owned
Subsidiary) will be deemed, in each case, an Incurrence of Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(iv) Indebtedness represented by the Notes, any Indebtedness (other
than the Indebtedness described in clauses (i), (ii) or (iii) above)
outstanding on the date of the Indenture and any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iv) or
paragraph (a);
(v) Indebtedness of the Company or any Restricted Subsidiary to
finance or refinance the deferred purchase price of newly acquired property
of the Company and its Subsidiaries used in the ordinary
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course of business of the Company and its Subsidiaries (provided such
purchase money financing is entered into within six months of the
acquisition of such property), and any Refinancing Indebtedness with
respect thereto, in an amount (based on the remaining balance of the
obligations therefor on the books of the Company and its Restricted
Subsidiaries) which shall not exceed the greater of (A) $5.0 million and
(B) an amount equal to 4% of Consolidated Tangible Assets in the aggregate
at any one time outstanding;
(vi) Indebtedness of the Company or any Restricted Subsidiary (which
may comprise Bank Indebtedness) in an aggregate principal amount at any one
time outstanding not in excess of the greater of (A) $5.0 million and (B)
an amount equal to 4% of Consolidated Tangible Assets; (vii) Indebtedness
of the Company or any Restricted Subsidiary in the form of Capitalized
Lease Obligations or Attributable Debt, and any Refinancing Indebtedness
with respect thereto, in an aggregate amount not in excess of the greater
of (A) $5.0 million and (B) an amount equal to 4% of Consolidated Tangible
Assets at any one time outstanding; provided, however, that all
Indebtedness Incurred by one or more Restricted Subsidiaries that are not
Note Guarantors pursuant to clause (v) or (vi) above or this clause
(vii) shall not exceed the greater of (A) $5.0 million and (B) an
amount equal to 4% of Consolidated Tangible Assets in aggregate principal
amount at any one time outstanding;
(viii) Indebtedness represented by the Note Guarantees and Guarantees
of Indebtedness Incurred pursuant to clause (i) or (iii) above;
(ix) Guarantees (A) by any Note Guarantor of Senior Indebtedness, (B)
by the Company or any Note Guarantor of Guarantor Senior Indebtedness or
(C) by any Wholly Owned Subsidiary that is not a Note Guarantor of
Indebtedness of any Wholly Owned Subsidiary that is not a Note Guarantor;
(x) Indebtedness (A) arising by reason of any Lien created or
permitted to exist in compliance with the covenant described under
"-- Limitations on Liens," including any Indebtedness of any Note Guarantor
arising by reason of any Lien granted by such Person to secure Senior
Indebtedness, or of the Company or any Note Guarantor arising by reason of
any Lien granted by such Person to secure Guarantor Senior Indebtedness, or
(B) of any Restricted Subsidiary that is not a Note Guarantor arising by
reason of any Lien granted by such Person to secure Indebtedness of any
Restricted Subsidiary that is not a Note Guarantor;
(xi) Indebtedness of the Company or any Restricted Subsidiary arising
from the honoring of a check, draft or similar instrument of such Person
drawn against insufficient funds, provided that such Indebtedness is
extinguished within five Business Days of its incurrence;
(xii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of assets, including pursuant to the Acquisition;
(xiii) Indebtedness in respect of (A) commercial letters of credit, or
other letters of credit or other similar instruments or obligations, issued
in connection with liabilities incurred in the ordinary course of business
(including those issued to governmental entities in connection with
self-insurance under applicable workers' compensation statutes), or (B)
surety, judgment, appeal, performance and other similar bonds, instruments
or obligations provided in the ordinary course of business;
(xiv) Indebtedness under Hedging Obligations; provided, however, that
such Hedging Obligations are entered into for bona fide hedging purposes of
the Company or any Restricted Subsidiary and are in the ordinary course of
business;
(xv) Indebtedness (A) of the Company consisting of guarantees of up to
an aggregate principal amount of $1.0 million of borrowings by Management
Investors in connection with the purchase of Capital Stock of the Company,
Holding or EV LLC by such Management Investors or (B) of the Company or any
Restricted Subsidiary consisting of guarantees in respect of loans or
advances made to officers or employees of Holding, the Company or any
Restricted Subsidiary, or guarantees otherwise made on their behalf, (1) in
respect of travel, entertainment and moving-related expenses incurred in
the
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ordinary course of business, or (2) in the ordinary course of business not
exceeding $500,000 in the aggregate outstanding at any time;
(xvi) Indebtedness of any Restricted Subsidiary that is Indebtedness
of another Person assumed by such Restricted Subsidiary in connection with
its acquisition of assets from such Person (other than Indebtedness
Incurred in connection with, or in contemplation of, such acquisition) and
any Refinancing Indebtedness with respect thereto; provided, however, that
at the time of such acquisition of assets the Company shall have been able
to Incur at least an additional $1.00 of Indebtedness under paragraph (a)
above after giving effect to such acquisition; and
(xvii) Indebtedness of a Restricted Subsidiary issued and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred (A) as consideration in, or
to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company or (B) otherwise in connection with, or in
contemplation of, such acquisition) and any Refinancing Indebtedness with
respect thereto; provided, however, that on the date of any such
acquisition the Company shall have been able to Incur at least $1.00 of
Indebtedness under paragraph (a) above after giving effect to such
acquisition.
(c) Notwithstanding the foregoing, the Company will not Incur any
Indebtedness pursuant to any provision of the foregoing paragraph (b) that
permits Refinancing Indebtedness in respect of Indebtedness constituting
Subordinated Obligations, if the proceeds of such Refinancing Indebtedness are
used, directly or indirectly, to refinance such Subordinated Obligations, unless
such Refinancing Indebtedness will be subordinated to the Notes to at least the
same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, (i) any other obligation of the obligor on such
Indebtedness arising under any Guarantee, Lien or letter of credit supporting
such Indebtedness shall be disregarded to the extent that such Guarantee, Lien
or letter of credit secures the principal amount of such Indebtedness; (ii) in
the event that Indebtedness meets the criteria of more than one of the types of
Indebtedness described in paragraph (b) above, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses; and
(iii) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
(e) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred, in the case of term
debt, or first committed, in the case of revolving credit debt; provided that
(x) the Dollar-equivalent principal amount of any such Indebtedness outstanding
on the Issue Date shall be calculated based on the relevant currency exchange
rate in effect on the Issue Date and (y) if such Indebtedness is Incurred to
refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable Dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in effect on the
date of such refinancing, such Dollar-denominated restriction shall be deemed
not to have been exceeded so long as the principal amount of such refinancing
Indebtedness does not exceed the principal amount of such Indebtedness being
refinanced. The principal amount of any Indebtedness Incurred to refinance other
Indebtedness, if Incurred in a different currency from the Indebtedness being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Indebtedness is denominated that is
in effect on the date of such refinancing.
Limitation on Layering. The Company shall not incur any Indebtedness if
such Indebtedness is expressly subordinate in right of payment to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness. No Note Guarantor shall incur any Indebtedness if such
Indebtedness is expressly subordinate
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in right of payment to any Guarantor Senior Indebtedness of such Note Guarantor
unless such Indebtedness is Guarantor Senior Subordinated Indebtedness of such
Note Guarantor or is contractually subordinated in right of payment to Guarantor
Senior Subordinated Indebtedness of such Note Guarantor. Unsecured Indebtedness
is not deemed to be subordinate or junior to Secured Indebtedness merely because
it is unsecured, and Indebtedness that is not guaranteed by a particular Person
is not deemed to be subordinate or junior to Indebtedness that is so guaranteed
merely because it is not so guaranteed.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except (x) dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and (y) dividends or distributions payable
to the Company or any Restricted Subsidiary (and, if the Restricted Subsidiary
making such dividend or distribution is not a Wholly Owned Subsidiary, to its
other shareholders on no more than a pro rata basis, measured by value), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Company held by Persons other than the Company or another Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase,
redemption or other acquisition of Subordinated Obligations in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment") if
at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company could not incur at least an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Company's Board of Directors whose
determination shall be conclusive and evidenced by a resolution of the
Company's Board of Directors) declared or made subsequent to the date of
the Indenture would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the end of the most recent
fiscal quarter ending prior to the Issue Date to the end of the most
recent fiscal quarter ending prior to the date of such Restricted
Payment for which consolidated financial statements of the Company are
available (or, in case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company either
(x) as capital contributions to the Company after the Issue Date or (y)
from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Restricted Subsidiary of the Company), provided that in the event such
issuance or sale is to an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries for the benefit of
their employees, to the extent the purchase by such plan or trust is
financed by Indebtedness of such plan or trust for which the Company is
liable as Guarantor or otherwise, such aggregate amount of Net Cash
Proceeds shall be limited to the aggregate amount of principal payments
made by such plan or trust with respect to such Indebtedness;
(C) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than
by a Restricted Subsidiary of the Company) subsequent to the Issue Date,
of any Indebtedness of the Company or its Restricted Subsidiaries
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash, or other property
(other than Capital Stock), distributed by the Company
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upon such conversion or exchange), plus the amount of any cash or other
property received by the Company or any Restricted Subsidiary upon such
conversion or exchange;
(D) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) repayments of the principal
of loans or advances or other transfers of assets to the Company or any
Restricted Subsidiary from any Unrestricted Subsidiary or (ii) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investment"), not
to exceed in the case of any such Unrestricted Subsidiary the aggregate
amount of Investments (other than Permitted Investments) made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary
after the Issue Date; and
(E) in the case of disposition or repayment of any Investment
constituting a Restricted Payment (without duplication of any amount
deducted in calculating the amount of Investments at any time
outstanding included in the amount of Restricted Payments), an amount
equal to the lesser of the return of capital or repayment with respect
to such Investment and the initial amount of such Investment, in either
case, less the cost of the disposition of such Investment.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, redemption, repurchase, defeasance, retirement or
other acquisition of Capital Stock of the Company or Subordinated
Obligations made by exchange (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with which cash
is paid in lieu of the issuance of fractional shares) for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary or an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries) or a substantially
concurrent capital contribution to the Company; provided, however, that (A)
such purchase, redemption, repurchase, defeasance, retirement or other
acquisition shall be excluded in subsequent calculations of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale or capital
contribution shall be excluded in subsequent calculations under clause (B)
of paragraph (a);
(ii) any purchase, redemption, repurchase, defeasance, retirement or
other acquisition of Subordinated Obligations made by exchange for, or out
of the proceeds of the substantially concurrent sale of, Subordinated
Obligations of the Company that is permitted to be Incurred pursuant to the
covenant described under "Limitation on Indebtedness"; provided, however,
that such purchase, redemption, repurchase, defeasance, retirement or other
acquisition shall be excluded in subsequent calculations of the amount of
Restricted Payments;
(iii) any purchase, redemption, repurchase, defeasance, retirement or
other acquisition of Subordinated Obligations from Net Available Cash to
the extent permitted by the covenant described under "-- Limitation on
Sales of Assets"; provided, however, that such purchase, redemption,
repurchase, defeasance, retirement or other acquisition shall be excluded
in subsequent calculations of the amount of Restricted Payments;
(iv) any purchase, redemption, repurchase, defeasance, retirement or
other acquisition of Subordinated Obligations upon a Change of Control to
the extent required by the agreement governing such Subordinated
Obligations but only if the Company shall have complied with the covenant
described under "-- Change of Control" and purchased all Notes tendered
pursuant to the offer to repurchase all the Notes required thereby, prior
to purchasing or repaying such Subordinated Obligations; provided, however,
that (A) the purchase price (stated as a percentage of principal amount or
issue price plus accrued original issue discount, if less) of such
Subordinated Obligations shall not be greater than the price (stated as a
percentage of principal amount) of the Notes pursuant to any such offer to
repurchase the Notes in the event of a Change of Control, and (B) any such
purchase, redemption, repurchase, defeasance, retirement or other
acquisition shall be included in subsequent calculations of the amount of
Restricted Payments;
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(v) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with paragraph (a); provided, however, that such dividends shall be
included in subsequent calculations of the amount of Restricted Payments;
(vi) loans, advances, dividends or distributions by the Company to
Holding or EV LLC to permit Holding or EV LLC, as the case may be, to
repurchase or otherwise acquire its Capital Stock or options, warrants or
other rights in respect thereof, or payments by the Company to repurchase
or otherwise acquire Capital Stock or options, warrants or other rights in
respect thereof, in each case from Management Investors, such payments,
loans, advances, dividends or distributions not to exceed an amount (net of
repayments of any such loans or advances) equal to $500,000 in any fiscal
year and $2.0 million in the aggregate (plus the Net Cash Proceeds received
by the Company since the Issue Date as a capital contribution from the sale
to Management Investors of Capital Stock or options, warrants or other
rights in respect thereof); provided, however, that such payments, loans,
advances, dividends or distributions will be included in subsequent
calculations of the amount of Restricted Payments;
(vii) loans, advances, dividends or distributions by the Company or
any Restricted Subsidiary to Holding or EV LLC not to exceed an amount
necessary to permit Holding or EV LLC to (A) pay its costs (including all
professional fees and expenses) incurred to comply with its reporting
obligations under federal or state laws or under the Indenture, including
any reports filed with respect to the Securities Act, Exchange Act or the
respective rules and regulations promulgated thereunder, (B) make payments
in respect of its indemnification obligations owing to directors, officers,
employees or other Persons under its charter or by-laws or pursuant to
written agreements with any such Person, to the extent such payments relate
to the Company and its Subsidiaries, (C) pay all reasonable fees and
expenses payable by it in connection with the Transactions, or (D) pay its
other operational expenses (other than taxes) incurred in the ordinary
course of business and not exceeding $500,000 in any fiscal year; provided,
however, that such loans, advances, dividends or distributions will be
excluded in subsequent calculations of the amount of Restricted Payments;
(viii) payments by the Company or any Restricted Subsidiary to Holding
(A) to satisfy or permit Holding to satisfy its obligations under the
Management Agreements, (B) pursuant to the Tax Sharing Agreement, (C) to
pay or permit Holding to pay any taxes, charges or assessments, including
but not limited to sales, use, transfer, rental, ad valorem, value-added,
stamp, property, consumption, franchise, license, capital, net worth, gross
receipts, excise, occupancy, intangibles or similar taxes, charges or
assessments (other than federal, state or local taxes measured by income
and federal, state or local withholding imposed on payments made by
Holding), required to be paid by Holding by virtue of its being
incorporated or having capital stock outstanding (but not by virtue of
owning stock of any corporation other than the Company or any of its
Subsidiaries), or being a holding company parent of the Company or
receiving dividends from or other distributions in respect of the stock of
the Company, or having guaranteed any obligations of the Company or any
Subsidiary thereof, or having made any payment in respect of any of the
items for which the Company is permitted to make payments to Holding
pursuant to this covenant, or (D) to pay or permit Holding to pay any other
federal, state, foreign, provincial or local taxes measured by income for
which Holding is liable up to an amount not to exceed with respect to such
federal taxes the amount of any such taxes which the Company would have
been required to pay on a separate company basis or on a consolidated basis
if the Company had filed a consolidated return on behalf of an affiliated
group (as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended, or an analogous provision of state, local or foreign law) of which
it were the common parent, or with respect to state and local taxes, on a
combined basis if the Company had filed a combined return on behalf of an
affiliated group consisting only of the Company and its Subsidiaries;
provided, however, that such payments will be excluded in subsequent
calculations of the amount of Restricted Payments;
(ix) the payment by the Company of, or loans, advances, dividends or
distributions by the Company to Holding or EV LLC to pay, dividends on the
common stock of the Company, Holding or EV LLC, as applicable, following an
initial public offering of such common stock, in an amount not to exceed in
any fiscal year 6% of the net proceeds received by the Company, in or from
such public offering; provided,
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however, that such payments, loans, advances, dividends or distributions
will be included in subsequent calculations of the amount of Restricted
Payments; and
(x) loans, advances, dividends or distributions by the Company or any
Restricted Subsidiary in an aggregate amount not to exceed $10.0 million;
provided, however, that (A) the Company or any Restricted Subsidiary shall
not be permitted to make Restricted Payments under this clause (x) unless,
after giving effect thereto (including the Incurrence of any Indebtedness
to fund such Restricted Payment), the Consolidated Coverage Ratio of the
Company would be at least equal to 2.25:1.00 and (B) such loans, advances,
dividends or distributions will be included in subsequent calculations of
the amount of Restricted Payments; and provided, further, that in the case
of clauses (vii), (ix) and (x) no Default or Event of Default shall have
occurred or be continuing at the time of such payment after giving effect
thereto.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the date of the Indenture (including, without
limitation, the Senior Credit Facility);
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary (x) pursuant to an agreement relating to any Indebtedness
Incurred by a Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company, or of another Person
that is assumed by the Company or a Restricted Subsidiary in connection
with the acquisition of assets from, or merger or consolidation with, such
Person (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company, or such acquisition of assets, merger or consolidation) and
outstanding on the date of such acquisition, merger or consolidation or (y)
pursuant to any agreement (not relating to any Indebtedness) in existence
when a Person becomes a Subsidiary of the Company or when such agreement is
acquired by the Company or any Subsidiary thereof, that is not created in
contemplation of such Person becoming such a Subsidiary or such acquisition
(for purposes of this clause(2), if another Person is the Successor
Company, any Subsidiary or agreement thereof shall be deemed acquired or
assumed, as the case may be, by the Company when such Person becomes the
Successor Company);
(3) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement (a "Refinancing Agreement") effecting a
refinancing of Indebtedness Incurred pursuant to, or that otherwise
extends, renews, refinances or replaces, an agreement referred to in clause
(1) or (2) of this covenant or this clause (3) (an "Initial Agreement") or
contained in any amendment to an Initial Agreement; provided, however, that
the encumbrances and restrictions contained in any such Refinancing
Agreement or amendment are no less favorable to the Holders of the Notes
taken as a whole than encumbrances and restrictions contained in the
Initial Agreement or Initial Agreements to which such Refinancing Agreement
or amendment relates (as conclusively determined in good faith by the Board
of Directors);
(4) any encumbrance or restriction (A) that restricts in a customary
manner the subletting, assignment or transfer of any property or asset that
is subject to a lease, license or similar contract, or the assignment or
transfer of any lease, license or other contract, (B) by virtue of any
transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture, (C) contained in mortgages,
pledges or other security agreements securing Indebtedness of a Restricted
Subsidiary to the extent such encumbrance or restrictions restrict the
transfer of the property subject to such mortgages, pledges or other
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security agreements or (D) pursuant to customary provisions restricting
dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary;
(5) any restriction with respect to a Restricted Subsidiary (or any of
its property or assets) imposed pursuant to an agreement entered into for
the direct or indirect sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary (or the property or
assets that are subject to such restriction) pending the closing of such
sale or disposition;
(6) any encumbrance or restriction on the transfer of property or
assets required by any regulatory authority having jurisdiction over the
Company or any Restricted Subsidiary or any of their businesses; and
(7) any encumbrance or restriction pursuant to an agreement relating
to any Indebtedness incurred, or any sale of receivables, by a Foreign
Subsidiary.
Limitation on Sales of Assets. (a) The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Disposition unless
(i) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the
shares and assets subject to such Asset Disposition, as such fair market
value may be determined (and shall be determined, to the extent such Asset
Disposition or any series of related Asset Dispositions involves aggregate
consideration in excess of $1.0 million) in good faith by the Board of
Directors, whose determination shall be conclusive (including as to the
value of all noncash consideration);
(ii) at least 80% of the consideration therefor (excluding, in the
case of an Asset Disposition of assets, any consideration by way of relief
from, or by any other Person assuming responsibility for, any liabilities,
contingent or otherwise, which are not Indebtedness) received by the
Company or such Restricted Subsidiary is in the form of cash; and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be) as follows:
(A) first, to the extent the Company elects (or is required by the
terms of any Senior Indebtedness or Indebtedness (other than Preferred
Stock) of a Restricted Subsidiary), to prepay, repay or purchase Senior
Indebtedness or such Indebtedness of a Restricted Subsidiary (in each
case other than Indebtedness owed to the Company or a Restricted
Subsidiary) within 365 days after the date of such Asset Disposition;
(B) second, to the extent of the balance of Net Available Cash
after application in accordance with clause (A) above, to the extent the
Company or such Restricted Subsidiary elects, to reinvest in Additional
Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) within 365 days from the date of such
Asset Disposition, or, if such reinvestment in Additional Assets is a
project authorized by the Board of Directors that will take longer than
such 365 days to complete, the period of time necessary to complete such
project;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B) above (such
balance, the "Excess Proceeds"), to make an offer to purchase Notes and
(to the extent required by the terms thereof) any other Senior
Subordinated Indebtedness, pursuant and subject to the conditions of the
Indenture and the agreements governing such other Indebtedness, at a
purchase price of 100% of the principal amount thereof (or accreted
value, as applicable) plus accrued and unpaid interest to the purchase
date; and
(D) fourth, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A), (B) and (C) above, to
fund (to the extent consistent with any other
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applicable provision of the Indenture) any general corporate purpose
(including the repayment of any Subordinated Obligations);
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this covenant, the Company and the Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this covenant
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions that is not applied in accordance with this covenant exceeds $3.0
million. If the aggregate principal amount (or accreted value, as applicable) of
Notes and Senior Subordinated Indebtedness validly tendered and not withdrawn in
connection with an offer pursuant to clause (C) above exceeds the Excess
Proceeds, the Excess Proceeds will be apportioned between the Notes and such
Senior Subordinated Indebtedness, with the portion of the Excess Proceeds
payable in respect of the Notes to equal the lesser of (x) the Excess Proceeds
amount multiplied by a fraction, the numerator of which is the outstanding
principal amount of the Notes and the denominator of which is the sum of the
outstanding principal amount of the Notes and the outstanding principal amount
(or accreted value, as applicable) of the relevant Senior Subordinated
Indebtedness, and (y) the aggregate principal amount of Notes validly tendered
and not withdrawn.
For the purposes of this covenant, the following are deemed to be cash: (v)
Cash Equivalents, (w) the assumption of Indebtedness of the Company (other than
Disqualified Stock of the Company) or any Restricted Subsidiary and the release
of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition, (x) Indebtedness of any
Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of
such Asset Disposition, to the extent that the Company and each other Restricted
Subsidiary is released from any Guarantee of such Indebtedness in connection
with such Asset Disposition, (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash, and (z) consideration
consisting of Indebtedness of the Company or any Restricted Subsidiary.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes (the
"Offer") at a purchase price of 100% of their principal amount plus accrued and
unpaid interest to the Purchase Date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of the Notes tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of Notes, the
remaining Net Available Cash will be available to the Company for use in
accordance with clause (a)(iii)(C) (to repay Senior Subordinated Indebtedness)
or clause (a)(iii)(D) above. The Company shall not be required to make an Offer
for Notes pursuant to this covenant if the Net Available Cash available therefor
(after application of the proceeds as provided in clauses (a)(iii)(A) and
(a)(iii)(B) above) is less than $3.0 million for any particular Asset
Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction or series of transactions (including the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any Affiliate of the Company (an "Affiliate Transaction") on terms (i) that
taken as a whole are less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's length dealings with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, are not in writing and
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have not been approved by a majority of the members of the Board of Directors
having no material personal financial interest in such Affiliate Transaction,
or, in the event there are no such members, as to which the Company has not
obtained a Fairness Opinion (as hereinafter defined). In addition, any
transaction involving aggregate payments or other transfers by the Company and
its Restricted Subsidiaries in excess of $10.0 million will also require an
opinion (a "Fairness Opinion") from an independent investment banking firm or
appraiser, as appropriate, of national prominence, to the effect that the terms
of such transaction taken as a whole are either (i) no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those that could
be obtained at the time of such transaction in arm's length dealings with a
Person who is not an Affiliate or (ii) fair to the Company or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment permitted by the covenant described under
"-- Limitation on Restricted Payments," any Permitted Investment, or any
other transaction specifically excluded from the definition of the term
"Restricted Payment";
(ii) the performance of the Company's or Restricted Subsidiary's
obligations under any employment contract, collective bargaining agreement,
employee benefit plan, related trust agreement or any other similar
arrangement heretofore or hereafter entered into in the ordinary course of
business;
(iii) payment of compensation, performance of indemnification or
contribution obligations, or any issuance, grant or award of stock, options
or other securities, to employees, officers or directors in the ordinary
course of business;
(iv) maintenance in the ordinary course of business of benefit
programs or arrangements for employees, officers or directors, including
vacation plans, health and the insurance plans, deferred compensation
plans, and retirement or savings plans and similar plans;
(v) any transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries;
(vi) loans or advances made to directors, officers or employees of
Holding, the Company or any Restricted Subsidiary, or guarantees in respect
thereof or otherwise made on their behalf (including any payments under
such guarantees), (A) in respect of travel, entertainment or moving-related
expenses incurred in the ordinary course of business, or (B) in the
ordinary course of business not exceeding $500,000 in the aggregate
outstanding at any time;
(vii) guarantees of borrowings by Management Investors in connection
with the purchase of Capital Stock of the Company, Holding or EV LLC by
such Management Investors, which guarantees are permitted under the
covenant described under "-- Limitation on Indebtedness," and payments
thereunder;
(viii) the Transactions and the incurrence and payment of all fees and
expenses payable in connection therewith;
(ix) any other transaction arising out of agreements in existence on
the Issue Date;
(x) execution, delivery and performance of the Tax Sharing Agreement
and the Management Agreements, including the initial payment of a fee of
$1.5 million to GSCP and the ongoing payment of fees to GSCP of up to
$750,000 per year plus reasonable out of pocket expenses;
(xi) any commercial or other business transaction in the ordinary
course of business with any Permitted Holder or any Affiliate thereof, on
terms that taken as a whole are no less favorable to the Company and its
Restricted Subsidiaries than those that could be obtained at the time in
arm's length dealings with a Person who is not an Affiliate of the Company;
and
(xii) any transaction in the ordinary course of business, or approved
by a majority of the members of the Board of Directors having no material
personal financial interest in such transaction, between the
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Company or any Restricted Subsidiary and any Affiliate of the Company
controlled by the Company that is a joint venture or similar entity
primarily engaged in a Related Business.
Limitation on the Sale or Issuance of Preferred Stock of Restricted
Subsidiaries. The Company will not sell any shares of Preferred Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Preferred Stock to any Person
(other than to the Company or a Restricted Subsidiary, or to directors as
directors' qualifying shares, or (in the case of any Foreign Subsidiary) to the
extent required by applicable law); provided, however, that (a) the Company or
any Restricted Subsidiary is permitted to sell Preferred Stock of a Subsidiary
in compliance with the terms of the covenant described under "-- Limitation on
Sales of Assets," and (b) any such Preferred Stock may be issued or sold if
Incurred by any Restricted Subsidiary in compliance with the covenant described
under "-- Limitation on Indebtedness."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien (other than Permitted Liens) on any of its property or assets (including
Capital Stock of any other Person), whether owned on the date of the Indenture
or thereafter acquired, securing any Indebtedness that is not Senior
Indebtedness or Guarantor Senior Indebtedness (the "Initial Lien"), unless
contemporaneously therewith effective provision is made to secure the
Indebtedness due under the Indenture and the Notes or, in respect of Liens on
any Restricted Subsidiary's property or assets, any Note Guarantee of such
Restricted Subsidiary, equally and ratably with such obligation for so long as
such obligation is so secured by such Initial Lien. Any such Lien thereby
created in favor of the Notes or any such Note Guarantee will be automatically
and unconditionally released and discharged upon (i) the release and discharge
of the Initial Lien to which it relates, or (ii) any sale, exchange or transfer
to any Person not an Affiliate of the Company of the property or assets secured
by such Initial Lien, or of all of the Capital Stock held by the Company or any
Restricted Subsidiary in, or all or substantially all the assets of, any
Restricted Subsidiary creating such Lien.
SEC Reports. Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file (if then permitted to do so) with the SEC
and provide (whether or not so filed with the SEC) the Trustee and Noteholders
and prospective Noteholders (upon request) with the annual reports and the
information, documents and other reports, which are specified in Sections 13 and
15(d) of the Exchange Act. The Company also will comply with the other
provisions of TIA sec.314(a).
Additional Note Guarantors. The Indenture provides that if the Company or
any of its Domestic Subsidiaries shall acquire or create another Domestic
Subsidiary that is a Significant Subsidiary, then the Company, the Trustee and
such newly acquired or created Domestic Subsidiary shall execute and deliver a
supplemental indenture evidencing such Note Guarantee and deliver an opinion of
counsel, in accordance with the terms of the Indenture. The Company will also
have the right to cause any Restricted Subsidiary so to become a Note Guarantor.
Each Note Guarantee will be limited to an amount not to exceed the maximum
amount that can be Guaranteed by that Subsidiary without rendering the Note
Guarantee, as it relates to such Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. The Company has no present
intention of causing any Restricted Subsidiary to guarantee the Notes nor any
intention of creating or acquiring a Domestic Subsidiary that is a Significant
Subsidiary. See "-- Note Guarantees."
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) will expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no
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Default will have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Consolidated Coverage Ratio of the Successor
Company would be at least equal to the greater of (A) 1.75:1.00 and (B) a ratio
equal to 75% of the actual Consolidated Coverage Ratio of the Company as of such
date of determination; and (iv) each Note Guarantor (other than any party to any
such merger) shall have delivered a written instrument in form and substance
reasonably satisfactory to the Trustee confirming its Note Guarantee; and (v)
the Company will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each to the effect that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture;
provided that (x) in giving such opinion such counsel may rely on such Officers'
Certificate as to any matters of fact (including without limitation as to
compliance with the foregoing clauses (ii) and (iii)), and (y) no Opinion of
Counsel will be required for a consolidation, merger or transfer described in
the last paragraph of this covenant. Any Indebtedness that becomes an obligation
of the Company or any Restricted Subsidiary (or that is deemed to be Incurred by
any Restricted Subsidiary that becomes a Restricted Subsidiary) as a result of
such transaction undertaken in compliance with this covenant, and any
Refinancing Indebtedness with respect thereto, shall be deemed to have been
Incurred in compliance with the covenant described under "-- Limitation on
Indebtedness".
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, and
thereafter the predecessor Company shall be relieved of all obligations and
covenants under this Agreement, except that, in the case of a conveyance,
transfer or lease of all or substantially all its assets, the predecessor
Company will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (2) the Company may merge with an
Affiliate incorporated or organized for the purpose of reincorporating or
reorganizing the Company in another jurisdiction to realize tax or other
benefits.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment is prohibited by the provisions described under
"-- Ranking" above, (iii) the failure by the Company to comply with its
obligations under the covenant described under "-- Merger and Consolidation"
above, (iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "Change of Control"
or "-- Certain Covenants" above (in each case, other than a failure to purchase
Notes), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Notes or the Indenture, (vi) the failure
by any Note Guarantor to comply with its obligations under any Note Guarantee to
which such Note Guarantor is a party, after any applicable grace period, (vii)
the failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds $5.0 million or its
foreign currency equivalent (the "cross acceleration provision"), (viii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (ix) the rendering of any
judgment or decree for the payment of money in an amount (net of any insurance
or indemnity payments actually received in respect thereof prior to or within 90
days from the entry thereof, or to be received in respect thereof in the event
any appeal thereof shall be unsuccessful) in excess of $5.0 million or its
foreign currency equivalent against the Company or a Significant Subsidiary that
is not discharged, or bonded or insured by a third Person, if (A) an enforcement
proceeding thereon is commenced or (B) such judgment or decree remains
outstanding for a period of 90 days following such judgment or decree and is not
discharged, waived or stayed (the "judgment default provision") or (x) the
failure of any Note Guarantee by a Note Guarantor which is a Significant
Subsidiary to be in full force and effect (except as contemplated by the terms
thereof or of the Indenture) or the denial or disaffirmation in writing by any
such Note Guarantor of its obligations under the Indenture or any Note Guarantee
if such Default continues for 10 days.
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The foregoing will constitute Events of Default whatever the reason for any
such Event Of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a Default under clause (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes notify the Company of the Default and the Company does not
cure such Default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least a
majority in principal amount of the outstanding Notes by notice to the Company
and the Trustee, may declare the principal of and accrued but unpaid interest on
all the Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company occurs
and is continuing, the principal of and interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, or premium (if any) or interest on, any Note, the Trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then
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outstanding. However, without the consent of each Holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the principal amount
of Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the Stated Maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed as described under "Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes or (viii) make any change in the amendment provisions that
require each Holder's consent or in the waiver provisions. In addition, without
the consent of the Holders of 90% in principal amount of the Notes then
outstanding, no amendment may release any Note Guarantor that is a Significant
Subsidiary from any of its obligations under its Note Guarantee or the
Indenture, except in compliance with the terms thereof or of the Indenture.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor of the obligations of the Company under the
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Company for the benefit of the Noteholders or to
surrender any right or power conferred upon the Company, to provide that any
Indebtedness that becomes or will become an obligation of the Successor Company
pursuant to a transaction governed by the provisions described under "-- Merger
and Consolidation" (and that is not a Subordinated Obligation) is Senior
Subordinated Indebtedness for purposes of this Indenture, to make any change
that does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the TIA. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the Indenture becomes effective, the Company is required to mail to
Noteholders a notice briefly describing such amendment. However, the failure to
give such notice to all Noteholders, or any defect therein, will not impair or
affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "-- Certain Covenants," the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries and the
judgment default provision described under "-- Defaults" above and the
limitations contained in clause (iii) under "-- Merger and Consolidation" above
("covenant defeasance"). If the Company exercises its legal defeasance option or
its covenant defeasance option, each Note Guarantor will be released from all of
its obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii), (viii) (but only with
respect to certain bankruptcy events of a Significant Subsidiary),
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(ix) or (x) under "Defaults" above or because of the failure of the Company to
comply with clause (iii) under "-- Merger and Consolidation" above.
Either defeasance option may be exercised to any redemption date or to the
maturity date for the Notes. In order to exercise either defeasance option, the
Company must irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations, or a combination thereof, for the
payment of principal of, and premium (if any) and interest on, the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law since the date of the Indenture).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquisition" means the acquisition by Acquisition Corp. of all or
substantially all the stock of Gulton Industries on February 10, 1997.
"Acquisition Corp." means Gulton Acquisition Corp., a Delaware corporation
and predecessor by merger of the Company.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock of
any Person that at such time is a Restricted Subsidiary, acquired from a third
party; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the then outstanding principal amount of such Note
and (ii) the excess of (A) the present value of all remaining required interest
and principal payments due on such Note, computed using a discount rate equal to
the Treasury Rate plus 75 basis points, over (B) the then-outstanding principal
amount of such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares, or (in the case of a Foreign Subsidiary) to the extent
required by applicable law), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the
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Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary,
(ii) a disposition of inventory, equipment, obsolete assets or surplus personal
property in the ordinary course of business, (iii) the sale of Temporary Cash
Investments or Cash Equivalents in the ordinary course of business, (iv)
dispositions with a fair market value not exceeding $500,000 in the aggregate in
any fiscal year, (v) the sale or discount (with or without recourse, and on
commercially reasonable terms) of accounts receivable or notes receivable
arising in the ordinary course of business, or the conversion or exchange of
accounts receivable for notes receivable, (vi) the licensing of intellectual
property in the ordinary course of business, (vii) the transfer to Mark IV
Industries, Inc. or other disposition of any contracts, agreements, property and
assets relating to the Gulton Data Systems business formerly conducted by the
Company or a predecessor thereof, (viii) for purposes of the covenant described
under "-- Certain Covenants -- Limitation on Sales of Assets" only, a
disposition subject to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or (ix) a disposition of
property or assets that is governed by the provisions described under "-- Merger
and Consolidation."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of the Senior
Credit Facility, including without limitation 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 whether or not a claim for postfiling interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees,
other monetary obligations of any nature and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Borrowing Base" means, at any time of determination, the Borrowing Base as
defined in the Senior Credit Agreement.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Cash Equivalents" means any of the following: (a) securities issued or
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof, (b) time deposits, certificates of deposit or bankers'
acceptances of (i) any lender under the Senior Credit Agreement or (ii) any
commercial bank having capital and surplus in excess of $500,000,000 and the
commercial paper of the holding company of which is rated at least A-1 or the
equivalent thereof by Standard & Poor's Ratings Group (a division of McGraw Hill
Inc.) or any successor rating agency ("S&P") or at least P-1 or the equivalent
thereof by
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Moody's Investors Service, Inc. or any successor rating agency ("Moody's") (or
if at such time neither is issuing ratings, then a comparable rating of another
nationally recognized rating agency), (c) commercial paper rated at least A-1 or
the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's (or if at such time neither is issuing ratings, then a comparable rating
of another nationally recognized rating agency) and (d) investments in money
market funds complying with the risk limiting conditions of Rule 2a-7 or any
successor rule of the Securities and Exchange Commission under the Investment
Company Act.
"Chase" means The Chase Manhattan Bank.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means EV International, Inc., a Delaware corporation, and any
successor thereto.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA of the Company and its Restricted
Subsidiaries for the period of the most recent four consecutive fiscal quarters
ending prior to the date of such determination for which consolidated financial
statements of the Company are available to (ii) Consolidated Interest Expense
for such four fiscal quarters (in each case, determined, for each fiscal quarter
(or portion thereof) of the four fiscal quarters ending prior to the Issue Date,
on a pro forma basis to give effect to the Acquisition as if it had occurred at
the beginning of such four-quarter period); provided, however, that:
(1) if the Company or any Restricted Subsidiary (x) has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period
(except that in making such computation, the amount of Indebtedness under
any revolving credit facility outstanding on the date of such calculation
shall be computed based on (A) the average daily balance of such
Indebtedness during such four fiscal quarters or such shorter period for
which such facility was outstanding or (B) if such facility was created
after the end of such four fiscal quarters, the average daily balance of
such Indebtedness during the period from the date of creation of such
facility to the date of such calculation) and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period, or (y) has repaid, repurchased, defeased or
otherwise discharged any Indebtedness since the beginning of the period
that is no longer outstanding on such date of determination, or if the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio involves a discharge of Indebtedness (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid), EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro
forma basis to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period,
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition of any company
or any business or any group of assets constituting an operating unit of a
business, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets that are the
subject of such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and is continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (and, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale),
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(3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Person that thereby becomes a Restricted Subsidiary, or
otherwise acquired any company or any business or any group of assets
constituting an operating unit of a business, including any such
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition of assets occurred on the first day
of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an Asset Disposition, Investment or acquisition of assets, or any transaction
governed by the provisions described under "-- Merger and Consolidation", or the
amount of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness Incurred or repaid,
repurchased, defeased or otherwise discharged in connection therewith, the pro
forma calculations in respect thereof shall be as determined in good faith by a
responsible financial or accounting Officer of the Company, based on reasonable
assumptions. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months). If any
Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a
fixed or floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be computed by applying, at the
option of the Company or such Restricted Subsidiary, either a fixed or floating
rate. If any Indebtedness which is being given pro forma effect was Incurred
under a revolving credit facility, the interest expense on such Indebtedness
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period.
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries,
the Company and its consolidated Restricted Subsidiaries, determined in
accordance with GAAP, minus, to the extent included in such interest expense,
amortization or write-off of financing costs, and plus, to the extent incurred
by the Company and its Restricted Subsidiaries in such period but not included
in such interest expense, without duplication, (i) interest expense attributable
to Capitalized Lease Obligations and the interest component of rent expense
associated with Attributable Debt in respect of the relevant lease giving rise
thereto, determined as if such lease were a capitalized lease, in accordance
with GAAP, (ii) amortization of debt discount, (iii) interest in respect of
Indebtedness of any other Person that has been Guaranteed by the Company or any
Restricted Subsidiary, but only to the extent that such interest is actually
paid by the Company or any Restricted Subsidiary, (iv) non-cash interest
expense, (v) net costs associated with Hedging Obligations, (vi) the product of
(A) Preferred Stock dividends in respect of all Preferred Stock of Domestic
Subsidiaries of the Company and Disqualified Stock of the Company held by
Persons other than the Company or a Restricted Subsidiary multiplied by (B) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
the Company, expressed as a decimal, in each case, determined on a consolidated
basis in accordance with GAAP; and (vii) the cash contributions to any employee
stock ownership plan or similar trust to the extent such contributions are used
by such plan or trust to pay interest to any Person (other than the Company or
any Restricted Subsidiary) on Indebtedness Incurred by such plan or trust;
provided, however, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes
of the foregoing, gross interest expense shall be determined after giving effect
to any
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net payments made or received by the Company and its Subsidiaries with respect
to Interest Rate Agreements.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its Restricted Subsidiaries, determined in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in the net loss of such
Person shall be included to the extent of the aggregate Investment of the
Company or any of its Restricted Subsidiaries in such Person,
(ii) any net income (loss) of any Person acquired by the Company or a
Restricted Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition,
(iii) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that
(A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend
that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the net loss of such
Restricted Subsidiary shall be included to the extent of the aggregate
Investment of the Company or any of its other Restricted Subsidiaries in
such Restricted Subsidiary,
(iv) any gain or loss realized upon the sale or other disposition of
any asset of the Company or its consolidated Restricted Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business,
(v) any extraordinary gain or loss, and
(vi) the cumulative effect of a change in accounting principles.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill and other intangibles (other than patents,
trademarks, copyrights, licenses and other intellectual property), shown on the
balance sheet of the Company and its Restricted Subsidiaries as of the most
recent date for which such a balance sheet is available, determined on a
consolidated basis in accordance with GAAP. At February 28, 1997, on a pro forma
basis giving effect to the Transactions and the Offering, the Consolidated
Tangible Assets of the Company was $145.3 million.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP;
provided, however, that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of the Company or any
Unrestricted Subsidiary will be accounted for as an investment. The term
"Consolidated" has a correlative meaning.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangements
(including derivative agreements or arrangements) as to which such Person is a
party or a beneficiary.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
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"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 to or under which, at the date of determination, the
holders thereof are committed to lend up to, at least $10.0 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the
Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
(other than Management Stock) that by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable or exercisable) or
upon the happening of any event (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the 91st day after the Stated Maturity of the Notes.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" means, for any period, the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense and (iv) amortization of intangibles and
other non-cash charges or non-cash losses.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"EV LLC" means EVI Audio, LLC, a Delaware limited liability company, and
any successor in interest thereto.
"Existing Senior Subordinated Debt" means any Indebtedness in respect of
the Senior Subordinated Credit Agreement, dated as of February 10, 1997, as
amended, supplemented, waived or otherwise modified from time to time, among the
Company, the several banks and other financial institutions from time to time
parties thereto, and The Chase Manhattan Bank, as agent for such lenders.
"Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company
that is not organized under the laws of the United States of America or any
state thereof or the District of Columbia and (b) EVI Audio International
Holding Corporation, Inc., a Delaware corporation, and any successor thereto.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date (for purposes of the definitions of
the terms "Consolidated Coverage Ratio," "Consolidated Interest Expense,"
"Consolidated Net Income" and "EBITDA," all defined terms in the Indenture to
the extent used in or relating to any of the foregoing definitions, and all
ratios and computations based on any of the foregoing definitions) and as in
effect from time to time (for all other purposes of the Indenture), including
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession all ratios and computations based on GAAP contained in the
Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other nonfinancial
obligation of any other Person, including any such obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
such other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
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"Guarantor Senior Indebtedness" means the following obligations, whether
outstanding on the date of the Indenture or thereafter issued, without
duplication: (i) any Guarantee of the Bank Indebtedness by such Note Guarantor
and all other Guarantees by such Note Guarantor of Senior Indebtedness of the
Company or Guarantor Senior Indebtedness for any other Note Guarantor; and (ii)
all obligations consisting of the principal of and premium, if any, and accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Note Guarantor
regardless of whether postfiling interest is allowed in such proceeding) on, and
fees and other amount owing in respect of, all other Indebtedness of the Note
Guarantor, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is expressly provided that the obligations
in respect of such Indebtedness are not senior in right of payment to the
obligations of such Note Guarantor under the Note Guarantee; provided, however,
that Guarantor Senior Indebtedness shall not include (1) any obligations of such
Note Guarantor to the Note Guarantor or any other Subsidiary of the Note
Guarantor, (2) any liability for Federal, state, local, foreign or other taxes
owed or owing by such Note 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 Note Guarantor that is expressly subordinate in right
of payment to any of the Indebtedness of such Note Guarantor, including any
Guarantor Senior Subordinated Indebtedness and Guarantor Subordinated
Obligations of such Note Guarantor or (5) any Capital Stock.
"Guarantor Senior Subordinated Indebtedness" means, with respect to a Note
Guarantor, the obligations of such Note Guarantor under the Note Guarantee and
any other Indebtedness of such Note Guarantor that specifically provides that
such Indebtedness is to rank pari passu in right of payment with the obligations
of such Note Guarantor under the Note Guarantee and is not expressly
subordinated by its terms in right of payment to any Indebtedness of such Note
Guarantor which is not Guarantor Senior Indebtedness of such Note Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a Note
Guarantor, any Indebtedness of such Note Guarantor (whether outstanding on the
Issue Date or thereafter Incurred) which is expressly subordinate in right of
payment to the obligations of such Note Guarantor under the Note Guarantee
pursuant to a written agreement.
"Gulton Industries" means Gulton Industries, Inc., a Delaware corporation
and predecessor by merger of the Company.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered in the Register.
"Holding" means EVI Audio Holding, Inc., a Delaware corporation, and any
successor in interest thereto.
"Incur" means issue, assume, enter into any Guarantee of, incur or
otherwise become liable for; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such Person becomes a Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary. Any
Indebtedness issued at a discount (including Indebtedness on which interest is
payable through the issuance of additional Indebtedness) shall be deemed
incurred at the time of original issuance of the Indebtedness at the initial
accreted amount thereof.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of indebtedness of such Person for borrowed money,
(ii) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(iii) all reimbursement obligations of such Person (including
reimbursement obligations) in respect of letters of credit or other similar
instruments (the amount of such obligations being equal at any time to
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the aggregate then undrawn and unexpired amount of such letters of credit
or other instruments plus the aggregate amount of drawings thereunder that
have not then been reimbursed),
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which
purchase price is due more than one year after the date of placing such
property in final service or taking final delivery and title thereto or the
completion of such services,
(v) all Capitalized Lease Obligations and Attributable Debt of such
Person,
(vi) the redemption, repayment or other repurchase amount of such
Person with respect to any Disqualified Stock or (if such Person is a
Subsidiary of the Company) any Preferred Stock of such Subsidiary, but
excluding, in each case, any accrued dividends (the amount of such
obligation to be equal at any time to the maximum fixed involuntary
redemption, repayment or repurchase price for such Capital Stock, or if
such Capital Stock has no such fixed price, to the involuntary redemption,
repayment or repurchase price therefor calculated in accordance with the
terms thereof as if then redeemed, repaid or repurchased, and if such price
is based upon or measured by the fair market value of such Capital Stock,
such fair market value shall be as determined in good faith by the Board of
Directors or the board of directors of the issuer of such Capital Stock),
(vii) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other
Persons,
(viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person, and
(ix) to the extent not otherwise included in this definition, net
Hedging Obligations of such Person (the amount of any such obligation to be
equal at any time to the termination value of such agreement or arrangement
giving rise to such Hedging Obligation that would be payable by such Person
at such time).
The amount of Indebtedness of any Person at any date shall be determined as
set forth above or otherwise provided in this Indenture, or otherwise in
accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement (including derivative agreements or arrangements) as to which
such Person is party or a beneficiary.
"Investment" in any Person by any other Person means any direct or indirect
advance, loan or other extension of credit (other than to customers, directors,
officers or employees of any Person in the ordinary course of business) or
capital contribution (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)
to, or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by, such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Company at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however,that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
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"Investors" means Greenwich Street Capital Partners, L.P., Greenwich Street
Capital Offshore Fund, Ltd., The Travelers Insurance Company, The Travelers Life
and Annuity Company, TRV Employees Fund, L.P. and the other parties that
purchased equity interests in the Company on the date of the Acquisition.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreements" means, collectively, the Consulting Agreement, the
Fee Agreement and the Indemnification Agreement, each dated February 10, 1997,
each between the Company and Greenwich Street Capital Partners, L.P. (and its
permitted successors and assigns thereunder), as each may be amended,
supplemented, waived or otherwise modified from time to time in accordance with
the terms thereof and of the Indenture.
"Management Investors" means the officers, directors, employees and other
members of the management of Holding, the Company or any of their respective
Subsidiaries, or family members or relatives thereof, or trusts for the benefit
of any of the foregoing, or any of their heirs, executors, successors and legal
representatives, who at any date beneficially own or have the right to acquire,
directly or indirectly, Capital Stock of the Company, Holding or EV LLC.
"Management Stock" means Capital Stock of the Company, Holding or EV LLC,
or options, warrants or other rights in respect thereof, held by any of the
Management Investors.
"Mergers" means the merger of Acquisition Corp. with and into Gulton
Industries, with Gulton Industries the surviving corporation, and the merger of
Gulton Industries and certain Domestic Subsidiaries with and into the Company,
with the Company the surviving corporation, in each case on the date of the
Acquisition.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made, and all installment payments required to be
made, on any Indebtedness that is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or that
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, or to any other Person (other than the Company or a
Restricted Subsidiary) owning a beneficial interest in the assets disposed of in
such Asset Disposition and (iv) appropriate amounts to be provided as a reserve,
in accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of any securities
of the Company or any Subsidiary by the Company or any Subsidiary, or any
capital contribution, means the cash proceeds of such issuance, sale or
contribution net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance, sale or
contribution and net of taxes paid or payable as a result thereof.
"Note Guarantee" means any guarantee that may from time to time be executed
and delivered by a Subsidiary of the Company pursuant to the covenant described
under "-- Certain Covenants -- Additional Note Guarantors."
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"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the President, Chief Financial Officer, any Vice President,
Controller or Treasurer of the Company.
"Officer's Certificate" means a certificate signed by one Officer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means any of the following: (i) any of the Investors,
Smith Barney Holdings Inc. and their respective Affiliates; (ii) any investment
fund or vehicle managed, sponsored or advised by Greenwich Street Capital
Partners, Inc., The Travelers Insurance Company, The Travelers Life and Annuity
Company, Smith Barney Holdings Inc. or any of their respective Affiliates; (iii)
any limited or general partners of, or other investors in, any of the Investors
and their respective Affiliates, or any such investment fund or vehicle; and
(iv) any Person acting in the capacity of an underwriter in connection with a
public or private offering of Capital Stock of the Company, Holding or EV LLC.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in, or consisting of, any of the following:
(i) a Restricted Subsidiary, the Company or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary;
(ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
(iii) Temporary Cash Investments or Cash Equivalents;
(iv) receivables owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(v) securities or other Investments received as consideration in sales
or other dispositions of property or assets, including Asset Dispositions
made in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets;"
(vi) securities or other Investments received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary, or as a result of foreclosure, perfection or
enforcement of any Lien, or in satisfaction of judgments, including in
connection with any bankruptcy proceeding or other reorganization of
another Person;
(vii) Investments in existence or made pursuant to legally binding
written commitments in existence on the Issue Date;
(viii) Currency Agreements, Interest Rate Agreements and related
Hedging Obligations, which obligations are Incurred in compliance with the
covenant described under "-- Certain Covenants -- Limitation on
Indebtedness;"
(ix) pledges or deposits (x) with respect to leases or utilities
provided to third parties in the ordinary course of business or (y)
otherwise described in the definition of "Permitted Liens"; and
(x) other Investments in an aggregate amount outstanding at any time
not to exceed the greater of (A) $3,000,000 and (B) 3% of Consolidated
Tangible Assets.
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or the nonpayment of which in the aggregate would not reasonably
be expected to have a material adverse effect on the
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Company and its Restricted Subsidiaries, or that are being contested in
good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or a Subsidiary thereof,
as the case may be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
in respect of obligations that are not overdue for a period of more than 60
days, or that are bonded or that are being contested in good faith and by
appropriate proceedings;
(c) pledges, deposits or Liens in connection with workers'
compensation, unemployment insurance and other social security and other
similar legislation or other insurance related obligations (including,
without limitation, pledges or deposits securing liability to insurance
carriers under insurance or self-insurance arrangements);
(d) pledges, deposits or Liens to secure the performance of bids,
tenders, trade, government or other contracts (other than for borrowed
money), obligations for utilities, leases, licenses, statutory obligations,
surety, judgment and appeal bonds, performance bonds and other obligations
of a like nature incurred in the ordinary course of business;
(e) easements (including reciprocal easement agreements),
rights-of-way, building, zoning and similar restrictions, utility
agreements, covenants, reservations, restrictions, encroachments, changes,
and other similar encumbrances or title defects incurred, or leases or
subleases granted to others, in the ordinary course of business, which do
not in the aggregate materially interfere with the ordinary conduct of the
business of the Company and its Subsidiaries, taken as a whole;
(f) Liens existing on, or provided for under written arrangements
existing on, the Issue Date, or (in the case of any such Liens securing
Indebtedness of the Company or any of its Subsidiaries existing or arising
under written arrangements existing on the Issue Date) securing any
Refinancing Indebtedness in respect of such Indebtedness so long as the
Lien securing such Refinancing Indebtedness is limited to all or part of
the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or under such
written arrangements could secure) the original Indebtedness;
(g) (i) mortgages, liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the Company
or any Restricted Subsidiary of the Company has easement rights or on any
leased property and subordination or similar agreements relating thereto
and (ii) any condemnation or eminent domain proceedings affecting any real
property;
(h) Liens securing Hedging Obligations Incurred in compliance with the
covenant described under "-- Certain Covenants -- Limitation on
Indebtedness";
(i) Liens arising out of judgments, decrees, orders or awards in
respect of which the Company shall in good faith be prosecuting an appeal
or proceedings for review, which appeal or proceedings shall not have been
finally terminated, or if the period within which such appeal or
proceedings may be initiated shall not have expired;
(j) leases, subleases, licenses or sublicenses to third parties;
(k) Liens securing (x) Indebtedness Incurred in compliance with clause
(b)(i), (b)(ii), (b)(v) or (b)(vii) of the covenant described under
"Certain Covenants -- Limitation on Indebtedness", or clause (b)(iv)
thereof (other than Refinancing Indebtedness Incurred in respect of
Indebtedness described in paragraph (a) thereof) or (y) Bank Indebtedness;
(l) Liens securing commercial bank indebtedness;
(m) Liens on properties or assets (1) of the Company or any Note
Guarantor securing Senior Indebtedness or Guarantor Senior Indebtedness,
(2) of any Wholly Owned Subsidiary that is not a Note
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Guarantor securing Indebtedness of any Wholly Owned Subsidiary that is not
a Note Guarantor or (3) of any Restricted Subsidiary that is not a Note
Guarantor securing its Indebtedness;
(n) Liens existing on property or assets of a Person at the time such
Person becomes a Subsidiary of the Company (or at the time the Company or a
Restricted Subsidiary acquires such property or assets); provided,
however,that such Liens are not created in connection with, or in
contemplation of, such other Person becoming such a Subsidiary (or such
acquisition of such property or assets), and that such Liens are limited to
all or part of the same property or assets (plus improvements, accessions,
proceeds or dividends or distributions in respect thereof) that secured
(or, under the written arrangements under which such Liens arose, could
secure) the obligations to which such Liens relate;
(o) Liens on Capital Stock of an Unrestricted Subsidiary that secure
Indebtedness or other obligations of such Unrestricted Subsidiary;
(p) any encumbrance or restriction (including, but not limited to, put
and call agreements) with respect to Capital Stock of any joint venture or
similar arrangement pursuant to any joint venture or similar agreement;
(q) Liens securing the Notes; and
(r) Liens securing Refinancing Indebtedness Incurred in respect of any
Indebtedness secured by, or securing any refinancing, refunding, extension,
renewal or replacement (in whole or in part) of any other obligation
secured by, any other Permitted Liens, provided that any such new Lien is
limited to all or part of the same property or assets (plus improvements,
accessions, proceeds or dividends or distributions in respect thereof) that
secured (or, under the written arrangements under which the original Lien
arose, could secure) the obligations to which such Liens relate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company, Holding or EV LLC pursuant to an effective
registration statement under the Securities Act (whether alone or in conjunction
with any secondary public offering), the proceeds of which, if issued by Holding
or EV LLC, are contributed to the Company.
"Public Market" means any time after a Public Equity Offering has been
consummated and either (x) at least 10% of the total issued and outstanding
common stock (or equivalent equity interests) of the Company, Holding or EV LLC
has been distributed by means of an effective registration statement under the
Securities Act or (y) an established public trading market otherwise exists for
any such common stock or equivalent equity interests.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," "refinanced" and
"refinancing"as used in the Indenture shall have a correlative meaning) any
Indebtedness existing on the date of the Indenture or Incurred in compliance
with the Indenture (including Indebtedness of the Company that refinances
Indebtedness of any Restricted Subsidiary (to the extent permitted in the
Indenture) and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original
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issue discount, an aggregate issue price) that is equal to or less than the sum
of (x) the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced, plus (y) fees, underwriting discounts, premiums and other
costs and expenses incurred in connection with such Refinancing Indebtedness;
provided further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that is not a Note Guarantor that
refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means those businesses in which the Company or any of
its Subsidiaries is engaged on the date of the Indenture, or that are reasonably
related, complementary or incidental thereto.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility under the
Senior Credit Facility (which may include any swing line or letter of credit
facility or subfacility thereunder).
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or such Restricted Subsidiary transfers such property to a Person
and the Company or such Restricted Subsidiary leases it from such Person, other
than leases (x) between the Company and a Restricted Subsidiary or between or
(y) required to be classified and accounted for as capitalized leases for
financial reporting purposes in accordance with GAAP.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Agreement" means the credit agreement dated as of February
10, 1997, among the Company, the banks and other financial institutions party
thereto from time to time, and Chase as administrative agent, as such agreement
may be assumed by any successor in interest, and as such agreement may be
amended, supplemented, waived or otherwise modified from time to time, or
refunded, refinanced, restructured, replaced, renewed, repaid, increased or
extended from time to time (whether in whole or in part, whether with the
original agent and lenders or other agents and lenders or otherwise, and whether
provided under the original Senior Credit Agreement or otherwise).
"Senior Credit Facility" means the collective reference to the Senior
Credit Agreement, any Loan Documents (as defined therein), any notes and letters
of credit issued pursuant thereto and any guarantee and collateral agreement,
patent and trademark security agreement, mortgages, letter of credit
applications and other security agreements and collateral documents, and other
instruments and documents, executed and delivered pursuant to or in connection
with any of the foregoing, in each case as the same may be amended,
supplemented, waived or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid, increased or extended from
time to time (whether in whole or in part, whether with the original agent and
lenders or other agents and lenders or otherwise, and whether provided under the
original Senior Credit Agreement or otherwise). Without limiting the generality
of the foregoing, the term "Senior Credit Facility" shall include any agreement
(i) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder or (iv) otherwise
altering the terms and conditions thereof.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that (i) specifically provides that such
Indebtedness is to rank pari passu with the Notes or is otherwise entitled
"Senior Subordinated" Indebtedness and (ii) is not expressly subordinated by its
terms in right of payment to any Indebtedness of the Company that is not Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC, as in effect on the Issue Date.
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"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter Incurred) which is
expressly subordinate in right of payment to the Notes pursuant to a written
agreement, but in any event excluding the Existing Senior Subordinated Debt.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such person or (ii) one or
more Subsidiaries of such Person.
"Successor Company" shall have the meaning assigned thereto in clause (i)
under "-- Merger and Consolidation."
"Tax Sharing Agreement" means the Amended and Restated Tax Sharing
Agreement, dated as of March 17, 1997, between the Company and Holding, as the
same may be amended, supplemented, waived or otherwise modified from time to
time in accordance with the terms thereof and of the Indenture.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations (x) of the United States of America or any agency thereof
or obligations Guaranteed by the United States of America or any agency thereof
or (y) of any foreign country recognized by the United States of America rated
at least "A" by S&P or "A1" by Moody's, (ii) investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 180
days of the date of acquisition thereof issued by a bank or trust company that
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America having capital
and surplus aggregating in excess of $250 million (or the foreign currency
equivalent thereof) and whose longterm debt is rated "A" by S&P or "A-1" by
Moody's, (iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) or (ii) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
Investments in commercial paper, maturing not more than 270 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any Investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P, (v) Investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's, (vi) any money market deposit accounts
issued or offered by a domestic commercial bank or a commercial bank organized
and located in a country recognized by the United States of America, in each
case, having capital and surplus in excess of $250 million (or the foreign
currency equivalent thereof), or investments in money market funds complying
with the risk limiting conditions of Rule 2a-7 or any short-term successor rule)
of the SEC, under the Investment Company Act of 1940, as amended, and (vii)
similar short-term investments approved by the Board of Directors in the
ordinary course of business.
"Term Loan Facility" means the term loan facility provided under the Senior
Credit Facility.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the date of the Indenture.
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"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" means, collectively, the Acquisition, the Mergers, the
initial equity investment by the Investors, the issuance of any Existing Senior
Subordinated Debt, the initial borrowings under the Senior Credit Facility, and
all other transactions relating to the Acquisition or the financing thereof.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to the Stated Maturity; provided, however, that if the
period from the Redemption Date to the Stated Maturity is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to the Stated Maturity
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under "-- Certain
Covenants-Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could incur at least $1.00 of additional Indebtedness under paragraph
(a) in the covenant described under "-- Certain Covenants-Limitation on
Indebtedness" and (y) no 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 of the Company's Board
of Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares, or (in the
case of any Foreign Subsidiary) to the extent required by applicable law) is
owned by the Company or another Wholly-Owned Subsidiary.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax consequences of the acquisition, ownership and disposition of the New
Notes. This summary applies only to a beneficial owner of a New Note who
acquires a New Note at the initial offering thereof. This discussion is based on
currently existing provisions of the Code, existing and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of New Notes and is limited to investors who hold the New
Notes as capital assets. Moreover, this discussion is for general information
only, and does not address all of the tax consequences that may be relevant to
particular investors in light of their personal circumstances, or to certain
types of investors (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities, persons who have acquired New Notes
as part of a straddle, hedge,
conversion transaction or other integrated investment or persons whose
functional currency is not the U.S. Dollar).
PROSPECTIVE ACQUIRORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE NEW NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE
OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
EXCHANGE OFFER
The exchange of an Existing Note for a New Note should not constitute a
taxable exchange of an Existing Note, in which case a Holder would not recognize
taxable gain or loss upon receipt of a New Note, a Holder's holding period for a
New Note would generally include the holding period for the Existing Note so
exchanged and such holder's adjusted tax basis in a New Note would generally be
the same as such holder's adjusted tax basis in the Note so exchanged. The
following discussion assumes that the exchange of Existing Notes for New Notes
pursuant to the Exchange Offer will not be treated as an exchange for federal
income tax purposes, and that the Existing Notes and the New Notes will be
treated as the same security for federal income tax purposes.
UNITED STATES TAXATION OF UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner of
a New Note that is, for United States federal income tax purposes, (i) a citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source, or (iv) a trust
if a court within the United States is able to exercise primary supervision over
the administration of such trust and one or more United States fiduciaries have
the authority to control all the substantial decisions of such trust.
Payment of Interest on New Notes. Subject to the discussion below, in
general, (i) interest paid or payable on a New Note will be taxable to a United
States Holder as ordinary interest income as received or accrued, in accordance
with such holder's method of accounting for federal income tax purposes, and
(ii) assuming that original issue discount on the Existing Note is not greater
than a de minimis amount equal to 0.25% of its stated principal amount
multiplied by the number of complete years to its maturity, any such discount
will be deemed to be equal to zero and a United States Holder will not be
required to accrue a portion of such discount as income in each taxable year.
Because the Existing Notes provide for the payment of liquidated damages
payable on the Existing Notes under the circumstances described above under "The
Exchange Offer," the Existing Notes will be subject to the Treasury Regulations
that apply to debt instruments that provide for one or more contingent payments.
Under those Regulations, however, a payment is not a contingent payment merely
because of a contingency
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that, as of the issue date, is either "remote" or "incidental." The Company
intends to take the position that, solely for these purposes, the payment of
such liquidated damages is a remote or incidental contingency, in which case the
possibility of such payment would not, as of the issue date, cause the Existing
(or, New Notes received pursuant to the Exchange Offer) Notes to be treated as
having been issued with original issue discount, and the rules described above
would apply. The Company's determination that such payments are a remote or
incidental contingency for these purposes is binding on a holder, unless such
holder discloses in the proper manner to the Internal Revenue Service (the
"IRS") that it is taking a different position.
If the Existing Notes (or New Notes received in exchange therefor pursuant
to the Exchange Offer) were treated as having been issued with original issue
discount, a United States Holder could be required to accrue all payments on the
New Notes (including amounts that would otherwise constitute de minimis original
issue discount and projected payments of liquidated damages) on a constant yield
basis (including holders who otherwise use a cash method of accounting for
federal income tax purposes), and in certain circumstances to include market
discount in income sooner than otherwise required and to treat as interest
income any gain recognized on the disposition of the debt instrument (rather
than as capital gain).
Prospective investors should consult their tax advisors as to the tax
considerations relating to instruments providing for payment of such liquidated
damages, in particular in connection with the possible application of
instruments providing for payment of the regulations relating to contingent
payment instruments.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a New Note, a United
States Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued interest, which will be taxable as ordinary
income) and such holder's adjusted tax basis in the New Note. Gain or loss
recognized on the disposition of a New Note generally will be capital gain or
loss and will be long-term capital gain or loss if, at the time of such
disposition, the United States Holder's holding period for the New Note is more
than one year. Under current law, in the case of United States Holders who are
individuals, net long-term capital gains are taxed at a lower rate than ordinary
income and capital losses are subject to certain limitations.
Market Discount. Generally, the market discount provisions of the Code
require a United States Holder of a New Note that is a market discount bond (as
defined in the Code) to treat any gain realized upon the disposition of such New
Note as interest income to the extent of the market discount that accrued during
the period such holder held such New Note. (For this purpose a person disposing
of a market discount New Note in a transaction other than a sale, exchange or
involuntary conversion generally is treated as realizing and amount equal to the
fair market value of the New Note.) A United States Holder may also be required
to recognize as ordinary income any principal payments with respect to a New
Note to the extent such payments do not exceed the accrued market discount on
the New Note. For these purposes, market discount generally equals the excess of
the stated redemption price of the New Note over the basis of the New Note in
the hands of the holder immediately after its acquisition. However, market
discount is deemed not to exist if the market discount is less than a
statutorily defined de minimis amount equal to 1/4 of 1 percent of the New
Note's contract redemption price at maturity multiplied by the number of
complete years to the New Note's maturity after the holder acquired the New
Note.
The market discount rules also provide that any United States Holder of New
Notes that were acquired at a market discount may be required to defer the
deduction of a portion of the interest on any indebtedness incurred or
maintained to acquire or carry the New Notes, until the New Notes are disposed
of.
A United States Holder of a New Note acquired at a market discount may
elect to include market discount in income as the discount accrues. In such
case, the foregoing rules with respect to the recognition of ordinary income on
dispositions and with respect to the deferral of interest deductions on
indebtedness related to such New Note would not apply.
Amortizable Bond Premium. Generally, if the tax basis of an obligation
held as a capital asset exceeds the amount payable at maturity of the
obligation, such excess may constitute amortizable bond premium that the United
States Holder of such obligation may elect to amortize under the constant
interest rate method and
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deduct over the period from the holder's acquisition date to the obligation's
maturity date. A United States Holder that elects to amortize bond premium must
reduce its tax basis in the related obligation by the amount of the aggregate
deductions allowable for the amortizable bond premium. Any election to amortize
bond premium shall apply to all bonds (other than bonds on which the interest is
excludible from gross income) held by the United States Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the holder. The election is irrevocable without the consent of the IRS.
In the case of an obligation, such as a New Note, that may be called at a
premium prior to maturity, an earlier call date is treated as its maturity date,
and the amount of bond premium is determined by treating the amount payable on
such call date as the amount payable at maturity if such a calculation produces
a smaller amortizable bond premium than any other call date or the method
described in the preceding paragraph. If a United States Holder of a New Note is
required to amortize and deduct bond premium by reference to a call date, the
New Note will be treated as reissued on such date for the amount so payable. If
a New Note purchased at a premium is redeemed pursuant to a call prior to such
early call date or its maturity, a purchaser who has elected to deduct bond
premium may deduct the excess of its adjusted basis in the New Note over the
amount received on redemption (or, if greater, the amount payable at maturity)
as an ordinary loss in the taxable year of redemption.
The amortizable bond premium deduction is treated as a reduction of
interest on the bond instead of as a deduction, except as Treasury regulations
may otherwise provide.
Backup Withholding and Information Reporting. In general, a United States
Holder of a New Note will be subject to backup withholding at the rate of 31.0%
with respect to interest, principal and premium, if any, paid on a New Note,
unless the holder (a) is an entity (including corporations, tax-exempt
organizations and certain qualified nominees) which is exempt from withholding
and, when required, demonstrates this fact, or (b) provides the Company with its
Taxpayer Identification Number ("TIN") (which for an individual would be the
holder's Social Security number), certifies that the TIN provided to the Company
is correct and that the holder has not been notified by the Internal Revenue
Service (the "IRS") that it is subject to backup withholding due to under
reporting of interest or dividends, and otherwise complies with applicable
requirements of the backup withholding rules. In addition, such payments of
principal, premium and interest to United States Holders that are not
corporations, tax-exempt organizations or qualified nominees will generally be
subject to information reporting requirements.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
UNITED STATES TAXATION OF FOREIGN HOLDERS
Payment of Interest on New Notes. In general, payments of interest
received by any beneficial owner of a New Note that is not a United States
Holder (a "Foreign Holder") will not be subject to a United States federal
withholding tax, provided that (i)(a) the Foreign Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote within the meaning of Section 871(b)(3)
of the Code and the Treasury Regulations thereunder, (b) the Foreign Holder is
not a controlled foreign corporation that is related to the Company actually or
constructively through stock ownership, (c) the Foreign Holder is not a bank
whose receipt of interest on a New Note is described in section 881(c)(3)(A) of
the Code and (d) either (1) the beneficial owner of the New Note, under
penalties of perjury, provides the Company or its agent with the beneficial
owner's name and address and certifies that it is not a United States Holder on
IRS Form W-8 (or a suitable substitute or successor form) or (2) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") holds the New Note and certifies to the Company or its agent under
penalties of perjury that such a Form W-8 (or suitable substitute or successor
form) has been received by it from the beneficial owner or qualifying
intermediary and furnishes the payor a copy thereof; (ii) the Foreign Holder is
subject to United States federal income tax with respect to the New Note on a
net basis because payments received with respect to the New Note are effectively
connected with a
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U.S. trade or business of the Foreign Holder (in which case the Foreign Holder
may also be subject to "branch profits tax" under section 884 of the Code) and
provides the Company with a properly executed IRS Form 4224 or successor form;
or (iii) the Foreign Holder is entitled to the benefits of an income tax treaty
under which the interest is exempt from United States withholding tax, and the
Foreign Holder or such Holder's agent provides a properly executed IRS Form 1001
or successor form claiming the exemption. Payments of interest not exempt from
U.S. federal withholding tax as described above will be subject to such
withholding tax at the rate of 30.0% (subject to reduction under an applicable
income tax treaty). See "-- Proposed Regulations."
Sales, Exchange or Retirement of the New Notes. A Foreign Holder generally
will not be subject to United States federal income tax (and generally no tax
will be withheld) with respect to gain realized on the sale, exchange,
redemption, retirement at maturity or other disposition of a New Note, unless
(i) the gain is effectively connected with a United States trade or business
conducted by the Foreign Holder or (ii) the Foreign Holder is an individual who
is present in the United States for a period or periods aggregating 183 or more
days in the taxable year of the disposition and certain other conditions are
met.
Backup Withholding and Reporting. Under current Treasury regulations,
backup withholding and information reporting on IRS Form 1099 do not apply to
payments made by the Company or a paying agent to Foreign Holders if the
certification described under "United States Taxation of Foreign
Holders -- Payment of Interest on New Notes" is received, provided that the
payor does not have actual knowledge that the holder is a United States Holder.
If any payments of principal, premium (if any) and interest are made to the
beneficial owner of a New Note by or through the foreign office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if the foreign office of a foreign "broker" (as defined in applicable United
States Treasury Department regulations) pays the proceeds of the sale of a New
Note to the seller thereof, backup withholding and information reporting will
not apply. Information reporting requirements (but not backup withholding) will
apply, however, to any such payments by a foreign office of a broker that is,
for Untied States federal income tax purposes, a United States person, or a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or a "controlled
foreign corporation" (generally, a foreign corporation controlled by United
States shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a Foreign Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Any such payments by a United States office of a custodian, nominee
or agent or by a United States office of a broker are subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a Foreign Holder and the payor
does not have actual knowledge that the beneficial owner is a United States
person or otherwise establishes an exemption. A Foreign Holder may obtain a
refund or a credit against such Holder's U.S. federal income tax liability of
any amounts withheld under the backup withholding rules, provided the required
information is furnished to the IRS. See "-- Proposed Regulations."
In addition, in certain circumstances interest on a New Note owned by a
Foreign Holder will be required to be reported annually on IRS Form 1042S, in
which case such form will be filed with the IRS and furnished to the Foreign
Holder.
PROPOSED REGULATIONS
In April 1996, the IRS issued proposed regulations that would change
certain of the certification and other procedures described in the preceding
paragraph ("1996 Proposed Regulations"). The changes set forth in the 1996
Proposed Regulations would not materially affect a Foreign Holder's ability to
qualify for an exemption from withholding tax with respect to payments of
interest on a New Note. Under the 1996 Proposed Regulations, a Foreign Holder
claiming the benefit of an income tax treaty as described in clause (d) of the
paragraph under "-- United States Taxation of Foreign Holders -- Payment of
Interest on the New Notes." (but not a Foreign Holder claiming the portfolio
interest exemption described in clause (a) of such paragraph) would be required
to provide its TIN to the payor. The 1996 Proposed Regulations would apply to
payments of interest made after December 31, 1997. There can be no assurance,
however, that the 1996 Proposed Regulations will be adopted without change in
final form.
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BOOK-ENTRY; DELIVERY AND FORM
The Notes will initially be issued in the form of one or more registered
Notes in global form without coupons (each a "Global Note"). Each Global Note
will be deposited with, or on behalf of, the Depository Trust Company ("DTC")
and registered in the name of Cede & Co., as nominee of DTC, or will remain in
the custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York banking law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of beneficial ownership therein will be effected only through,
records maintained by DTC (with respect to the interest of the Participants),
the Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
to persons in such states will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the Indenture
and the Notes. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Securities, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
giving of any directions, instruction or approval to the Trustee thereunder. As
a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interest in the Global Note (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. The Company expects that payments by the Participants and the
Indirect Participants to the beneficial owners of interests in the Global Note
will be governed by standing
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instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants and DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources the Company believes to be reliable.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, then Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the Notes represented by the Global Note. In addition, subject to
certain conditions, any person having a beneficial interests in a Global Note
may, upon request to the Trustee, exchange such beneficial interest for
Certificated Securities. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of such person or persons (or
the nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
109
<PAGE> 111
PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New Notes. 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 New Notes received in exchange for Existing Notes
where such Existing 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 October 29, 1997, all dealers effecting transactions
in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New 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 New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit or any such resale of New 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 (including the expenses of one counsel for the Holders of the
Existing Notes) other than commissions or concessions of any brokers-dealers and
will indemnify the Holders of the Existing Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
Chase Securities Inc. is an affiliate of Chase, which is the administrative
agent and a lender to the Company under the Senior Credit Facility and under the
Senior Subordinated Credit Facility. Smith Barney Inc. is an affiliate of
Travelers Group Inc. and is a lender under the Senior Subordinated Facility.
Chase has received and will receive customary fees in connection with the Senior
Credit Facility and in connection with the Senior Subordinated Facility and
Smith Barney Inc. has received and will receive customary fees in connection
with the Senior Subordinated Facility. Chase and Smith Barney Inc. have received
their proportionate shares of any repayment by the Company of amounts
outstanding under the Senior Credit Facility and the Senior Subordinated
Facility from the proceeds of the Offering.
GSCP and Smith Barney Inc. are both affiliated companies of Travelers. An
affiliate of Chase Securities Inc., is a limited partner in GSCP. Chase
Securities Inc. is an affiliate of Chase.
110
<PAGE> 112
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Debevoise
& Plimpton, New York, New York.
EXPERTS
The audited consolidated balance sheet of the Company as of February 28,
1997 and for the period from February 11, 1997 through February 28, 1997 (new
basis of accounting), and for the period from March 1, 1996 through February 10,
1997 (predecessor basis of accounting) included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated balance sheet of EV International, Inc. as of February 29,
1996 and the consolidated statements of income and retained earnings and cash
flows for each of the two years in the period ended February 29, 1996, included
in this Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that Firm as experts in accounting and auditing.
111
<PAGE> 113
(This page intentionally left blank.)
112
<PAGE> 114
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS (NEW BASIS OF ACCOUNTING)
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheet as of February 28, 1997.................................... F-3
Consolidated Statement of Income for the period from February 11, 1997 through
February 28, 1997................................................................... F-4
Consolidated Statement of Stockholder's Equity as of February 28, 1997................ F-5
Consolidated Statement of Cash Flows for the period from February 11, 1997 through
February 28, 1997................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
AUDITED CONSOLIDATED FINANCIAL STATEMENTS (PREDECESSOR BASIS OF ACCOUNTING)
Report of Independent Public Accountants.............................................. F-21
Report of Independent Public Accountants.............................................. F-22
Consolidated Balance Sheet as of the Last Day of February 1996........................ F-23
Consolidated Statements of Income and Retained Earnings for the Years Ended the Last
Day of February 1996 and 1995 and for the period from March 1, 1996 through February
10, 1997............................................................................ F-24
Consolidated Statements of Cash Flows for the Years Ended the Last Day of February
1996 and 1995 and for the period from March 1, 1996 through February 10, 1997....... F-25
Notes to Consolidated Financial Statements............................................ F-26
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of May 31, 1997 and February 28, 1997.................. F-33
Consolidated Statements of Income for the Three Months Ended May 31, 1997 and 1996.... F-34
Consolidated Statements of Cash Flows for the Three Months Ended May 31, 1997 and
1996................................................................................ F-35
Notes to Unaudited Interim Consolidated Financial Statements.......................... F-36
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EV International, Inc.:
We have audited the accompanying consolidated balance sheet of EV
International, Inc. (a Delaware corporation) as of February 28, 1997, and the
related consolidated statements of income, stockholder's equity and cash flows
for the period from February 11, 1997 (date of acquisition and change in basis
of accounting -- see Note 1) through February 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EV
International, Inc. as of February 28, 1997, and the results of their operations
and their cash flows for the period from February 11, 1997 through February 28,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
May 9, 1997
F-2
<PAGE> 116
EV INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
AS OF FEBRUARY 28, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash............................................................................ $ 7,044
Accounts receivable, net of allowance for doubtful accounts of $2,203........... 42,856
Inventories..................................................................... 51,141
Deferred tax assets............................................................. 2,907
Other current assets............................................................ 5,019
--------
Total Current Assets......................................................... 108,967
Property, Plant and Equipment, net................................................ 31,411
Deferred Financing Costs.......................................................... 6,216
Cost in Excess of Net Assets Acquired............................................. 60,513
Other Assets...................................................................... 1,008
--------
TOTAL ASSETS............................................................ $208,115
========
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable................................................................ $ 15,250
Current maturities of long-term debt............................................ 1,000
Compensation related liabilities................................................ 6,726
Income taxes payable............................................................ 997
Other accrued liabilities....................................................... 7,456
--------
Total Current Liabilities.................................................... 31,429
Senior Subordinated Credit Facility............................................... 75,000
Term Loan......................................................................... 34,000
Deferred Taxes and Other Liabilities.............................................. 9,294
--------
Total Liabilities............................................................ 149,723
Stockholder's Equity
Common stock ($.01 par value--1,000 shares authorized, 110 shares issued and
outstanding)................................................................. --
Capital in excess of par value.................................................. 57,600
Retained earnings............................................................... 841
Cumulative translation adjustments.............................................. (49)
--------
Total Stockholder's Equity................................................... 58,392
--------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY................................ $208,115
========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 117
EV INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED FEBRUARY 28, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Net Sales.......................................................................... $14,916
Operating Costs:
Cost of products sold............................................................ 10,081
Selling and administration....................................................... 1,705
Research and development......................................................... 454
Depreciation and amortization.................................................... 331
-------
Total Operating Costs.................................................... 12,571
-------
Operating Income................................................................. 2,345
Interest Expense................................................................... 843
Foreign Exchange Losses............................................................ 10
-------
Income before income taxes....................................................... 1,492
Provision for Income Taxes......................................................... 651
-------
Net Income............................................................... $ 841
=======
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-4
<PAGE> 118
EVI INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
AS OF FEBRUARY 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, February 10, 1997............ $-- $ -- $ -- $ -- $ --
Initial Capitalization................ -- 57,600 -- -- 57,600
Net Income............................ -- -- 841 -- 841
Translation........................... -- -- -- (49) (49)
------ ------- -------- ----------- -------------
Balance, February 28, 1997............ $-- $57,600 $841 $ (49) $58,392
====== ======= ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE> 119
EV INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS OF FEBRUARY 28, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income....................................................................... $ 841
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................. 331
Amortization of deferred financing fees........................................ 234
Changes in assets and liabilities:
Accounts receivable......................................................... (4,846)
Inventories................................................................. 1,855
Other current assets........................................................ 94
Accounts payable............................................................ (1,786)
Compensation related liabilities............................................ 536
Income taxes payable........................................................ 691
Other accrued liabilities................................................... 1,787
Other, net.................................................................. (99)
---------
Net cash used in operating activities.......................................... (362)
---------
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired................................ (154,615)
Purchases of property and equipment............................................ (67)
---------
Net cash used in investing activities....................................... (154,682)
---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt....................................... 110,000
Deferred financing costs....................................................... (5,595)
Capital contributions.......................................................... 57,600
---------
Net cash provided by financing activities................................... 162,005
---------
Effect of exchange rates on cash............................................ 83
---------
Net increase in cash........................................................ 7,044
Cash at beginning of period................................................. --
---------
Cash at end of period....................................................... $ 7,044
=========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-6
<PAGE> 120
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
NOTE 1: ORGANIZATION
EV International, Inc., a Delaware corporation, and its subsidiaries (the
"Company" or "EVI") is a manufacturer and marketer of sound system products for
the professional audio market. The Company manufactures and markets a
comprehensive range of products worldwide for professional audio systems,
including microphones, mixing consoles, signal processors, amplifiers and
loudspeaker systems. The Company's brands include Electro-Voice, Altec Lansing,
Midas and Vega. Its products are used in airports, theaters, sports arenas,
concert halls, cinemas, stadiums, convention centers, television and radio
broadcast studios, houses of worship and other venues where music or speech is
amplified. The Company targets three principal lines of business within the
overall professional audio market: (i) fixed installation, or permanently
installed sound systems in public venues; (ii) professional music retail, or
sound products used by professional musicians and sold principally through
retail channels; and (iii) concert/recording/broadcast, or sound products used
in professional concerts, recording projects and radio and television broadcast.
The Company is a wholly owned subsidiary of EVI Audio Holding, Inc.
("Holding"), a Delaware Corporation. Holding is a wholly owned subsidiary of EVI
Audio, LLC (the "Parent"). Holding and the Parent are newly formed entities
organized by Greenwich Street Capital Partners, L.P. and certain affiliated
investors (collectively "GSCP") to effect the acquisition described below.
Holding and the Parent are holding companies only. The primary assets in each
are comprised of investments in subsidiaries.
On February 10, 1997 (the "Acquisition Closing Date"), pursuant to a
Purchase Agreement dated December 12, 1996, an acquisition subsidiary wholly
owned by Holding acquired from Mark IV Industries, Inc. and Mark IV PLC
(collectively, the "Sellers") all of the issued and outstanding capital stock of
Gulton Industries, Inc. ("Gulton"), the former parent of Electro-Voice,
Incorporated (the "Predecessor Company"). The acquisition subsidiary
subsequently merged with and into Gulton, and Gulton then merged with and into
the Predecessor Company, with the Predecessor Company ultimately surviving. The
Predecessor Company then changed its name to EV International, Inc. The
foregoing transactions are referred to herein as the Acquisition.
As of the Acquisition Closing Date, the aggregate cash purchase price paid
was $151,500, plus approximately $4,900 in estimated adjustments paid on the
Acquisition Closing Date. This purchase price is subject to further adjustment
on the basis of (i) the audited working capital and audited cash flow of the
Predecessor Company as of and for the ten month period ended December 31, 1996,
as adjusted for certain contractual provisions and (ii) the net intercompany
transfers of cash, as defined, between the Sellers and their affiliates, on the
one hand, and the Predecessor Company and its subsidiaries, on the other hand,
during the period between December 31, 1996, and the Acquisition Closing Date.
The Sellers have submitted the audited financial statements, together with their
computations of the purchase price adjustments, and have requested a further
purchase price payment of $405.
The Acquisition was accounted for using the purchase method of accounting,
pursuant to which the purchase price was allocated among the acquired assets and
liabilities in accordance with estimates of fair market value on the Acquisition
Closing Date. The cost of the acquisition included the payment of $156,400 to
the Sellers, plus $3,900 of Acquisition related fees. The Acquisition was funded
with $57,600 of contributed capital and $110,000 of debt, including a bridge
loan facility and a term loan. Debt financing costs were approximately $6,500.
On March 24, 1997, the Company issued 11% Senior Subordinated Notes due 2007
(the "Offering"), the proceeds from which were used to repay the bridge loan
facility in its entirety and a portion of the term loan (see Notes 6 and 15).
F-7
<PAGE> 121
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The results of operations for the period from February 11, 1997, through
February 28, 1997, reflect the results of the Company since the Acquisition and
reflect the buyer's basis in assets and liabilities. The Company's financial
statements are prepared on a consolidated basis in accordance with generally
accepted accounting principles. All significant intercompany balances and
transactions have been eliminated in the accompanying consolidated financial
statements.
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,
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are presented at cost, net of accumulated
depreciation. The cost of property, plant and equipment retired or otherwise
disposed of, and the accumulated depreciation thereon, are eliminated from the
asset and related accumulated depreciation accounts, and any resulting gain or
loss is reflected in income. The Company provides for depreciation of plant and
equipment primarily on a straight-line basis to amortize the cost of such plant
and equipment over the following estimated useful lives:
<TABLE>
<CAPTION>
YEAR
--------
<S> <C>
Buildings and improvements.................................. 5 to 15
Machinery and equipment..................................... 3 to 10
</TABLE>
Cost in Excess of Net Assets Acquired
The excess of cost over fair value of the net assets acquired ("goodwill")
is amortized on a straight-line basis over 40 years. Goodwill is presented net
of accumulated amortization of $75. The Company recognized approximately $75 of
goodwill amortization expense for the period ended February 28, 1997. On an
on-going basis, the Company measures realizability of goodwill by the ability of
the Company to generate current and undiscounted expected future cash flows in
excess of unamortized goodwill. If such realizability is in doubt, an adjustment
will be made to reduce the carrying value of the goodwill.
Long-Lived Assets
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles, including goodwill, to
be
F-8
<PAGE> 122
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
held and used or disposed of by an entity, be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Under the provisions of SFAS No. 121, impairment losses
are recognized when expected future cash flows are less than the assets'
carrying value. Accordingly, when indicators of impairment are present, the
Company will evaluate the carrying value of property, plant and equipment and
intangibles in relation to the operational performance and future undiscounted
cash flows of the underlying business. As of February 28, 1997, no impairment of
long-lived assets has been identified.
Research and Development Costs
Research and development costs are expensed as incurred and amounted to
approximately $454 for the period from February 11, 1997, through February 28,
1997.
Foreign Currency
Foreign subsidiaries' income statement accounts are translated at the
average exchange rates in effect during the period while assets and liabilities
are translated at the rates of exchange at the balance sheet date. The resulting
balance sheet translation adjustments are charged or credited directly to
stockholder's equity. Foreign exchange transaction gains and losses realized
during the period from February 11, 1997 through February 28, 1997, and those
attributable to exchange rate movements on intercompany receivables and payables
not deemed to be of a long-term investment nature, were not material.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. Deferred income taxes are provided to reflect the
future tax consequences of differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements.
Fair Value of Financial Investments
The Company's financial instruments include cash, receivables, payables and
debt. The fair value of these financial instruments approximated their carrying
values as of February 28, 1997.
Concentrations, Risks and Uncertainties
As a result of the Acquisition and related financing transactions, the
Company is highly leveraged. The Company's high degree of leverage could have
important consequences, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisition, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; and (iii) the Company's flexibility to adjust to changing market
conditions and ability to withstand competitive pressures could be limited, and
the Company may be more vulnerable to a downturn in general economic conditions
or its business or may be unable to carry out capital spending that is important
to its growth strategy.
Technological innovation and leadership are among the important factors in
competing successfully in the professional audio market. The Company's future
results will depend, in part, upon its ability to make timely and cost-effective
enhancements and additions to its technology and to introduce new products that
meet customer demands, including products utilizing digital technology, which
are increasingly being introduced in the professional audio industry. The
success of current and new product offerings is dependent on several factors,
including proper identification of customer needs, technological development,
cost, timely completion and introduction, differentiation from offerings of the
Company's competitors and market acceptance.
F-9
<PAGE> 123
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maintaining flexibility to respond to technological and market dynamics may
require substantial expenditures. There can be no assurance that the Company
will successfully identify and develop new products in a timely manner, that
products or technologies developed by others will not render the Company's
products obsolete or noncompetitive or that constraints in the Company's
financial resources will not adversely affect its ability to develop and
implement technological advances.
The Company's business strategy includes plans for pursuing growth in
certain foreign markets. The Company's international prospects could be
adversely affected by factors such as reversals or delays in the opening of
foreign markets, exchange controls and other trade regulation, currency and
political risks, taxation and economic and market conditions in targeted foreign
markets. The Company's business strategy also includes plans to pursue growth
through strategic acquisitions. The Senior Credit Facility prohibits making
certain acquisitions in an aggregate amount over $7,500 and incurring additional
indebtedness greater than 65% of the purchase price of any such acquisition. In
addition, acquisitions that the Company may make or enter into will involve
risk, including the successful integration and management of acquired
technology, operations and personnel. The integration of acquired businesses may
also lead to the loss of key employees of the acquired companies and diversion
of management attention from ongoing business concerns.
The Company has substantial assets located outside of the United States and
a substantial portion of the Company's sales and earnings are attributable to
operations conducted abroad and to export sales, predominantly in Western Europe
and Asia. The Company's international operations subject the Company to certain
risks, including increased exposure to currency exchange rate fluctuations. The
Company intends to hedge a portion of its foreign currency exposure by incurring
liabilities, including bank debt, denominated in the local currencies of those
countries where its subsidiaries are located and plans to develop systems to
manage and control its currency risk exposure. The Company's international
operations also subject it to certain other risks, including adverse political
or economic developments in the foreign countries in which it conducts business,
foreign governmental regulation, dividend restrictions, tariffs and potential
adverse tax consequences, including payment of taxes in jurisdictions that have
higher tax rates than does the United States.
The Company offers a range of audio products to a diverse customer base
throughout the world. Terms typically require payment within a short period of
time, however, the Company will offer extended payment terms to certain
qualified customers. As of February 28, 1997, the Company believes it has no
significant customer or geographic concentration of accounts receivable that
could expose the Company to adverse, near-term severe financial impacts.
F-10
<PAGE> 124
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
Pro forma statements of income are presented below for the year ended
February 28, 1997, as if the Acquisition of the Predecessor Company and the
Offering had occurred on March 1, 1996. The Company's pro forma statement of
income for the twelve months ended February 28, 1997, is based on the
Predecessor Company's statement of income for the period from March 1, 1996
through February 10, 1997, the Company's statement of income for the period from
February 11, 1997 to February 28, 1997, and adjustments (i) giving effect to the
Acquisition under the purchase method of accounting and (ii) the Offering. The
Predecessor Company's statements of income, as disclosed in the notes thereto,
do not reflect any foreign exchange gains or losses, nor any interest expense or
income. The pro forma results are for illustrative purposes only and do not
purport to be indicative of the actual results which occurred, nor are they
indicative of future results of operations.
<TABLE>
<CAPTION>
UNAUDITED
PREDECESSOR NEW BASIS PRO FORMA EV
BASIS FEBRUARY 11, INTERNATIONAL
MARCH 1, 1996 1997 INC.
TO FEBRUARY 10, TO FEBRUARY 8, PRO FORMA TWELVE MONTHS
1997 1997 FULL YEAR ADJUSTMENTS ENDED 2/28/97
--------------- -------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue.................... $ 177,130 $ 14,916 $ 192,046 $ -- $ 192,046
Operating Income........... 14,547 2,345 16,892 (1,703) 15,189
Net Income................. 8,347 841 9,188 (8,665) 523
EBITDA..................... 19,630 2,676 $ 22,306 (1,213) 21,093
</TABLE>
NOTE 4: INVENTORIES
Inventories consist of the following as of February 28, 1997:
<TABLE>
<S> <C>
Purchased materials and parts.............................................. $19,830
Work in process............................................................ 7,104
Finished goods............................................................. 24,207
-------
$51,141
=======
</TABLE>
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are presented at their fair market value at
the February 11, 1997 acquisition date and consist of the following as of
February 28, 1997:
<TABLE>
<S> <C>
Land and improvements..................................................... $ 3,583
Buildings and improvements................................................ 4,217
Machinery and equipment................................................... 23,867
--------
Total property, plant and equipment....................................... $ 31,667
Less -- Accumulated depreciation.......................................... (256)
--------
Property, plant and equipment, net........................................ $ 31,411
========
</TABLE>
NOTE 6: LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt at February 28, 1997 consisted of the following:
<TABLE>
<S> <C>
Senior subordinated credit facility....................................... $ 75,000
Term loan facility........................................................ 35,000
--------
$110,000
========
</TABLE>
F-11
<PAGE> 125
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Subordinated Credit Facility
The Company entered into a $75,000 Senior Subordinated Credit Facility (the
"Bridge Loan Facility"), dated as of the Acquisition Closing Date, with a group
of financial institutions, issued as interim financing for the Acquisition.
During the period ended February 28, 1997, borrowings under the Bridge Loan
Facility bore interest at 12.25% per annum. Under the terms of the Bridge Loan
Facility, the facility expires one year from the Acquisition Closing Date.
Deferred financing fees associated with the Bridge Loan Facility of $4,398 are
being amortized over the life of the Bridge Loan Facility. Unamortized deferred
financing fees remaining at the date of the Offering were written off.
Senior Credit Facility
The Company entered into a Senior Credit Facility, dated as of the
Acquisition Closing Date, with a group of financial institutions, which provides
for a Term Loan Facility of $35,000 and a Revolving Credit Facility of $25,000.
On the Acquisition Closing Date, the Company borrowed the full amount
available under the Term Loan Facility and used the proceeds of $35,000,
together with the proceeds of the GSCP equity investment and the Bridge Loan
Facility, for payment of the purchase price of the Acquisition and related fees
and expenses. On such date, the Company also obtained letters of credit for use
in the ordinary course of business in the aggregate face amount of approximately
$3,800. The remainder of the Revolving Credit Facility is available to service
the working capital requirements of the Company and its subsidiaries and for
their general corporate purposes.
The obligations of the Company under the Senior Credit Facility are
unconditionally guaranteed, jointly and severally, by Holding and by each
subsequently acquired or organized direct and indirect domestic subsidiary of
the Company. The obligations under the Senior Credit Facility and the guarantees
thereof are secured by a first priority security interest in substantially all
of the Company's tangible and intangible assets, including, without limitation,
intellectual property, owned U.S. real property, all of the capital stock of the
Company and each of its domestic subsidiaries, and 65% of the capital stock of
EVI Audio International Holding Corporation, Inc., a wholly owned subsidiary of
the Company organized to hold all of the foreign subsidiaries of the Company.
The Term Loan Facility has a maturity date of August 10, 2002. After giving
effect to the $17,000 prepayment with the proceeds of the Offering, the Term
Loan Facility will amortize in quarterly installments aggregating $1,000,
$2,000, $3,000, $3,600, $4,300 and $4,100 in each of the fiscal years 1998,
1999, 2000, 2001, 2002 and 2003, respectively. The Term Loan Facility bears
interest at a rate per annum equal (at the Company's option) to (i) an Alternate
Base Rate, as defined, (the "ABR") plus 1.75% (the "ABR Applicable Margin") or
(ii) the Eurodollar Rate, as defined, plus 2.75% (the "Eurodollar Applicable
Margin"). The Revolving Credit Facility is available on a revolving basis during
the period commencing on the date of the Acquisition Closing and matures on
August 10, 2002. The Revolving Credit Facility bears interest at a rate per
annum equal (at the Company's option) to (i) the ABR plus the ABR Applicable
Margin or (ii) the Eurodollar Rate plus the Eurodollar Applicable Margin. The
foregoing margins shall be subject to reduction after the first anniversary of
the Acquisition Closing Date. The interest rate applicable for the period from
February 10, 1997 to February 28, 1997 was 8.17%.
The Company has agreed to pay the lenders the following fees: (i) an annual
administration fee of $50 for the first year, which was paid on February 10,
1997, and $35 for each subsequent year, which will be payable in advance each
subsequent anniversary thereof prior to the maturity or early termination of the
Senior Credit Facility and the payment in full of all amounts owing thereunder
and (ii) a commitment fee equal to 0.50% per annum, payable quarterly, on the
average daily unused portion of the Senior Credit Facility. The Company also
pays a commission on the face amount of all outstanding letters of credit at a
per annum rate equal to the
F-12
<PAGE> 126
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Eurodollar Applicable Margin then in effect plus a fronting fee equal to 0.25%
per annum, payable quarterly, on the face amount of each letter of credit. In
addition, the Company will be required to pay to the issuing lender customary
administrative, issuance, amendment, payment and negotiation charges. Deferred
financing fees of $2,052 are being amortized over the life of the Senior Credit
Facility.
The Senior Credit Facility contains a number of covenants that, among other
things, require the Company to maintain certain financial ratios, including (i)
a minimum consolidated EBITDA requirement, as defined (ii) a maximum
consolidated debt to consolidated EBITDA ratio, and (iii) a minimum consolidated
EBITDA to consolidated fixed charges ratio. As of February 28, 1997, the Company
was in compliance with all covenants under the Senior Credit Facility.
Foreign Working Capital Lines
Certain foreign subsidiaries of the Company have entered into agreements
with banks to provide for local working capital needs. As of February 28, 1997,
the total aggregate availability of these arrangements, including for letter of
credit issuance, was $4,400. The rates of interest in effect on these facilities
as of February 28, 1997, ranged from 1.875% to 9.75%, and are generally subject
to change based upon prevailing local prime rates. In certain instances, the
facilities are secured by a lien on foreign real property, leaseholds or
accounts receivables and inventory or guaranteed by another subsidiary of the
Company.
NOTE 7: INCOME TAXES
Income before income taxes and the related provision for income taxes for
the period from February 11, 1997, through February 28, 1997, consists of the
following:
<TABLE>
<S> <C>
Income before income taxes:
United States............................................................. $ 678
Foreign................................................................... 814
Total income before taxes......................................... $1,492
Provision for income taxes:
Currently payable United States........................................... $ 277
Foreign................................................................... 374
Total currently payable........................................... $ 651
Deferred
United States............................................................. $ 15
Foreign................................................................... (15)
Total deferred provision (benefit)................................ 0
Total provision for income taxes.................................. $ 651
</TABLE>
The provision for income taxes at February 28, 1997, differs from the
amount computed using the U.S. statutory income tax rate as follows:
<TABLE>
<S> <C>
Expected provision at U.S. statutory income tax rate........................ $ 502
Nondeductible goodwill...................................................... 29
State and local income taxes................................................ 38
Foreign tax rate differences................................................ 82
Total provision for income taxes.................................. $ 651
</TABLE>
F-13
<PAGE> 127
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences which give rise to deferred tax
assets (liabilities) consist of the following at February 28, 1997:
<TABLE>
<S> <C>
Current:
Accounts receivable...................................................... $ 118
Inventories.............................................................. 1,140
Accrued liabilities...................................................... 1,290
Other items.............................................................. 359
Net current deferred tax assets.................................. $ 2,907
Noncurrent:
Property and equipment................................................... $(6,624)
Long-term liabilities.................................................... 850
Unremitted foreign earnings.............................................. (1,650)
Other items.............................................................. 255
Net noncurrent deferred tax liabilities.......................... $(7,169)
</TABLE>
Unremitted earnings of EVI's foreign subsidiaries arising after the
Acquisition Closing Date are deemed to be reinvested in each country and are not
expected to be remitted. A deferred tax liability attributable to unremitted
earnings existing at the Acquisition Closing Date was established at the
acquisition date.
NOTE 8: PENSION AND RETIREMENT SAVINGS PLANS
The Predecessor Company's U.S. employees participated in one of a number of
defined-benefit pension plans which were funded and administered by the Sellers.
Such plans provided retirement benefits based upon the employees' ages, earnings
and years of service, or based upon years of service multiplied by stated
monthly benefit amounts. As of the Acquisition Closing Date, all employees
currently participating in the plan ceased to accrue benefits under the plan
administered by the Sellers and became fully vested in their accrued benefits
under such plan. In accordance with the Acquisition agreement, the Sellers
retained the liability under this plan for employee benefits accrued through the
date of the Acquisition.
Subsequent to the Acquisition Closing Date, the Company formed the EV
International Retirement Plan for its U.S. employees. The components of net
periodic pension cost for this plan is as follows:
<TABLE>
<S> <C>
Service cost................................................................. $16
Interest cost................................................................ 0
Actual return on plan assets................................................. 0
Net amortization and deferral................................................ 0
---
Net periodic pension cost.................................................... $16
===
</TABLE>
F-14
<PAGE> 128
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status for the Company's defined-benefit plan based on
valuations as of February 28, 1997, is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................... $15
Non-vested benefit obligation................................................ 1
---
Accumulated benefit obligation............................................... 16
---
Projected benefit obligation................................................. 16
Plan assets at fair value.................................................... 0
---
Projected benefit obligation in excess of plan assets........................ 16
Unrecognized prior service cost.............................................. 0
Unrecognized net transition obligation (asset)............................... 0
---
Accrued pension cost......................................................... $16
===
</TABLE>
The discount rate and the weighted-average compensation increase rate used
to determine the projected benefit obligation at February 28, 1997, were 7.5%
and 0.0%, respectively.
Certain of the Company's U.S. employees also participated in
defined-contribution plans which were previously funded and administered by the
Sellers. These plans consisted of the Company's matching of employees' 401(k)
contributions.
As of the Acquisition Closing Date, the Company ceased withholding 401(k)
contributions from employees' payroll until the time the Company could establish
its own defined-contribution plan. Pursuant to the Purchase Agreement, the
assets of the Sellers' defined-contribution pension plan that relate to the
Company's employees will be transferred into the Company's plan, and, at such
time, employee payroll withholding for 401(k) contributions into the Company's
defined-contribution plan will continue. Accordingly, the Company has not
recognized any liability for these contributions since the date of the
Acquisition.
The Company's Japanese subsidiary also has a retirement and termination
plan (the "Retirement Plan"), which provides benefits to employees in Japan upon
their termination of employment. The benefits are based upon a multiple of the
employee's monthly salary, with the multiple determined based upon the
employee's years of service. The multiple paid to employees who retire or are
involuntarily terminated is greater than the multiple paid to those who
voluntarily terminate their services. The Retirement Plan is unfunded, and the
accompanying consolidated balance sheet includes a liability of approximately
$1,150 at February 28, 1997, which represents the actuarially determined
estimated present value of the Company's liability as of this date. In
developing this estimate, the actuary used appropriate discount and compensation
growth rates prevailing in Japan of 4% and 2.5%, respectively. For the period
from February 10, 1997 through February 28, 1997, the Company charged $5 to
expense for this plan.
NOTE 9: POSTRETIREMENT BENEFITS
The Company is required to provide health and life insurance benefits to a
number of active employees of its U.S. operations upon retirement. Contributions
required to be paid by the active employees towards the cost of such plans are a
flat dollar amount per month in certain instances, or a range from 25% to 100%
in other instances.
F-15
<PAGE> 129
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net postretirement benefit expense included the following components:
<TABLE>
<S> <C>
Service cost.............................................................. $ 0.7
Interest cost............................................................. 1.3
Actual return on plan assets.............................................. 0.0
Net amortization and deferra1............................................. 0.0
------
Net periodic postretirement benefit expense............................... $ 2.0
======
Accumulated postretirement benefit obligations:
Retirees.................................................................. $ 0.0
Fully eligible active plan participants................................... 126.0
Other active plan participants............................................ 219.0
------
345.0
Fair value of plan assets................................................. 0.0
------
Excess of accumulated postretirement benefit obligations over plan
assets.................................................................. 345.0
Unrecognized prior service cost........................................... 0.0
Unrecognized net loss (gain).............................................. 0.0
Unrecognized net transition obligation (asset)............................ 0.0
------
Accrued postretirement benefit cost....................................... $345.0
======
</TABLE>
The assumed health care cost trend rate used in measuring the benefit
obligation is 8% for the period ended February 28, 1997, declining at a rate of
1% per year to an ultimate rate of 4.5% in 2001.
The weighted average discount rate used in determining the benefit
obligation at February 28, 1997, is 7.50%.
The Company does not provide any post-employment benefits which would
require accrual under Statement of Financial Accounting Standards No. 112.
NOTE 10: COMMITMENTS AND CONTINGENCIES
At February 28, 1997, the Company had various noncancellable operating
leases for manufacturing, distribution and office buildings, warehouse space and
equipment.
Approximate future minimum rental commitments under all noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
Fiscal Year 1998.................................................... $1,166
1999................................................................ 943
2000................................................................ 598
2001................................................................ 418
2002................................................................ 249
2003 and thereafter................................................. 888
-------
Total minimum lease commitments..................................... $4,262
======
</TABLE>
From time to time the Company is a party to various legal actions in the
normal course of business. Gulton was sued for infringement of a U.S. patent
that Gulton was using to produce products unrelated to the business of the
Company for a business line that was transferred out of Gulton prior to the
Acquisition. At trial, the plaintiff was awarded $3,024 in damages. The matter
was appealed and upheld with the issue of calculation of damages remanded to the
District Court. No decision has been made by the District Court on
F-16
<PAGE> 130
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this issue. The Sellers, which are prosecuting the claim on behalf of Gulton,
have agreed to indemnify the Company fully for any losses or liabilities arising
from this litigation. The Company believes that it is not currently party to any
litigation which, if adversely determined, would have a material adverse effect
on the liquidity or results of operations of the Company.
The Company and its operations are subject to extensive and changing U.S.
federal, state and local and foreign environmental laws and regulations,
including, but not limited to, laws and regulations that impose liability on
responsible parties to remediate, or contribute to the costs of remediating,
current or formerly owned or leased sites or other sites where solid or
hazardous wastes or substances were disposed of or released into the
environment. These remediation requirements may be imposed without regard to
fault or legality at the time of the disposal or release. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, however, operations of the Company have
resulted, and may result in the future, in non-compliance or liability with
respect to such laws and regulations.
The Company (or, for certain sites, the Sellers, on behalf of the Company)
has undertaken or currently is undertaking remediation of contamination at
certain of its currently or formerly owned sites (some of which are unrelated to
the audio business) and the Company has agreed it is a de minimis responsible
party at a number of other such sites, which have been designated as Superfund
sites under U.S. environmental laws. The Company recently had Phase I
Environmental Site Assessments and Compliance Reviews conducted by a third-party
environmental consultant at all of its manufacturing sites and is aware of
environmental conditions at certain of such sites that require or may require
remediation or continued monitoring. In particular, the Company's site in
Buchanan, Michigan has been designated a Superfund site under U.S. environmental
laws. The Sellers have agreed to indemnify the Company fully for environmental
liabilities resulting from the Buchanan, Michigan Superfund site and certain of
the other sites at which the environmental consultant indicated monitoring or
remediation was necessary.
The Company estimates that it will incur, in fiscal year 1998,
approximately $150 for environmentally related capital expenditures. The
Company's environmentally related expenditures in the period from February 11,
1997, through February 28,1997, were not material. The Company does not believe
that the costs to the Company of environmental compliance under current laws and
regulations will have a material adverse effect on the financial condition or
results of operations of the Company.
There can be no assurance that the Company's estimated environmental
expenditures, which the Company believes to be reasonable, will cover in full
the actual amounts of environmental obligations the Company does incur, that the
Sellers will pay in full the indemnified environmental liabilities when they are
incurred, that new or existing environmental laws will not affect the Company in
currently unforeseen ways or that present or future activities undertaken by the
Company will not result in additional environmentally related expenditures.
However, the Company does not believe that the costs to the Company of the
environmental compliance under current laws and regulations will have a material
adverse effect on the financial condition or results of operations of the
Company.
NOTE 11: DOMESTIC AND FOREIGN OPERATIONS
The Company operates in a single industry segment, the professional audio
market. The Company's customers are not concentrated in any specific geographic
region and no single customer accounts for a significant amount of the Company's
sales.
F-17
<PAGE> 131
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information related to domestic and foreign operations is as follows:
<TABLE>
<S> <C>
Net sales to customers:
North America........................................................... $ 10,582
Europe.................................................................. 3,981
Asia and other foreign.................................................. 3,569
Eliminations............................................................ (3,216)
--------
Total net sales to customers.................................... $ 14,916
========
Operating income:
North America........................................................... $ 1,672
Europe.................................................................. 409
Asia and other foreign.................................................. 371
Eliminations............................................................ (107)
--------
Total operating income.......................................... $ 2,345
========
Identifiable assets:
North America........................................................... $131,469
Europe.................................................................. 42,255
Asia and other foreign.................................................. 34,391
--------
Total identifiable assets....................................... $208,115
========
</TABLE>
Net sales include sales among the Company's geographic operating units,
which are made at cost plus a proportionate share of operating profit. Export
sales from the United States to unaffiliated customers were approximately $761
for the period from February 11, 1997, through February 28, 1997.
NOTE 12: RELATED PARTY TRANSACTIONS
The Company has engaged Greenwich Street Capital Partners, Inc.
("Greenwich"), the manager of GSCP, to provide it with certain business,
financial and managerial advisory services, including developing and
implementing corporate and business strategy and providing other consulting and
advisory services. In exchange for such services, the Company has agreed to pay
Greenwich an annual fee of $750 payable quarterly in arrears, plus Greenwich's
reasonable out-of-pocket costs and expenses. This engagement is in effect until
the earlier to occur of the tenth anniversary of Acquisition Closing Date and
the date on which GSCP directly or indirectly no longer owns any shares of the
capital stock of Holding, and may be earlier terminated by Greenwich at its
discretion. For the period ended February 28, 1997, $37 of expense was
recognized by the Company. In addition, on the Acquisition Closing Date,
Greenwich received $1,500 in fees for providing services relating to the
structuring and financing of the Acquisition and the management compensation
package related thereto and is entitled to receive reimbursement for its
reasonable out-of-pocket costs and expenses relating to its provision of
services.
NOTE 13: EMPLOYMENT AGREEMENTS
Robert D. Pabst and John G. Bolstetter entered into a three-year employment
agreement with the Company prior to February 11, 1997. Pursuant to the terms of
the Purchase Agreement, if these executives were terminated within 90 days of
the closing of the Acquisition, the Sellers would be responsible for applicable
severance payments. The employment of these executives was terminated effective
May 9, 1997. The Company will likely enter into employment agreements in the
future as new executives are located.
F-18
<PAGE> 132
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14: SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash used for business acquisitions, net of cash acquired, was
allocated as follows:
<TABLE>
<S> <C>
Accounts receivable....................................................... $ 38,010
Inventories............................................................... 52,996
Deferred tax assets....................................................... 2,907
Other current assets...................................................... 5,313
Accounts payable.......................................................... (22,983)
Compensation related liabilities.......................................... (6,190)
Income taxes payable...................................................... (306)
Other accrued liabilities................................................. (5,869)
Plant and equipment....................................................... 31,649
Purchase price in excess of the net tangible assets acquired.............. 60,588
Deferred financing costs.................................................. 6,450
Other assets.............................................................. 1,358
Noncurrent Liabilities.................................................... (9,308)
--------
Net cash used for acquisition............................................. $154,615
========
</TABLE>
For the period ended from February 11, 1997, through February 28, 1997, no
interest or income tax payments were made.
NOTE 15: SUBSEQUENT EVENT
On March 24, 1997, the Company issued $100,000 of 11% Senior Subordinated
notes due 2007 (the "Notes"). Interest on the Notes will be payable
semi-annually on March 15 and September 15 of each year, commencing on September
15, 1997. The Notes will mature on March 15, 2007. The proceeds from the
Offering were used by the Company to repay all amounts outstanding under the
Bridge Loan Facility and $17,000 of indebtedness outstanding under the Term Loan
Facility. The balance of such proceeds was used for working capital and general
corporate purposes.
The Notes will be redeemable, at the Company's option, in whole or in part
and from time to time on and after March 15, 2002 and prior to maturity, at the
following redemption prices (expressed as a percentage of principal amount),
plus accrued interest, if any, to the redemption date, if redeemed during the
12-month period commencing on March 15 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------------------------------------------------------------- ----------------
<S> <C>
2002......................................................... 105.500%
2003......................................................... 103.667%
2004......................................................... 101.833%
2005 and thereafter.......................................... 100.000%
</TABLE>
In addition, at any time and from time-to-time prior to March 15, 2000, the
Company may redeem, in the aggregate, up to 33 1/3% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings by the Company following which there is a public market, at a
redemption price (expressed as a percentage of principal amount thereof) of 111%
plus accrued interest, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided however, that at least 66 2/3% of the
original aggregate principal amount of the Notes must remain outstanding
immediately after each such redemption.
F-19
<PAGE> 133
EV INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Notes will not be subject to any sinking fund requirement. The Notes
will be unsecured and will be subordinated to all existing and future senior
indebtedness (as defined) of the Company and will be effectively subordinated to
all obligations of the subsidiaries of the Company. The Notes will rank pari
passu with any future senior subordinated indebtedness (as defined) of the
Company and will rank senior to all other subordinated indebtedness (as defined)
of the Company.
The Notes will be unconditionally guaranteed on an unsecured, senior
subordinated basis by each subsidiary of the Company (other than foreign
subsidiaries and unrestricted subsidiaries, as defined) that is a significant
subsidiary (as defined) created or acquired after the date the Notes are issued.
The Notes have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market.
F-20
<PAGE> 134
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EV International, Inc.:
We have audited the accompanying consolidated statements of income and
retained earnings and cash flows of EV International, Inc. (a Delaware
corporation) for the period from March 1, 1996 through February 10, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. An audit also includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of EV
International, Inc. for the period from March 1, 1996 through February 10, 1997,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
May 9, 1997
F-21
<PAGE> 135
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of
EV International, Inc.
We have audited the accompanying consolidated balance sheet of EV
International, Inc. (the "Company") as of the last day of February 1996 and the
related consolidated statements of income and retained earnings, and cash flows
for each of the two years in the period ended February 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of the last day of February 1996 and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
February 29, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Rochester, New York
August 7, 1996
(February 10, 1997 as to effects
of the reorganization discussed
in Note 1)
F-22
<PAGE> 136
EV INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
LAST DAY OF FEBRUARY 1996
(000'S OMITTED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net........................................................ $ 38,300
Inventories..................................................................... 54,400
Current deferred tax assets..................................................... 1,100
Other current assets............................................................ 3,500
--------
Total current assets......................................................... 97,300
Property, Plant And Equipment, net................................................ 32,800
Cost In Excess Of Net Assets Acquired............................................. 33,900
Other Noncurrent Assets........................................................... 900
--------
TOTAL ASSETS............................................................ $164,900
========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable................................................................ $ 13,400
Compensation-related liabilities................................................ 5,100
Income taxes payable............................................................ 1,100
Other current liabilities....................................................... 4,400
--------
Total current liabilities.................................................... 24,000
Deferred Taxes And Other Noncurrent Liabilities................................... 7,900
Retained Earnings and Common Stock, $1.00 par value............................... 133,000
--------
TOTAL LIABILITIES AND EQUITY............................................ $164,900
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-23
<PAGE> 137
EV INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEARS ENDED
FROM MARCH 1, THE LAST DAY OF
1996 THROUGH FEBRUARY
FEBRUARY 10, ---------------------
1997 1996 1995
-------------- -------- --------
<S> <C> <C> <C>
Net Sales................................................ $177,100 $195,500 $185,300
Operating Costs:
Cost of products sold.................................. 121,400 134,500 125,300
Selling and administration............................. 28,400 30,000 29,400
Research and development............................... 7,700 8,200 6,300
Depreciation and amortization.......................... 5,100 5,100 4,800
-------- -------- --------
Total operating costs............................... 162,600 177,800 165,800
-------- -------- --------
Operating income......................................... 14,500 17,700 19,500
Gain On Sale Of Assets................................... -- 400 --
-------- -------- --------
Income before taxes.................................... 14,500 18,100 19,500
Provision For Income Taxes............................... 6,200 7,100 7,500
-------- -------- --------
Net income............................................. 8,300 11,000 12,000
Retained Earnings, at the beginning of the year.......... 133,000 118,700 110,500
Cash transfers (to) from Parent, net and adjustments
resulting from the acquisition (see Note 1)......... (2,000) 3,300 (3,800)
-------- -------- --------
Retained Earnings, at the end of the period.............. $139,300 $133,000 $118,700
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 138
EV INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEARS ENDED
FROM MARCH 1, THE LAST DAY OF
1996 THROUGH FEBRUARY
FEBRUARY 10, -------------------
1997 1996 1995
--------------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.............................................. $ 8,300 $11,000 $12,000
Items not affecting cash:
Depreciation and amortization........................ 5,100 5,100 4,800
Deferred income tax (benefit)........................ 700 (300) (600)
Changes in assets and liabilities.......................
Accounts receivable.................................. (500) (5,100) (5,900)
Inventories.......................................... (2,100) (8,500) (4,800)
Other assets......................................... (2,500) (100) (1,400)
Accounts payable..................................... (800) 300 2,800
Other liabilities.................................... (2,900) (2,000) 1,500
-------- ------- --------
Net cash provided by operating activities....... 5,300 400 8,400
-------- ------- --------
Cash Flows From Investing Activities to purchase
equipment............................................ (3,300) (3,700) (4,600)
-------- ------- --------
Net cash transferred (to) from Parent and adjustments
resulting from the acquisition (see Note 1)........ $(2,000) $ 3,300 $(3,800)
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 139
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED)
1. BACKGROUND INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Prior to the date of their disposition on February 10, 1997, Mark IV
Industries, Inc. ("Mark IV") was the owner of a number of operating divisions
and subsidiaries which made up its professional audio business, referred to as
the Mark IV Audio Group (the "Group"). Effective February 10, 1997, Mark IV
completed a reorganization of the Group in which certain assets and liabilities
not relating to the business of the Group were transferred out of the parent
company of the Group, Gulton Industries, Inc. ("Gulton"). On the same date, (i)
all the issued and outstanding stock of Gulton was then sold to an indirect
acquisition subsidiary of Greenwich Street Capital Partners, L.P. ("Sub"), (ii)
Sub merged with and into Gulton, with Gulton surviving, (iii) Gulton merged with
and into Electro-Voice, Incorporated ("EV"), Mark IV Audio, Inc., Mark IV Audio
Magnetic, Inc. and LFE Corporation, with EV surviving, and (iv) EV changed its
name to EV International, Inc. (the "Company"). The accompanying financial
statements have been restated to reflect the foregoing steps and include the
accounts of Gulton. All references to the Company relate to the business of the
Mark IV Audio Group, and exclude any activities which may have been a part of
the Company during the reporting periods, but which were transferred out as part
of the foregoing steps. There were no adjustments to the net assets or net
income of the Group as a result of this reorganization. The operating
subsidiaries and divisions of the Company are as follows:
<TABLE>
<S> <C>
Audio Consultants Co., Limited Mark IV Audio (Europe) AG
Altec Lansing International Mark IV Audio (Aust.) Pty Ltd.
Cetec International Limited Mark IV Audio Canada, Inc.
Dearden Davies Associates Limited Mark IV Audio France S.A.
Dynacord France Mark IV Audio Hong Kong Limited
Dynacord Audio GmbH Mark IV Audio Japan Ltd.
Klark-Teknik PLC Nivenfield (1992) Limited
Rebis Audio Limited
</TABLE>
Mark IV Audio Japan had a certain minority ownership interest as of
February 29, 1996. As part of the reorganization described above, the minority
interest was acquired by Mark IV, and Mark IV Audio Japan became a 100%-owned
subsidiary.
The financial statements reflect all of the operations making up the
Company and no recognition has been made to reflect the minority interests that
existed as of the various financial statement dates. All significant intergroup
transactions have been eliminated. These consolidated financial statements have
been prepared in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of such financial statements,
and the reported amounts of revenues and expenses during the reporting periods.
It should be recognized that the actual results could differ from those
estimates. The Company's significant accounting policies are as follows:
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are presented at cost, net of accumulated
depreciation. The cost of property, plant and equipment retired or otherwise
disposed of, and the accumulated depreciation thereon, are eliminated from the
asset and related accumulated depreciation accounts, and any resulting gain or
loss is
F-26
<PAGE> 140
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reflected in income. The Company provides for depreciation of plant and
equipment primarily on the straight-line method to amortize the cost of such
plant and equipment over their useful lives.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired ("goodwill") is presented net of
accumulated amortization. Management continually evaluates the existence of
goodwill impairment on the basis of whether the goodwill is fully recoverable
from projected, undiscounted net cash flows of the business. Goodwill is
amortized on the straight-line method over a 40-year period.
Income Taxes
Mark IV adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), in fiscal 1994. The adoption of
this standard retroactively changed Mark IV's method of accounting for income
taxes from the deferred method to the liability method. The Company's provisions
for income taxes have been calculated on the separate return basis.
Postretirement Benefits
Mark IV adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
No. 106"), effective as of February 28, 1993. SFAS No. 106 required the
estimated present value of the Company's liability for its commitments to
provide health and life insurance benefits to its retirees to be included in the
balance sheet. The related expense is required to be recognized on the accrual
method over the remaining years of the employees' active service, up to the
dates of the individual's eligibility to retire and begin receiving the benefit.
Research and Development Costs
Research and development costs are expensed as incurred and amounted to
approximately $8,200 and $6,300 in the fiscal years 1996 and 1995, respectively
and $7,700 for the period from March 1, 1996 through February 10, 1997.
Foreign Currency
The assets and liabilities of the Company's foreign operations are
translated at year-end exchange rates, and resulting gains and losses are
included as a part of net equity. Realized foreign currency transactions
recognized at the Company level have been eliminated from the accompanying
consolidated statements of income, since such transactions are in integral part
of Mark IV's consolidated currency exposure, including operations other than
those of the Company.
Cash
All cash balances are transferred to Mark IV as they arise.
2. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful accounts
of approximately $1,900 as of the last day of February 1996.
F-27
<PAGE> 141
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following as of the last day of February 1996:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Purchased materials and parts.............................................. $22,200
Work in process............................................................ 7,800
Finished goods............................................................. 24,400
-------
Net inventories.......................................................... $54,400
=======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following as of the last day of February 1996:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Land and improvements...................................................... $ 4,800
Buildings and improvements................................................. 20,200
Machinery and equipment.................................................... 32,900
-------
Total property, plant and equipment.............................. 57,900
Less Accumulated depreciation............................................ 25,100
-------
Property, plant and equipment, net............................... $32,800
=======
</TABLE>
Depreciation expense was approximately $4,100 and $3,800 in fiscal 1996 and
1995, respectively, and $4,200 for the period from March 1, 1996 through
February 10, 1997.
5. COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is presented net of accumulated
amortization of approximately $6,600 as of the last day of February 1996.
Amortization expense was approximately $1,000 in each of fiscal 1996 and 1995,
and $900 for the period from March 1, 1996 through February 10, 1997.
F-28
<PAGE> 142
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Income before taxes and the related provision for income taxes for fiscal
1996 and 1995, and for the period from March 1, 1996 through February 10, 1997,
consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before taxes:
United States....................................... $10,700 $10,600 $11,900
Foreign............................................. 3,800 7,500 7,600
------- ------- -------
Total income before taxes................... $14,500 $18,100 $19,500
======= ======= =======
Provision for income taxes:
Currently payable --
United States.................................... $ 4,700 $ 5,300 $ 5,800
Foreign.......................................... 800 2,100 2,300
------- ------- -------
Total currently payable..................... 5,500 7,400 8,100
------- ------- -------
Deferred --
United States.................................... 200 (600) (600)
Foreign.......................................... 500 300 --
------- ------- -------
Total deferred income tax (benefit)......... 700 (300) (600)
------- ------- -------
Total provision for income taxes............ $ 6,200 $ 7,100 $ 7,500
======= ======= =======
</TABLE>
The provision for income taxes for fiscal years 1996 and 1995 and for the
period from March 1, 1996 through February 10, 1997, differs from the amount
computed using the U.S. statutory income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Expected tax at U.S. statutory income tax rate........ $ 5,100 $ 6,300 $ 6,800
Permanent differences................................. 600 200 200
State and local income taxes.......................... 600 400 400
Foreign tax rate differences.......................... (100) 200 100
------ ------ ------
Total provision for income taxes...................... $ 6,200 $ 7,100 $ 7,500
====== ====== ======
</TABLE>
F-29
<PAGE> 143
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences which give rise to deferred tax
assets (liabilities) consist of the following at the last day of February 1996:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Current:
Accounts receivable...................................................... $ 200
Inventories.............................................................. (800)
Compensation related..................................................... 600
Other items.............................................................. 1,100
-------
Net current deferred tax assets.................................. $ 1,100
=======
Noncurrent:
Fixed and intangible assets.............................................. $(6,600)
Postretirement health benefit
Retirees.............................................................. 300
Active................................................................ 100
Other items.............................................................. 500
-------
Net noncurrent deferred tax liabilities.......................... $(5,700)
=======
</TABLE>
For purposes of these financial statements, the undistributed earnings of
Gulton's foreign subsidiaries were considered to have been reinvested in each
country, and were not expected to be remitted back to Mark IV.
7. PENSION AND RETIREMENT SAVINGS PLANS
Prior to the consummation of the steps set forth in Note 1, the Company's
U.S. employees participated in one of a number of defined-benefit pension plans
which were funded and administered by Mark IV. Such plans provide retirement
benefits based upon the employees' age, earnings and years of service, or were
based upon years of service multiplied by stated monthly benefit amounts. The
Company recognized an expense for the estimated service cost of such plans of
approximately $400 in each of fiscal 1996 and 1995, and approximately $350 for
the period from March 1, 1996 through February 10, 1997. The plans are a part of
Mark IV's Master Defined Benefit Plan, and the funded position and
responsibility for benefit payments were managed by Mark IV.
Certain of the Company's U.S. employees also participated in defined
contribution plans which were also funded and administered by Mark IV. The
Company recognized an expense of approximately $200 for these plans in each of
fiscal 1996 and 1995, and approximately $170 for the period from March 1, 1996
through February 10, 1997.
The Company's Japanese subsidiary also had a retirement and termination
plan (the "Retirement Plan") which provided benefits to employees in Japan upon
their termination of employment. The benefits were based upon a multiple of the
employee's monthly salary, with the multiple determined based upon the
employee's years of service. The multiple paid to employees who retired or are
involuntarily terminated is greater than the multiple paid to those who
voluntarily terminate their services. The Retirement Plan is unfunded, and the
accompanying consolidated balance sheet includes a liability of approximately
$910 at the last day of February 1996, which represents the actuarially
determined estimated present value of the Company's liability as of those dates.
The Company recognized an expense of approximately $100 for these plans in each
of fiscal 1996 and 1995, and approximately $100 for the period from March 1,
1996 through February 10, 1997.
F-30
<PAGE> 144
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. POSTRETIREMENT BENEFITS
The Company provided health and life insurance benefits to a number of
existing retirees from its U.S. operations. Contributions required to be paid by
the retirees towards the cost of such plans are a flat dollar amount per month
in certain instances, or a range from 25% to 100% in other instances. The
Company also had a number of active employees who will receive such benefits
upon their retirement.
The following table sets forth the liability for the cost of these benefits
included in the consolidated balance sheet as of the last day of February 1996:
<TABLE>
<CAPTION>
1996
------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees and beneficiaries receiving benefits............................. $1,500
Active employees, fully eligible for benefits............................. 100
Active employees, not fully eligible for benefits......................... 100
------
Total accumulated benefit obligation.............................. 1,700
Unrecognized net loss....................................................... (500)
------
Postretirement benefit liability recognized in the combined
balance sheet.................................................... $1,200
======
</TABLE>
The Company's postretirement benefit expense on the accrual method for
fiscal 1996 and 1995, and for the period from March 1 through February 10, 1997
includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period................ $ 5 $ 10 $ 10
Interest cost on the APBO..................................... 15 130 100
--- ---- ----
Total expense....................................... $20 $140 $110
=== ==== ====
</TABLE>
The postretirement liability recognized in the consolidated balance sheet
as of February 29, 1996 includes approximately $1,000 related to existing
retirees, and $200 related to active employees of the Company as of that date.
Of the total expense recognized by the Company, approximately $20 relates to the
benefits earned by the active employees in each of the fiscal years presented,
with the balance related to the existing retirees of the Company. In connection
with the disposition of the Company discussed in Note 1, Mark IV retained the
obligation for retirees and beneficiaries currently receiving benefits.
There was an increase in the unrecognized net loss during fiscal 1996 as a
result of the settlement of certain litigation actions between the Company and
certain retirees. The settlement resulted in the mutual agreement to
prospectively reduce amounts previously required to be contributed by such
retirees to the cost of their benefits. The APBO was calculated using a discount
rate of 7.50% at February 29, 1996. The rate used in the prior year was 8.75%.
The change in the discount rate did not have a significant effect on the expense
determination for fiscal 1996 and 1995. The APBO determinations assume an
initial health care cost trend rate of approximately 8.0%, trending down ratably
to an ultimate rate of 4.5%. A one-percentage-point increase in such trend rate
would not have a significant effect on the Company's obligations or annual
expense.
9. LEGAL AND ENVIRONMENTAL MATTERS
The Company has historically been involved in various legal and
environmental matters. In the opinion of management, the ultimate cost to
resolve these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
The Company's manufacturing facility in Michigan is adjacent to land which
has been designated as a Superfund site by the U.S. Environmental Protection
Agency ("EPA"). The Company has been identified by
F-31
<PAGE> 145
EV INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the EPA as the sole Potentially Responsible Person at this site. The remediation
required by the EPA has been substantially completed as of February 29, 1996,
and remains the financial responsibility of Mark IV. Therefore, the accompanying
consolidated financial statements do not reflect any of the associated cleanup
costs expended to date, or remaining to be expended as of February 29, 1996.
10. FOREIGN OPERATIONS
The Company's foreign operations are located in Europe and the Far East.
Information concerning the Company's operations by geographic area for fiscal
1996 and 1995, and for the period from March 1, 1996 through February 10, 1997
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales to customers:
United States.................................... $111,000 $125,700 $120,500
Foreign.......................................... 96,300 107,300 94,300
Eliminations..................................... (30,300) (37,500) (29,500)
-------- -------- --------
Total net sales to customers............. $177,100 $195,500 $185,300
======== ======== ========
Operating income:
United States.................................... $ 12,700 $ 12,800 $ 13,600
Foreign.......................................... 3,800 7,100 7,600
Eliminations..................................... (2,000) (2,200) (1,700)
-------- -------- --------
Total operating income................... $ 14,500 $ 17,700 $ 19,500
======== ======== ========
Identifiable assets:
United States.................................... $ 77,200 $ 71,600
Foreign.......................................... 87,700 81,000
-------- --------
Total identifiable assets................ $164,900 $152,600
======== ========
</TABLE>
Net sales include sales among the Company's geographic operating units,
which are made at cost plus a proportionate share of operating profit. Export
sales from the United States to unaffiliated customers were approximately $8,100
and $13,200 in fiscal 1996 and 1995, respectively, and approximately $8,160 for
the period from March 1, 1996 through February 10, 1997.
11. RELATED PARTY TRANSACTIONS
Through February 10,1997, Mark IV provided and coordinated treasury, tax,
audit, legal, medical and risk insurance, and benefits administration services
to the various operating units of the Company. Actual insurance, legal and
direct employee benefits related costs have been charged directly to the
Company. Audit costs were allocated to the Company based upon its relative size
in terms of sales and total assets compared to Mark IV's other subsidiaries.
Management believes this allocation method to be reasonable. An allocation of
Mark IV's costs for tax, treasury and other administrative work performed has
not been made as Mark IV management did not believe such costs to be
significant. All intercompany accounts with Mark IV and its affiliates other
than the Company and its subsidiaries have been included as a part of net
equity.
Certain bank indebtedness existed in certain of the Company's foreign
subsidiaries. The amount of such indebtedness was controlled by Mark IV and is
based on Mark IV's financing plans on a consolidated country-by-country basis.
As a result, the accompanying consolidated financial statements exclude all such
indebtedness and related interest expense for the periods presented.
Mark IV also provided letters of credit for the Company's operating needs.
The Company had an informal lease arrangement with Mark IV for a facility
which it uses for its cabinet assembly requirements. The Company recognized an
expense for this lease of approximately $234 and $205 in fiscal 1996 and 1995,
respectively, and approximately $450 for the period from March 1, 1996 through
February 10, 1997.
F-32
<PAGE> 146
EV INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
MAY 31, 1997 FEBRUARY 28, 1997
------------ -----------------
<S> <C> <C>
Current Assets
Cash......................................................... $ 12,534 $ 7,044
Accounts receivable, net of allowance for doubtful accounts
of $2,392 and 2,203, respectively........................... 40,446 42,856
Inventories.................................................. 52,107 51,141
Deferred tax assets.......................................... 3,005 2,907
Other current assets......................................... 5,922 5,019
--------
Total Current Assets.................................... 114,014 108,967
Property, Plant and Equipment, net................................ 30,849 31,411
Deferred Financing Costs.......................................... 5,028 6,216
Cost in Excess of Net Assets Acquired............................. 60,190 60,513
Other Assets...................................................... 936 1,008
--------
TOTAL ASSETS....................................... $211,017 $ 208,115
========
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable............................................. $ 14,133 $ 15,250
Current maturities of long-term debt......................... 6,083 1,000
Compensation related liabilities............................. 7,101 6,726
Accrued interest............................................. 2,150 581
Income taxes payable......................................... 165 997
Other accrued liabilities.................................... 8,016 6,875
--------
Total Current Liabilities............................... 37,648 31,429
Long-term Debt.................................................... 111,917 109,000
Deferred Taxes and Other Liabilities.............................. 6,907 9,294
--------
Total Liabilities....................................... 156,472 149,723
Stockholder's Equity
Common stock ($.01 par value -- 1,000 shares authorized, 110
shares issued and outstanding).............................. -- --
Capital in excess of par value............................... 57,600 57,600
Retained earnings............................................ (3,341) 841
Cumulative translation adjustments........................... 286 (49)
--------
Total Stockholder's Equity.............................. 54,545 58,392
--------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY........... $211,017 $ 208,115
========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-33
<PAGE> 147
EV INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
(NEW BASIS (PREDECESSOR BASIS
OF ACCOUNTING) OF ACCOUNTING)
THREE MONTHS ENDED THREE MONTHS ENDED
MAY 31, 1997 MAY 31, 1996
------------------ ------------------
<S> <C> <C>
Net Sales................................................. $ 44,672 $ 46,088
Operating Costs:
Cost of products sold................................ 31,089 31,530
Selling and administration........................... 7,623 7,116
Research and development............................. 2,450 2,455
Depreciation and amortization........................ 1,555 1,335
------- -------
Total Operating Costs........................... 42,717 42,436
------- -------
Operating Income..................................... 1,955 3,652
Interest Expense.......................................... 3,467 --
Write-off of Deferred Financing Costs..................... 4,869 --
Foreign Exchange Losses................................... 205 --
------- -------
(Loss) Income before taxes........................... (6,586) 3,652
(Benefit) Provision for Income Taxes...................... (2,404) 1,443
------- -------
Net (Loss) Income............................... $ (4,182) $ 2,209
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 148
EV INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
(NEW BASIS (PREDECESSOR BASIS
OF ACCOUNTING) OF ACCOUNTING)
THREE MONTHS ENDED THREE MONTHS ENDED
MAY 31, 1997 MAY 31, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................... $ (4,182) $ 2,209
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization...................... 1,555 1,335
Amortization and write-off of deferred financing
fees............................................ 5,288 --
Deferred income taxes.............................. (2,485) --
Changes in assets and liabilities:
Accounts receivable............................. 2,410 2,873
Inventories..................................... (966) 3,671
Other current assets............................ (831) (4,089)
Accounts payable................................ (1,117) 2,135
Compensation related liabilities................ 375 (845)
Other accrued liabilities....................... 1,878 (526)
Other, net...................................... 254 (1,174)
-------- -------
Net cash provided by operating activities.......... 2,179 5,589
Cash flows from investing activities:
Purchases of property and equipment.................. (615) (815)
-------- -------
Net cash used in investing activities.............. (615) (815)
Cash flows from financing activities:
Proceeds from issuance of Senior Subordinated
Notes.............................................. 100,000 --
Payment of Senior Subordinated Credit Facility....... (75,000) --
Payment of Term Loan................................. (17,000) --
Payment of financing costs........................... (4,100) --
Cash transferred to Parent........................... -- (4,774)
-------- -------
Net cash provided by (used in) financing
activities...................................... 3,900 (4,774)
Effect of exchange rates on cash................... 26 --
-------- -------
Net increase in cash............................... 5,490 --
Cash at beginning of period........................ 7,044 --
-------- -------
Cash at end of period.............................. $ 12,534 $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 149
EV INTERNATIONAL, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
NOTE 1: ORGANIZATION
EV International, Inc., a Delaware corporation, and its subsidiaries (the
"Company" or "EVI") is a manufacturer and marketer of sound system products for
the professional audio market. The Company manufactures and markets a
comprehensive range of products worldwide for professional audio systems,
including microphones, mixing consoles, signal processors, amplifiers and
loudspeaker systems. The Company is a wholly owned subsidiary of EVI Audio
Holding, Inc. ("Holding"), a Delaware Corporation. Holding is a wholly owned
subsidiary of EVI Audio, LLC (the "Parent"). Holding and the Parent are newly
formed entities organized by Greenwich Street Capital Partners, L.P. and certain
affiliated investors (collectively "GSCP") to effect the acquisition described
below. Holding and the Parent are holding companies only. The primary assets in
each are comprised of investments in subsidiaries.
On February 10, 1997 (the "Acquisition Closing Date"), pursuant to a
Purchase Agreement dated December 12, 1996, an acquisition subsidiary wholly
owned by Holding acquired from Mark IV Industries, Inc. and Mark IV PLC
(collectively, the "Sellers") all of the issued and outstanding capital stock of
Gulton Industries Inc. ("Gulton"), the former parent of Electro-Voice,
Incorporated (the "Predecessor Company"). The acquisition subsidiary
subsequently merged with and into Gulton, and Gulton then merged with and into
the Predecessor Company, with the Predecessor Company ultimately surviving. The
Predecessor Company then changed its name to EV International, Inc. The
foregoing transactions are referred to herein as the Acquisition.
As of the Acquisition Closing Date, the aggregate cash purchase price paid
was approximately $151,500, plus $4,900 in estimated adjustments paid on the
Acquisition Closing Date. This purchase price is subject to further adjustment
on the basis of (i) the audited working capital and audited cash flow of the
Predecessor Company as of and for the ten month period ended December 31, 1996,
as adjusted for certain contractual provisions and (ii) the net intercompany
transfers of cash, as defined, between the Sellers and their affiliates, on the
one hand, and the Predecessor Company and its subsidiaries, on the other hand,
during the period between December 31, 1996, and the Acquisition Closing Date.
The Sellers have submitted the audited financial statements, together with their
computations of the purchase price adjustments, and have requested a further
purchase price payment of $405.
The Acquisition was accounted for using the purchase method of accounting,
pursuant to which the purchase price was allocated among the acquired assets and
liabilities in accordance with estimates of fair market value on the Acquisition
Closing Date. The cost of the acquisition included the payment of $156,400 to
the Sellers, plus $3,900 of Acquisition related fees. The Acquisition was funded
with $57,600 of contributed capital and $110,000 of debt, including a bridge
loan facility and a term loan. Debt financing costs were approximately $6,500.
NOTE 2: BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying financial statements have been prepared by EVI, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. All significant intercompany balances and transactions have been
eliminated in the accompanying consolidated financial statements.
The financial information presented herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The interim financial statements and notes thereto should be
read in conjunction with the February 10, 1997, audited consolidated financial
statements of the Predecessor Company and the February 28, 1997, audited
consolidated financial statements of the Company included elsewhere herein.
F-36
<PAGE> 150
Certain prior period amounts have been reclassified to conform with the current
presentation. The results for interim periods are not necessarily indicative of
the results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses and disclosures of contingencies. Future events could alter such
estimates.
For purposes of cash flows, the Company considers overnight investments as
cash equivalents. The Company made cash interest payments of approximately $1.6
million in the three month period ended May 31, 1997. The Company also made cash
income tax payments of approximately $0.9 million in the three month period
ended May 31, 1997.
As a result of the Acquisition and the related financing transactions, the
Company is highly leveraged. The Company's high degree of leverage could have
important consequences, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisition, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; and (iii) the Company's flexibility to adjust to changing market
conditions and ability to withstand competitive pressures could be limited, and
the Company may be more vulnerable to a downturn in general economic conditions
or in business or may be unable to carry out capital spending that is important
to its growth strategy.
Technological innovation and leadership are among the important factors in
competing successfully in the professional audio markets. The Company's future
results will depend, in part, upon its ability to make timely and cost-effective
enhancements and additions to its technology and to introduce new products that
meet customer demands, including products utilizing digital technology, which
are increasingly being introduced in the professional audio industry. The
success of current and new product offerings is dependent on several factors,
including proper identification of customer needs, technological development,
cost, timely completion and introduction, differentiation from offerings of the
Company's competitors and market acceptance. Maintaining flexibility to respond
to technological and market dynamics may require substantial expenditures. There
can be no assurance that the Company will successfully identify and develop new
products in a timely manner, that products or technologies developed by others
will not render the Company's products obsolete or noncompetitive or that
constraints in the Company's financial resources will not adversely affect its
ability to develop and implement technological advances.
The Company's business strategy includes plans for pursuing growth in
certain foreign markets. The Company's international prospects could be
adversely affected by factors such as reversals or delays in the opening of
foreign markets, exchange controls and other trade regulation, currency and
political risks, taxation and economic and market conditions in targeted foreign
markets. The Company's business strategy also includes plans to pursue growth
through strategic acquisitions. The Senior Credit Facility prohibits making
certain acquisitions in an aggregate amount over $7,500 and incurring additional
indebtedness greater than 65% of the purchase price of any such acquisition. In
addition, acquisitions that the Company may make or enter into will involve
risk, including the successful integration and management of acquired
technology, operations and personnel. The integration of acquired businesses may
also lead to the loss of key employees of the acquired companies and diversion
of management attention from ongoing business concerns.
The Company has substantial assets located outside of the United States and
a substantial portion of the Company's sales and earnings are attributable to
operations conducted abroad and to export sales, predominantly in Western Europe
and Asia. The Company's international operations subject the Company to certain
risks, including increased exposure to currency exchange rate fluctuations. The
Company intends to hedge a portion of its foreign currency exposure by incurring
liabilities, including bank debt, denominated in the local currencies of those
countries where its subsidiaries are located and plans to develop systems to
manage and control its currency risk exposure. The Company's international
operations also subject it to certain other risks, include adverse political or
economic developments in the foreign countries in which it conducts business,
foreign government regulation, dividend restrictions, tariffs and potential
adverse tax consequences, including payment of taxes in jurisdictions that have
higher tax rates than does the United States.
F-37
<PAGE> 151
The Company offers a range of audio products to a diverse customer base
throughout the world. Terms typically require payment within a short period of
time, however, the Company will offer extended payment terms to certain
qualified customers. As of May 31, 1997, the Company believes it has no
significant customer or geographic concentration of accounts receivable that
could expose the Company to adverse, near-term severe financial impacts.
NOTE 3: INVENTORIES
Inventories consist of the following as of May 31, 1997 and February 28,
1997, respectively:
<TABLE>
<S> <C> <C>
Purchased materials and parts...................................... $19,287 $19,830
Work in process.................................................... 6,909 7,104
Finished goods..................................................... 25,911 24,207
------- -------
$52,107 $51,141
======= =======
</TABLE>
NOTE 4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt consists of the following as of May 31, 1997 and February
28, 1997, respectively:
<TABLE>
<S> <C> <C>
Senior subordinated notes.............................. $100,000 $ --
Senior subordinated credit facility.................... -- 75,000
Term loan facility..................................... 18,000 35,000
-------- --------
118,000 110,000
Less: Current maturities of long-term-debt............. 6,083 1,000
-------- --------
Long-term debt............................... $111,917 $109,000
======== ========
</TABLE>
Senior Subordinated Notes
On March 24, 1997, the Company issued $100,000 of 11% Senior Subordinated
notes due 2007 (the "Notes"). Interest on the Notes is payable semi-annually on
March 15 and September 15 of each year, commencing on September 15, 1997. The
Notes mature on March 15, 2007. The proceeds from the Notes issuance were used
by the Company to repay all amounts outstanding under the Bridge Loan Facility
and $17,000 of indebtedness outstanding under the Term Loan Facility. The
balance of such proceeds was used for working capital and general corporate
purposes. Deferred financing fees associated with the Notes of $4,100 are being
amortized over the term of the Notes.
The Notes are redeemable, at the Company's option, in whole or in part and
from time to time on and after March 15, 2002 and prior to maturity, at the
following redemption prices (expressed as a percentage of principal amount),
plus accrued interest, if any, to the redemption date, if redeemed during the
12-month period commencing on March 15 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
----------------------------------------------------------- ----------------
<S> <C>
2002....................................................... 105.500%
2003....................................................... 103.667%
2004....................................................... 101.833%
2005 and thereafter........................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2000, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings by the Company following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount thereof) of 111%
plus accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided however, that at least 66 2/3% of the
original aggregate principal amount of the Notes must remain outstanding
immediately after each such redemption.
F-38
<PAGE> 152
The Notes are not subject to any sinking fund requirement. The Notes are
unsecured and are subordinated to all existing and future senior indebtedness
(as defined) of the Company and are effectively subordinated to all obligations
of the subsidiaries of the Company. The Notes rank pari passu with any future
senior subordinated indebtedness (as defined) of the Company and rank senior to
all other subordinated indebtedness (as defined) of the Company.
The Notes are unconditionally guaranteed on an unsecured, senior
subordinated basis by each subsidiary of the Company (other than foreign
subsidiaries and unrestricted subsidiaries, as defined) that is a significant
subsidiary (as defined) created or acquired after the date the Notes are issued.
The Notes have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market.
Senior Subordinated Credit Facility
The Company entered into a $75,000 Senior Subordinated Credit Facility (the
"Bridge Loan Facility"), dated as of the Acquisition Closing Date, with a group
of financial institutions, issued as interim financing for the Acquisition.
Pursuant to the Notes issuance, the Bridge Loan Facility and any related accrued
interest were repaid. During the period March 1, 1997, through the Notes
issuance, borrowings under the Bridge Loan Facility bore interest at 12.25% per
annum. Under the terms of the Bridge Loan Facility, the facility expires one
year from the Acquisition Closing Date. Unamortized deferred financing fees of
$3,892 associated with the Bridge Loan Facility remaining at the date of the
Notes issuance were written off.
Senior Credit Facility
The Company entered into a Senior Credit Facility, dated as of the
Acquisition Closing Date, with a group of financial institutions, which provides
for a Term Loan Facility of $35,000 and a Revolving Credit Facility of $25,000.
On the Acquisition Closing Date, the Company borrowed the full amount
available under the Term Loan Facility and used the proceeds of $35,000,
together with the proceeds of the GSCP equity investment and the Bridge Loan
Facility, for payment of the purchase price of the Acquisition and related fees
and expenses. On March 24, 1997, proceeds from the Notes issuance were used by
the Company to repay $17,000 of indebtedness outstanding under the Term Loan
Facility, and the related unamortized deferred financing costs of $978 were
written off. On July 11, 1997, the Company utilized available cash on hand to
prepay $5,000 of indebtedness outstanding under the Term Loan Facility.
NOTE 5: PRO FORMA RESULTS OF OPERATIONS
Pro forma statements of income are presented below for the three months
ended May 31, 1997 and 1996. For the period ended May 31, 1997, amounts are
presented as if the Notes had been issued on March 1, 1997. For the period ended
May 31, 1996, amounts are presented as if the Acquisition of the Predecessor
Company and the Notes issuance had occurred on March 1, 1996. The Company's pro
forma statement of income for the three months ended May 31, 1996, is based on
the Predecessor Company's statement of income and includes adjustments giving
effect to the Acquisition under the purchase method of accounting and the GSCP
management fee. The Predecessor Company's statement of income does not reflect
any foreign exchange gains or losses, nor any interest expense nor income. The
pro forma results are for illustrative purposes only and do not purport to be
indicative of the actual results which would have occurred, nor are they
indicative of future results of operations.
F-39
<PAGE> 153
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
THREE MONTHS THREE MONTHS
ENDED 5/31/97 ENDED 5/31/96
------------- -------------
<S> <C> <C>
Revenue.................................................. $44,672 $46,088
Operating income......................................... 1,955 3,337
Net loss................................................. (1,168) (201)
EBITDA................................................... 3,305 4,798
</TABLE>
NOTE 6: DOMESTIC AND FOREIGN OPERATIONS
The Company operates in a single industry segment, the professional audio
market. The Company's customers are not concentrated in any specific geographic
region and no single customer accounts for a significant amount of the Company's
sales.
Information related to domestic and foreign operations is as follows as of
and for the three months ended May 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net sales to customers:
North America....................................... $ 28,720 $29,342
Europe.............................................. 15,765 17,929
Asia and other foreign.............................. 9,653 10,072
Eliminations........................................ (9,466) (11,255)
-------- -------
Total net sales to customers................... $ 44,672 $46,088
======== =======
Operating income:
North America....................................... $ 1,293 $ 2,158
Europe.............................................. (32) 626
Asia and other foreign.............................. 694 868
-------- -------
Total operating income......................... $ 1,955 $ 3,652
======== =======
Identifiable assets:
North America....................................... $ 132,650
Europe.............................................. 43,207
Asia and other foreign.............................. 35,160
-------------
Total identifiable assets...................... $ 211,017
===========
</TABLE>
Net sales include sales among the Company's geographic operating units,
which are made at cost plus a proportionate share of operating profit. For the
three month periods ended May 31, 1997 and 1996, export sales from the United
States to unaffiliated customers were approximately $2,423 and $1,985,
respectively.
NOTE 7: COMMITMENTS AND CONTINGENCIES
From time to time the Company is a party to various actions in the normal
course of business. Gulton was sued by a company for infringement of a U.S.
patent that Gulton was using to produce products unrelated to the business of
the Company for a business line that was transferred out of Gulton prior to the
Acquisition. At trial, the plaintiff was awarded $3,024 in damages. The matter
was appealed and upheld with the issue of calculation of damages remanded to the
District Court. No decision has been made by the District Court on this issue.
The Sellers, which are prosecuting the claim on behalf of Gulton, have agreed to
indemnify the Company fully for any losses or liabilities arising from this
litigation. The Company believes that it is not currently party to any
litigation which, if adversely determined, would have a material adverse effect
on the liquidity or results of operations of the Company.
The Company and its operations are subject to extensive and changing U.S.
federal, state and local and foreign environmental laws and regulations,
including, but not limited to, laws and regulations that impose
F-40
<PAGE> 154
liability on responsive parties to remediate, or contribute to the costs of
remediating, current or formerly owned or leased sites or other sites where
solid or hazardous wastes or substances were disposed of or released into the
environment. These remediation requirements may be imposed without regard to
fault or legality at the time of the disposal or release. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, however, operations of the Company have
resulted, and may result in the future, in non-compliance or liability with
respect to such laws and regulations.
The Company (or for certain sites, the Sellers, on behalf of the Company)
has undertaken or currently is undertaking remediation of contamination at
certain of its currently or formerly owned sites (some of which are unrelated to
the audio business) and the Company has agreed it is a de minimis responsible
party at a number of other such sites, which have been designated as Superfund
sites under U.S. environmental laws. The Company recently had Phase 1
Environmental Site Assessments and Compliance Reviews conducted by a third-party
environmental consultant at all of its manufacturing sites and is aware of
environmental conditions at certain of such sites that require or may require
remediation or continued monitoring. In particular, the Company's site in
Buchanan, Michigan has been designated a Superfund site under U.S. environmental
laws. The Sellers have agreed to indemnify the Company fully for environmental
liabilities resulting from the Buchanan, Michigan Superfund site and certain of
the other sites at which the environmental consultant indicated monitoring or
remediation was necessary.
The Company estimates that it will incur, in fiscal year 1998,
approximately $150 for environmentally related capital expenditures. The Company
does not believe that the costs to the Company of environmental compliance under
current laws and regulations will have a material adverse effect on the
financial condition or results of operations of the Company.
There can be no assurance that the Company's estimated environmental
expenditures, which the Company believes to be reasonable, will cover in full
the actual amounts of environmental obligations the Company does incur, that the
Sellers will pay in full the indemnified environmental liabilities when they are
incurred, that new or existing environmental laws will not affect the Company in
currently unforeseen ways or that present or future activities undertaken by the
Company will not result in additional environmentally related expenditures.
However, the Company does not believe that the costs to the Company of the
environmental compliance under current laws and regulations will have a material
adverse effect on the financial condition or results of operations of the
Company.
F-41
<PAGE> 155
[This Page Intentionally Left Blank.]
<PAGE> 156
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OF
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS
PROSPECTUS FOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
CONSTITUTE AN OFFER TO SELL OR THE 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 THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
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>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 4
Prospectus Summary......................... 5
Risk Factors............................... 16
Use of Proceeds............................ 22
Capitalization............................. 23
Unaudited Pro Forma Financial
Information.............................. 24
Selected Historical and Pro Forma Financial
Information.............................. 30
Management's Discussion and Analysis of
Financial Condition And Results of
Operations............................... 32
Business................................... 38
Management................................. 52
Ownership of Capital Stock................. 56
Description of Capital Stock............... 57
The Acquisition............................ 57
The Sponsor................................ 58
Related Transactions....................... 58
Relationships with Mark IV................. 58
Description of Credit Facilities........... 60
The Exchange Offer......................... 63
Description of Notes....................... 69
Certain Federal Income Tax
Considerations........................... 104
Book-entry; Delivery and Form.............. 108
Plan of Distribution....................... 110
Legal Matters.............................. 111
Experts.................................... 111
Independent Public Accountants............. F-2
</TABLE>
UNTIL OCTOBER 29, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
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.
======================================================
======================================================
EV INTERNATIONAL, INC.
OFFER TO EXCHANGE
11% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A, WHICH HAVE
BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL
OUTSTANDING 11% SENIOR
SUBORDINATED NOTES DUE 2007.
--------------------
PROSPECTUS
--------------------
JULY 30, 1997
======================================================
<PAGE> 157
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the Delaware Corporation Law, as amended, Article VI of the
Company's By-Laws and paragraph (e) of Article Fifth of the Company's Restated
Certificate of Incorporation, as amended, provide for the indemnification,
except in certain circumstances set forth below, of officers, directors,
employees and agents of the Company for expenses, judgments, fines and amounts
paid in settlement reasonably incurred in connection with any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the Company or served at the request of
the Company as a director, officer, employee or agent of another enterprise, and
for the purchase and maintenance of insurance by the Company on behalf of
officers, directors, employees and agents of the Company against any liability
asserted against, and incurred by, any such officer, director, employee or agent
in such capacity. Set forth below is the text of Section 145 and the text of
Article VI of the Company's By-Laws and paragraph (e) of Article Fifth of the
Company's Certificate of Incorporation.
Section 145 of the Delaware Corporation Law, as amended, provides in
regards to indemnification of directors and officers as follows:
"145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE. -- (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 interests
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 of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court 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)
II-1
<PAGE> 158
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) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the 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 the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil
or criminal 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 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 by-law, agreement,
vote of stockholders 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."
II-2
<PAGE> 159
Article VI of the Company's By-Laws provides in regard to indemnification
of directors and officers as follows:
Section 6.01. Nature of Indemnity. The Corporation shall 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 (a "Proceeding"),
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was or has agreed to become a director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director or officer, of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, and may indemnify any person who was or
is a party or is threatened to be made a party to such an action, suit or
proceeding by reason of the fact that he or she is or was or has agreed to
become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an 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 or her or on his or her
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding had no reasonable cause to
believe his or her conduct was unlawful; except that in the case of an action or
suit by or in the right of the Corporation to procure a judgment in its favor
(1) such indemnification shall be limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in the defense or
settlement of such action or suit, and (2) no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware 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 Delaware Court of
Chancery or such other court shall deem proper.
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 or she 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.
Section 6.02. Successful Defense. To the extent that a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
6.01 of these By-Laws or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a director or officer of the Corporation under Section 6.01
of these By-Laws (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 6.01 of these By-Laws. Any
indemnification of an employee or agent of the Corporation under Section 6.01 of
these By-Laws (unless ordered by a court) may be made by the Corporation upon a
determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 6.01 of these By-Laws. Any such determination shall be made (1)
by a majority vote of the 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 stockholders.
Section 6.04 Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be
II-3
<PAGE> 160
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in this Article. 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. The Board of
Directors may authorize the Corporation's counsel to represent such director,
officer, employee or agent in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the Corporation under Sections 6.01
and 6.02 of these By-Laws, or advance of costs, charges and expenses to a
director or officer under Section 6.04 of these By-Laws, shall be made promptly,
and in any event within thirty days, upon the written request of the director or
officer. If a determination by the Corporation that the director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a claim
for the advance of costs, charges and expenses under Section 6.04 of these
By-Laws where the required undertaking, if any, has been received by or tendered
to the Corporation) that the claimant has not met the standard of conduct set
forth in Section 6.01 of these By-Laws, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, its independent legal counsel, and its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in Section 6.01 of these
By-Laws, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel,
and its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall 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.
Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her or on his or her behalf in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer
II-4
<PAGE> 161
and may indemnify each employee or agent of the Corporation as to costs, charges
and expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
provides in regard to the limitation of liability of directors and
officers as follows:
(b) In addition to the matters required to be set forth in the certificate
of incorporation by subsection (a) of this section, the certificate of
incorporation may also contain any or all of the following matters:
* * * *
(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under section 174 of this Title; or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
All references in this Paragraph to a director shall also be deemed to refer (x)
to a member of the governing body of a corporation which is not authorized to
issue capital stock, and (y) to such other person or persons, if any, who,
pursuant to a provision of the certificate of incorporation in accordance with
sec.141(a) of this title, exercise or perform any of the powers or duties
otherwise conferred or imposed upon the board of directors by this title.
Paragraph (e) of Article Fifth of the Restated Certificate of Incorporation
of the Company, as amended, provides as follows:
"(e) No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of his or her fiduciary duty as
a director, provided that nothing contained in this Article shall eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an improper
personal benefit. Notwithstanding anything contained in this Certificate to the
contrary, any alteration, amendment or repeal of, or adoption of any provision
inconsistent with, this Article FIFTH shall not adversely affect any rights or
protection of a director of the Corporation existing hereunder in respect of any
act or omission occurring prior to such alteration, amendment, repeal or
adoption."
As permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended, the Company has purchased and maintains insurance
providing for reimbursement to elected directors and officers, subject to
certain exceptions, of amounts they may be legally obligated to pay, including
but not limited to damages, judgments, settlements, costs and attorneys' fees
(but not including fines, penalties or matters not insurable under the law), as
a result of claims and legal actions instituted against them to recover for
their acts while serving as directors or officers.
II-5
<PAGE> 162
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ----------------------------------------------------------------------------
<C> <S> <C>
*2(a) -- Purchase Agreement, dated December 12, 1996, among Gulton Acquisition Corp.,
Mark IV Industries, Inc., and Mark IV PLC, and Gulton Industries, Inc.
*3(a) -- Amended and Restated Certificate of Incorporation of Electro-Voice,
Incorporated, dated February 6, 1997.
*3(b) -- By-laws of Gulton Acquisition Corp., dated December 4, 1996.
*4(a) -- Indenture, dated March 24, 1997, between the Company and The Bank of New
York, as Trustee.
*4(b) -- Purchase Agreement, dated March 19, 1997, among EV International, Inc. (the
"Company") and Chase Securities Inc. and Smith Barney Inc. (together, the
"Initial Purchasers").
*4(c) -- Exchange and Registration Rights Agreement, dated March 24, 1997, between
the Company and the Initial Purchasers.
*4(d) -- Credit Agreement, dated February 10, 1997, among the Gulton Acquisition
Corp., the lenders named on the signature pages thereof (the "Senior
Lenders") and The Chase Manhattan Bank, a New York banking corporation
("Chase"), as administrative agent for such Senior Lenders (the
"Administrative Agent").
*4(e) -- Guarantee and Collateral Agreement, dated February 10, 1997, made by EVI
Audio Holding, Inc. and the Company in favor of the Administrative Agent for
the benefit of the Senior Lenders and certain other secured parties.
*4(f) -- Patent and Trademark Security Agreement, dated February 10, 1997, made by
the Company in favor of the Administrative Agent for the benefit of the
lenders under the Credit Agreement.
**5 -- Opinion of Debevoise & Plimpton regarding the legality of the New Notes
being registered.
*10(a) -- Consulting Agreement, dated February 6, 1997, among EVI Audio Holding, Inc.,
the Company, and Greenwich Street Capital Partners, Inc.
*10(b) -- Employment Agreement, dated December 11, 1996, between Gulton Acquisition
Corp. and Robert Pabst.
*10(c) -- Employment Agreement, dated December 11, 1996, between Gulton Acquisition
Corp. and Paul McGuire.
*10(d) -- Employment Agreement, dated December 11, 1996, between Gulton Acquisition
Corp. and John Bolstetter.
*10(e) -- Tradename and Trademark License Agreement, dated February 10, 1997, between
Gulton Industries, Inc. and Mark IV Industries, Inc.
*10(f) -- Transition Services Agreement, dated February 10, 1997, between Gulton
Industries, Inc. and Mark IV Industries, Inc.
*10(g) -- Software License Agreement, dated February 10, 1997, between Gulton
Industries, Inc. and Mark IV Industries, Inc.
*10(h) -- Collective Bargaining Agreement, dated May 15, 1995, between Electro-Voice,
Inc. and the International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO, and its Local 662, relating to the
Company's manufacturing facility in Newport, Tennessee.
*10(i) -- Collective Bargaining Agreement, dated June 1, 1992, between Electro-Voice,
Inc. and the International Union of Electronic, Electrical, Technical,
Salaried and Machine and Furniture Workers, AFL-CIO, and its Local 663,
relating to the Company's manufacturing facility in Sevierville, Tennessee.
</TABLE>
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<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ----------------------------------------------------------------------------
<C> <S> <C>
*10(j) -- Collective Bargaining Agreement, dated March 18, 1993, between
Electro-Voice, Inc. and the International Union of Electronic, Electrical,
Technical, Salaried and Machine and Furniture Workers, AFL-CIO, and its
Local 900, relating to the Company's manufacturing facility in Buchanan,
Michigan.
*10(k) -- Collective Bargaining Agreement, dated June 20, 1994, between Altec Lansing
Corporation and the International Association of Machinists and Aerospace
Workers, AFL-CIO, and its Local Lodge No. 850, relating to the Company's
manufacturing facility in Oklahoma City, Oklahoma.
*10(l) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to Sun Valley,
CA.
*10(m) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to Sylmar, CA.
*10(n) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to Buchanan,
MI (Cecil Street).
*10(o) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to Buchanan,
MI (Front Street).
*10(p) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to Oklahoma
City, OK.
*10(q) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to Newport,
TN.
*10(r) -- Mortgage (or deed of trust), dated February 10, 1997, from EV International,
Inc., as Mortgagor, to the Administrative Agent, with respect to
Sevierville, TN.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- List of Subsidiaries of the Registrant.
***23(a) -- Consent of Coopers & Lybrand L.L.P.
***23(b) -- Consent of Arthur Andersen LLP.
*23(c) -- Consent of Appraisal Economics Inc.
**23(d) -- Consent of Debevoise & Plimpton (included in Opinion filed as Exhibit 5).
*24 -- Powers of Attorney (included on signature pages to this Registration
Statement on Form S-4).
*25 -- Statement of Eligibility Under the Trust Indenture Act of 1939 (Form T-1) of
The Bank of New York.
***99.1 -- Form of Letter of Transmittal.
***99.2 -- Form of Notice of Guaranteed Delivery.
*99.3 -- Exchange Agreement between the Company and the Exchange Agent.
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
*** Amended copy filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules of the Company for which provision is made in
the applicable accounting regulations of the Commission are not required, are
inapplicable or have been disclosed in the notes to the financial statements and
therefore have been omitted.
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by section 10(a)(3) of the Securities
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<PAGE> 164
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) 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 not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) 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 reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415 will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrants pursuant to the foregoing provisions or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrants of expenses incurred or paid by
a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrants will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
II-8
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, EV
international, Inc. has caused this Amendment No. 3 to the Company's
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Buchanan, State of
Michigan, on the twenty-ninth day of July, 1997.
EV INTERNATIONAL, INC.
By /s/ NICHOLAS E. SOMERS
------------------------------------
Nicholas E. Somers
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul A. McGuire, Roger H. Gaines and Nicholas E.
Somers, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead in any and all capacities, to sign any or all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises. as fully and to all intents and purposes
as he might or could do in persons hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of this Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER:
<TABLE>
<S> <C> <C>
/s/ PAUL A. MCGUIRE* Acting Co-Chief Executive Officer July 29, 1997
- -------------------------------------
Paul A. McGuire
/s/ ROGER H. GAINES* Acting Co-Chief Executive Officer July 29, 1997
- -------------------------------------
Roger H. Gaines
PRINCIPAL ACCOUNTING OFFICER:
/s/ MARCIA CHAPMAN* July 29, 1997
- -------------------------------------
Marcia Chapman
</TABLE>
II-9
<PAGE> 166
<TABLE>
<S> <C> <C>
DIRECTORS:
/s/ NICHOLAS E. SOMERS Director and Chairman of the Board July 29, 1997
- -------------------------------------
Nicholas E. Somers
/s/ ALFRED C. ECKERT III* Director July 29, 1997
- -------------------------------------
Alfred C. Eckert III
/s/ EDGAR S. WOOLARD, JR.* Director July 29, 1997
- -------------------------------------
Edgar S. Woolard, Jr.
*By: /s/ NICHOLAS E. SOMERS July 29, 1997
- -------------------------------------
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 167
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------ -------------------------------------------------------------------- --------
<C> <S> <C> <C>
*2(a) -- Purchase Agreement, dated December 12, 1996, among Gulton
Acquisition Corp., Mark IV Industries, Inc., and Mark IV PLC, and
Gulton Industries, Inc..............................................
*3(a) -- Amended and Restated Certificate of Incorporation of Electro-Voice,
Incorporated, dated February 10, 1997...............................
*3(b) -- By-laws of Gulton Acquisition Corp., dated December 4, 1996.........
*4(a) -- Indenture, dated March 24, 1997, between the Company and The Bank of
New York, as Trustee................................................
*4(b) -- Purchase Agreement, dated March 19, 1997, among EV International,
Inc. (the "Company") and Chase Securities Inc. and Smith Barney Inc.
(together, the "Initial Purchasers")................................
*4(c) -- Exchange and Registration Rights Agreement, dated March 24, 1997,
between the Company and the Initial Purchasers......................
*4(d) -- Credit Agreement, dated February 10, 1997, among the Gulton
Acquisition Corp., the lenders named on the signature pages thereof
(the "Senior Lenders") and The Chase Manhattan Bank, a New York
banking corporation ("Chase"), as administrative agent for such
Senior Lenders (the "Administrative Agent").........................
*4(e) -- Guarantee and Collateral Agreement, dated February 10, 1997, made by
EVI Audio Holding, Inc. and the Company in favor of the
Administrative Agent for the benefit of the Senior Lenders and
certain other secured parties.......................................
*4(f) -- Patent and Trademark Security Agreement, dated February 10, 1997,
made by the Company in favor of the Administrative Agent for the
benefit of the lenders under the Credit Agreement ..................
**5 -- Opinion of Debevoise & Plimpton regarding the legality of the New
Notes being registered..............................................
*10(a) -- Consulting Agreement, dated February 6, 1997, among EVI Audio
Holding, Inc., the Company, and Greenwich Street Capital Partners,
Inc.................................................................
*10(b) -- Employment Agreement, dated December 11, 1996, between Gulton
Acquisition Corp. and Robert Pabst..................................
*10(c) -- Employment Agreement, dated December 11, 1996, between Gulton
Acquisition Corp. and Paul McGuire..................................
*10(d) -- Employment Agreement, dated December 11, 1996, between Gulton
Acquisition Corp. and John Bolstetter...............................
*10(e) -- Tradename and Trademark License Agreement, dated February 10, 1997,
between Gulton Industries, Inc. and Mark IV Industries, Inc.........
*10(f) -- Transition Services Agreement, dated February 10, 1997, between
Gulton Industries, Inc. and Mark IV Industries, Inc.................
*10(g) -- Software License Agreement, dated February 10, 1997, between Gulton
Industries, Inc. and Mark IV Industries, Inc........................
*10(h) -- Collective Bargaining Agreement, dated May 15, 1995, between
Electro-Voice, Inc. and the International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers, AFL-CIO, and
its Local 662, relating to the Company's manufacturing facility in
Newport, Tennessee..................................................
*10(i) -- Collective Bargaining Agreement, dated June 1, 1992, between
Electro-Voice, Inc. and the International Union of Electronic,
Electrical, Technical, Salaried and Machine and Furniture Workers,
AFL-CIO, and its Local 663, relating to the Company's manufacturing
facility in Sevierville, Tennessee..................................
</TABLE>
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------ -------------------------------------------------------------------- --------
<C> <S> <C> <C>
*10(j) -- Collective Bargaining Agreement, dated March 18, 1993, between
Electro- Voice, Inc. and the International Union of Electronic,
Electrical, Technical, Salaried and Machine and Furniture Workers,
AFL-CIO, and its Local 900, relating to the Company's manufacturing
facility in Buchanan, Michigan......................................
*10(k) -- Collective Bargaining Agreement, dated June 20, 1994, between Altec
Lansing Corporation and the International Association of Machinists
and Aerospace Workers, AFL-CIO, and its Local Lodge No. 850,
relating to the Company's manufacturing facility in Oklahoma City,
Oklahoma............................................................
*10(l) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Sun Valley, CA.
*10(m) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Sylmar, CA.
*10(n) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Buchanan, MI (Cecil Street).
*10(o) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Buchanan, MI (Front Street).
*10(p) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Oklahoma City, OK.
*10(q) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Newport, TN.
*10(r) -- Mortgage (or deed of trust), dated February 10, 1997, from EV
International, Inc., as Mortgagor, to the Administrative Agent, with
respect to Sevierville, TN.
*12 -- Computation of Ratio of Earnings to Fixed Charges...................
*21 -- List of Subsidiaries of the Registrant..............................
***23(a) -- Consent of Coopers & Lybrand L.L.P. ................................
***23(b) -- Consent of Arthur Andersen LLP......................................
*23(c) -- Consent of Appraisal Economics Inc.
**23(d) -- Consent of Debevoise & Plimpton (included in Opinion filed as
Exhibit 5).
*24 -- Powers of Attorney (included on signature pages to this Registration
Statement on Form S-4)..............................................
*25 -- Statement of Eligibility Under the Trust Indenture Act of 1939 (Form
T-1) of The Bank of New York........................................
***99.1 -- Form of Letter of Transmittal.......................................
***99.2 -- Form of Notice of Guaranteed Delivery...............................
*99.3 -- Exchange Agreement between the Company and the Exchange Agent.......
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
*** Amended copy filed herewith.
<PAGE> 1
[DEBEVOISE & PLIMPTON LETTERHEAD]
EXHIBIT 5
July 29, 1997
EV International, Inc.
602 Cecil Street
Buchanan, Michigan 49107
Registration Statement on Form S-4
of EV International, Inc.
(Registration No. 333-27341)
Ladies and Gentlemen:
We have acted as special counsel to EV International,
Inc., a Delaware corporation (the "Company"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), of
a Registration Statement on Form S-4 (as amended, the "Registration
Statement"), which includes a form of prospectus (the "Prospectus")
relating to the proposed exchange by the Company of $100,000,000 aggregate
principal amount of its 11% Senior Subordinated Notes due 2007, (the
"Existing Notes") for $100,000,000 aggregate principal amount of its 11%
Senior Subordinated Notes due
<PAGE> 2
EV International, Inc. 2 July 29, 1997
2007, Series A (the "New Notes"), which are to be registered under the Act.
In so acting, we have examined and relied upon the
originals, or copies certified or otherwise identified to our satisfaction,
of such records, documents, certificates and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinion
expressed below.
We are of the opinion that the New Notes to be offered
pursuant to the Registration Statement will be validly issued and will be
legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors' rights generally or by general principles of
equity (regardless of whether such enforceability is considered in an
action at law or in equity).
We express no opinion as to the effect of any Federal or
state laws regarding fraudulent transfers or conveyances.
We express no opinion as to the laws of any jurisdiction
other than the Federal laws of the United States, the laws of the State of
New York and the General Corporation Law of the State of Delaware.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name under the headings
"Legal Matters" in the Prospectus. In giving such consent, we do not hereby
concede that we are within the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 3 to this registration statement
on Form S-4 (File No. 333-27341) of our report dated August 7, 1996 (except as
to the effects of the reorganization discussed in Note 1 for which the date is
February 10, 1997), on our audits of the consolidated financial statements of
EV International, Inc. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
Rochester, New York
July 29, 1997
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated May 9, 1997 as regards (i) the audited consolidated financial statements
of EV International, Inc. as of February 28, 1997 and for the period from
February 11, 1997 through February 28, 1997 (new basis of accounting), and (ii)
the audited consolidated statements of income and cash flows for the period for
March 1, 1996 through February 10, 1997 (predecessor basis of accounting), and
to all references to our Firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
July 29, 1997
<PAGE> 1
Exhibit 99.1
[FORM OF LETTER OF TRANSMITTAL]
EV INTERNATIONAL, INC.
OFFER TO EXCHANGE ITS 11% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A, ("NEW NOTES"), WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE
2007 ("EXISTING NOTES"), PURSUANT TO THE PROSPECTUS DATED JULY 30, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 2,
1997 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED
(THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE.
To: The Bank of New York, Exchange Agent
-------------------------------------------------
By Mail: The Bank of New York By Facsimile: (212) 571-3080
101 Barclay Street, 7E
New York, NY 10286 (For Eligible Institutions Only)
Attention: Reorganization Section, Enrique Lopez
By Overnight Courier or
By Hand: The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, NY 10286
Attention: Reorganization Section, Enrique Lopez
For Information Call: (212) 815-2742
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER
THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
______________________
List below the Existing Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate number(s)
and principal amount of Existing Notes should be listed on a separate signed
schedule affixed hereto.
<TABLE>
<CAPTION>
Description of Existing Notes (1) (2) (3)
Tendered (4)
Principal Amount of
Aggregate Existing Notes Tendered
Principal Aggregate Principal in Exchange for
Name(s) and Address(es) of Certificate Amount of Amount of Existing certificated New
Registered Holder(s) Numbers(s)* Existing Notes Notes Tendered** Notes***
<S> <C> <C> <C> <C>
</TABLE>
- ----------
* Need not be completed by book-entry holders.
** Unless otherwise indicated in this column, the holder will be deemed to
have tendered the full aggregate principal amount represented by such
Existing Notes.
*** Unless otherwise indicated, the holder will be deemed to have tendered
Existing Notes in exchange for a beneficial interest in one or more
fully registered global notes, which will be deposited with, or on
behalf of, The Depository Trust Company ("DTC") and registered in the
name of Cede & Co., its nominee.
<PAGE> 2
The undersigned acknowledges that he, she or it has received
and reviewed the Prospectus, dated July 30, 1997 (the "Prospectus"), of EV
International, Inc. a Delaware corporation ("EV International"), and this Letter
of Transmittal (the "Letter of Transmittal"), which together constitute EV
International's offer (the "Exchange Offer") to exchange up to $100,000,000
aggregate principal amount of its New Notes, which will have been registered
under the Securities Act of 1933, for a like principal amount of its outstanding
Existing Notes. The New Notes and the Existing Notes are collectively referred
to as the "Notes." Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
The undersigned has completed the appropriate boxes above and
below and signed this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer.
This Letter of Transmittal is to be used either if
certificates of Existing Notes are to be forwarded herewith or if delivery of
Existing Notes is to be made by book-entry transfer to an account maintained by
the Exchange Agent at DTC, pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus. Delivery of this Letter of
Transmittal and any other required documents should be made to the Exchange
Agent. Delivery of documents to a book-entry transfer facility does not
constitute delivery to the Exchange Agent.
Holders whose Existing Notes are not immediately available or
who cannot deliver their Existing Notes and all other documents required hereby
to the Exchange Agent on or prior to the Expiration Date must tender their
Existing Notes according to the guaranteed delivery procedure set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering." See
Instruction 1. Holders of Existing Notes that are tendering by book-entry
transfer to the Exchange Agent's account at DTC can execute the tender through
the DTC Automated Tender Offer Program ("ATOP") for which the transaction will
be eligible. DTC participants should transmit their acceptance to DTC which
will verify the acceptance and execute a book-entry delivery to the Exchange
Agent's account at DTC. DTC will then send an Agent's Message (as defined in
the Prospectus) to the Exchange Agent for its acceptance. DTC participants may
also accept the Exchange Offer by submitting a notice of guaranteed delivery
through ATOP.
The undersigned must complete the appropriate boxes above and
below and sign this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED TO THE
EXCHANGE AGENT IN EXCHANGE FOR CERTIFICATED NEW NOTES.
Unless the undersigned (I) has completed item (4) in the box entitled
"Description of Existing Notes Tendered" and (ii) has checked the box above, the
undersigned will be deemed to have tendered Existing Notes in exchange for a
beneficial interest in one or more fully registered global certificates, which
will be deposited with, or on behalf of, DTC and registered in the name of Cede
& Co., its nominee. Beneficial interests in such registered global certificates
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. See "Book-Entry, Delivery and Form" as
set forth in the Prospectus.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ________________ [ ] The Depository Trust Company
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Window Ticket Number (if any) __________________________________________________
Date of Execution of Notice of Guaranteed Delivery _____________________________
Name of Eligible Institution that Guaranteed Delivery __________________________
If delivered by book-entry transfer:
Account Number __________________ Transaction Code Number ______________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER MAKING A MARKET IN EXISTING NOTES
WITH EV INTERNATIONAL'S PRIOR WRITTEN CONSENT AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS MADE THERETO WITHIN 90 DAYS AFTER THE EXPIRATION DATE:
Name
Address ________________________________________________________________________
2
<PAGE> 3
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to conditions of the Exchange Offer, the
undersigned hereby tenders to EV International the aggregate principal amount of
Existing Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of Existing Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Exchange Agent, as agent of
EV International, all right, title and interest in and to such Existing Notes as
are being tendered hereby, and irrevocably constitutes and appoints the Exchange
Agent as the agent and attorney-in-fact of the undersigned to cause the Existing
Notes tendered hereby to be transferred and exchanged.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Existing Notes tendered hereby and to acquire the New Notes issuable upon the
exchange of such tendered Existing Preferred Stock, and that the Exchange Agent,
as agent of EV International, will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Exchange Agent,
as agent of EV International. The undersigned will, upon request, execute and
deliver any additional documents deemed by EV International or the Exchange
Agent to be necessary or desirable to complete the exchange, sale, assignment
and transfer of the Existing Notes tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being
made in reliance on the interpretation of the staff of the Securities and
Exchange Commission (the "SEC"), as set forth in no-action letters issued to
third parties (including Exxon Capital Holdings Corporation (available May 13,
1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), K-III
Communications Corporation (available May 14, 1993) and Shearman & Sterling
(available July 2, 1993)). Based on such interpretation of the staff of the SEC
set forth in such no-action letters, EV International believes that the New
Notes issued in exchange for the Existing Notes pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than any such holder that is an "affiliate" of EV International within
the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that (i) such New Notes are
acquired in the ordinary course of such holder's business, (ii) at the time of
the commencement of the Exchange Offer such holder has no arrangement or
understanding with any person to participate in a distribution of the New Notes
and (iii) such holder is not engaged in, and does not intend to engage, in a
distribution of the New Notes. By tendering Existing Notes in exchange for New
Notes, each holder will represent to the Company that: (i) it is not such an
affiliate of the Company, (ii) any New Notes to be received by it will be
acquired in the ordinary course of business and (iii) at the time of the
commencement of the Exchange Offer it had no arrangement or understanding with
any person to participate in a distribution of the New Notes. If the undersigned
is not a broker-dealer or is a broker-dealer but will not receive New Notes for
its own account in exchange for Existing Notes, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes.
If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Existing Notes, where such Existing Notes were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act and that it has not entered into any arrangement or understanding
with EV International or an affiliate of EV International in connection with any
resale of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The SEC has taken the
position that such broker-dealers may fulfill their prospectus delivery
requirements with respect to the New Notes (other than a resale of New Notes
received in exchange for an unsold allotment from the original sale of the
3
<PAGE> 4
Existing Notes) with the Prospectus. The Prospectus, as it may be amended or
supplemented from time to time, may be used by such broker-dealers for a period
of time, starting on the Expiration Date and ending on the close of business 90
days after the Expiration date in connection with the sale or transfer of such
New Notes. EV International has agreed that, for such period of time, it will
make the Prospectus (as it may be amended or supplemented) available to each
broker-dealer which, with EV International's prior written consent, makes a
market in the Existing Notes and receives New Notes pursuant to the Exchange
Offer (each a "Participating Broker-Dealer") for use in connection with any
resale of such New Notes. By acceptance of the Exchange Offer, each
broker-dealer that receives New Notes pursuant to the Exchange Offer hereby
acknowledges and agrees to notify EV International prior to using the Prospectus
in connection with the sale or transfer of New Notes and that, upon receipt of
notice from EV International of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires the
making of any changes in the Prospectus in order to make the statements therein
not misleading, such broker-dealer will suspend use of the Prospectus until (i)
EV International has amended or supplemented the Prospectus to correct such
misstatement or omission and (ii) either the Company has furnished copies of the
amended or supplemented Prospectus to such broker-dealer or, if EV International
has not otherwise agreed to furnish such copies and declines to do so after such
broker-dealer so requests, such broker-dealer has obtained a copy of such
amended or supplemented Prospectus as filed with the SEC. EV International
agrees to deliver such notice and such amended or supplemented Prospectus
promptly to any Participating Broker-Dealer that has so notified EV
International. Except as described above, the Prospectus may not be used for or
in connection with an offer to resell, a resale or any other retransfer of New
Notes. A broker-dealer that acquired Existing Notes in a transaction other
than as part of its market-making activities or other trading activities will
not be able to participate in the Exchange Offer.
The undersigned represents that (i) the New Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes or, if such holder intends
to participate in the Exchange Offer for the purpose of distributing the New
Notes, such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, and (iii) (x) such
holder is not (a) a broker-dealer that will receive New Notes for its own
account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading activities, or (b) an "affiliate," as
defined in Rule 405 under the Securities Act, of EV International or (y) if such
holder is such a broker-dealer or an affiliate, such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
The undersigned, if a California resident, hereby further represents
and warrants that the undersigned (or the beneficial owner of the Existing Notes
tendered hereby, if not the undersigned) (i) is a bank, savings and loan
association, trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing trust (other
than a pension or profit-sharing trust of EV International, a self-employed
individual retirement plan, or individual retirement account), a corporation
which has a net worth on a consolidated basis according to its most recent
audited financial statements of not less than $14,000,000, or a wholly owned
subsidiary of any of the foregoing, and (ii) is acquiring the New Notes for its
own account for investment purposes (or for the account of the beneficial owner
of such New Notes for investment purposes).
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned. This
tender may be
4
<PAGE> 5
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter of Transmittal.
The undersigned understands that tenders of the Existing Notes
pursuant to any one of the procedures described under "The Exchange
Offer--Procedures for Tendering" in the Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and EV
International in accordance with the terms and subject to the conditions of the
Exchange Offer.
The undersigned understands that if its Existing Notes are accepted
for exchange, interest on the New Notes will accrue from the last interest
payment date on which interest was paid on the Existing Notes surrendered in
exchange thereof, or if no interest has been paid, from the original date of
issuance of the Existing Notes.
The undersigned recognizes that unless the holder of Existing Notes
(i) completes item (4) of the Box entitled "Description of Existing Notes
Tendered" above and (ii) checks the box entitled "Check here if tendered shares
of Existing Notes are being delivered to the Exchange Agent in exchange for
certificated New Notes" above, such holder, when tendering such Existing Notes,
will be deemed to have tendered such Existing Notes in exchange for a beneficial
interest in one or more fully registered global certificates, which will be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.,
its nominee. Beneficial interests in such registered global certificates will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. See "Book-Entry, Delivery and Form" in
the Prospectus.
The undersigned recognizes that, under certain circumstances set
forth in the Prospectus under "The Exchange Offer--Conditions," EV International
may not be required to accept for exchange any of the Existing Notes tendered.
Existing Notes not accepted for exchange or withdrawn will be returned to the
undersigned at the address set forth below unless otherwise indicated under
"Special Delivery Instructions" below.
The undersigned acknowledges that by tendering the Existing Notes
pursuant to any one of the procedures described under "The Exchange
Offer--Procedures for Tendering" in the Prospectus and in the instructions
hereto, the undersigned agrees that once the Exchange Offer is consummated, EV
International shall not be obligated to file or prepare a Shelf Registration
Statement (as defined in the Exchange and Registration Rights Agreement, dated
as of March 24, 1997, as amended (the "Exchange and Registration Rights
Agreement"), among EV International and the Initial Purchasers, or take any
other action provided in Sections 2 or 3 of the Exchange and Registration Rights
Agreement with respect to a Shelf Registration Statement, and the undersigned
hereby waives any requirement of the Exchange and Registration Rights Agreement
that EV International files, prepares or takes any other action relating to a
Shelf Registration Statement once the Exchange Offer is consummated.
All questions as to the validity, form, eligibility (including time
of receipt) and acceptability of any tender will be determined by EV
International, in its sole discretion, and such determination will be final and
binding. Unless waived by EV International, irregularities and defects must be
cured by the Expiration Date. EV International shall not be obligated to give
notice of any defects or irregularities in tenders and shall not incur any
liability for failure to give any such notice.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, the undersigned hereby requests that the New Notes
(and, if applicable, substitute certificates representing Existing Notes for any
Existing Notes not exchanged) be issued in the name of the
5
<PAGE> 6
undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, the undersigned hereby requests that the
New Notes (and, if applicable, substitute certificates representing Existing
Notes for any Existing Notes not exchanged) be sent to the undersigned at the
address shown above in the box entitled "Description of Existing Notes
Tendered."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF
EXISTING NOTES TENDERED" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE EXISTING NOTES AS SET FORTH IN SUCH BOX(ES) ABOVE.
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
X ___________________________________ ___________________________________
X ___________________________________ ___________________________________
Signature(s) of Owner(s) Date
Area Code and Telephone Number _________________________________
If a holder is tendering any Existing Notes, this Letter of Transmittal must be
signed by the registered holders(s) as the name(s) appear(s) on the
certificate(s) for the Existing Notes or by any person(s) authorized to become
registered holders(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title below. See Instruction 3.
Name(s): _____________________________________________________________
______________________________________________________________________
(Please Type or Print)
Capacity: ____________________________________________________________
Address: _____________________________________________________________
______________________________________________________________________
(Include Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: _____________________________________________
(Authorized Signature)
______________________________________________________________________
(Title)
______________________________________________________________________
(Name of Firm)
Dated: _______________________________________________________________
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if New Notes (and, if applicable, substitute
certificates representing Existing Notes for any Existing Notes not exchanged)
are to be issued in the name of and sent to someone other than the person or
persons whose signature(s) appear(s) on this Letter of Transmittal above.
Issue New Notes to:
Name(s): ...................................................................
...................................................................
(Please Type or Print)
...................................................................
(Please Type or Print)
Address: ...................................................................
...................................................................
(Zip Code)
(Complete Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if certificates for New Notes (and, if
applicable, substitute certificates representing Existing Notes for any Existing
Notes not exchanged) are to be sent to someone other than the person or persons
whose signature(s) appear(s) on this Letter of Transmittal above or to such
person or persons at an address other than shown in the box entitled
"Description of Existing Notes Tendered" on this Letter of Transmittal above.
Mail New Notes to:
Name(s) ...................................................................
...................................................................
(Please Type or Print)
...................................................................
(Please Type or Print)
Address: ...................................................................
...................................................................
(Zip Code)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH,
THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATE(S) FOR EXISTING NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF
SUCH EXISTING NOTES AND
<PAGE> 9
ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE> 10
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: EV INTERNATIONAL, INC.
<TABLE>
<S> <C> <C>
SUBSTITUTE Part I--Taxpayer Identification Number
FORM W-9 Enter your taxpayer identification number in the
DEPARTMENT OF THE TREASURY appropriate box. For most individuals, this is your
INTERNAL REVENUE SERVICE social security number. If you do not have a num- ------------------------------------
ber, see how to obtain a "TIN" in the enclosed Social Security Number
Guidelines.
OR
NOTE: If the account is in more than one name, see
the chart on page 2 of the enclosed Guidelines to ------------------------------------
determine what number to give. Employer Identification Number
- ------------------------------------------------------------------------------------------------------------------------
Part II--For Payees Exempt from Backup Withholding (See enclosed Guidelines)
------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
IDENTIFICATION NUMBER (TIN)
AND CERTIFICATION (1) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of a failure to report all interest
or dividends or the IRS has notified me that I am no longer subject to
backup withholding.
------------------------------------------------------------------------------------------
SIGNATURE DATE
--------------------------- ----------------------------------------------
</TABLE>
Certification Guidelines--You must cross out item (2) of the above certification
if you have been notified by the IRS that you are subject to backup withholding
because of underreporting of interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the New Preferred Stock shall be retained
until I provide a Taxpayer Identification Number to the payer and that, if I do
not provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31 percent of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
Taxpayer Identification Number.
SIGNATURE DATE
---------------------- -----------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW
NOTES . PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
<PAGE> 11
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES; GUARANTEED
DELIVERY PROCEDURE
The Letter of Transmittal is to be used to forward, and must accompany,
all certificates representing Existing Notes tendered pursuant to the Exchange
Offer. Certificates representing the Existing Notes in proper form for transfer
(or a confirmation of book-entry transfer of such Existing Notes into the
Exchange Agent's account at the book-entry transfer facility) as well as a
properly completed and duly executed copy of this Letter of Transmittal and all
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Existing Notes tendered must be in integral
multiples of $1000.
The method of delivery of this Letter of Transmittal, the Existing
Notes and all other required documents, including delivery through DTC and any
acceptance of an Agent's Message delivered through ATOP is at the election and
risk of the tendering holders, but the delivery will be deemed made only when
actually received or confirmed by the Exchange Agent. If such delivery is by
mail, it is recommended that registered or certified mail properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to permit timely delivery.
If a holder desires to tender Existing Notes and such holder's Existing
Notes are not immediately available or time will not permit such holder's Letter
of Transmittal, Existing Notes (or a confirmation of book-entry transfer of
Existing Notes into the Exchange Agent's account at the book-entry transfer
facility) or other required documents to reach the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date, or such holder cannot complete
the procedure of book-entry transfer on a timely basis, such holder may
nevertheless tender Existing Notes if:
(a) such tender is made by or through an Eligible Institution
(as defined below);
(b) the Exchange Agent has received from such Eligible
Institution prior to 5:00 p.m., New York City time, on the Expiration
Date, a properly completed and duly executed Letter of Transmittal (of
facsimile thereof) and Notice of Guaranteed Delivery, substantially in
the form provided by EV International (by facsimile transmission, mail
or hand delivery), or an Agent's Message with respect to guaranteed
delivery that is accepted by EV International setting forth the name
and address of the holder of such Existing Notes and the principal
amount of Existing Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock
Exchange ("NYSE") trading days after the execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other documents
required by this Letter of Transmittal and the instructions hereto,
will be deposited by such Eligible Institution with the Exchange Agent;
and
(c) a Book-Entry Confirmation and all other required documents
required by the Letter of Transmittal are received by the Exchange
Agent within three NYSE trading days after the Notice of Guaranteed
Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Existing
Preferred Stock (or a timely confirmation of a book-entry transfer of Existing
Notes into the Exchange Agent's account at the book-entry transfer
<PAGE> 12
facility) or a Notice of Guaranteed Delivery from an Eligible Institution is
received by the Exchange Agent.
See "The Exchange Offer" in the Prospectus.
2. WITHDRAWALS
Any holder may withdraw a tender of Existing Notes prior to 5:00 p.m.,
New York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent prior to
5:00 p.m., New York City time on the Expiration Date at one of its addresses set
forth herein. Any such notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility from which the Existing Notes
was tendered, identify the aggregate liquidation preference of the Existing
Notes to be withdrawn, and specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Existing Notes
and otherwise comply with the procedures of such facility. The Exchange Agent
will return properly withdrawn Existing Notes as soon as practicable following
receipt of notice of withdrawal. All questions as to the validity (including
time of receipt) of notices of withdrawals will be determined by EV
International, in its sole discretion, and such determination will be final and
binding on all parties. See "The Exchange Offer--Withdrawal of Tenders" in the
Prospectus. If Existing Notes have been tendered pursuant to the procedures for
book-entry transfer, any notice of withdrawal must specify the name and number
of the participant's account at DTC to be credited with the withdrawn Existing
Notes or otherwise comply with DTC's procedures. See "The Exchange
Offer-Withdrawal of Tenders" in the Prospectus.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES
If this Letter of Transmittal is signed by the registered holder of the
Existing Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Existing Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal or any Existing Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should indicate when signing, and unless
waived by EV International, proper evidence satisfactory to EV International of
their authority so to act must be submitted.
The signatures on this Letter of Transmittal or a notice of withdrawal,
as the case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (I) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in this Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that the
signatures in this Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm
2
<PAGE> 13
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., or by a commercial bank or
trust company having an office or correspondent in the United States, or an
"eligible institution" within the meaning of Rule 17Ad-15 of the Securities
Exchange Act of 1934, as amended (each an "Eligible Institution"). If Existing
Notes are registered in the name of a person other than the signer of this
Letter of Transmittal, the Existing Notes surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by EV International in
its sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
Tendering holders of Existing Notes should indicate in the applicable
box the name and address to which New Notes issued pursuant to the Exchange
Offer are to be issued or sent, if different from the name or address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification or social security number of the
person named must also be indicated. If no such instructions are given, any New
Notes will be issued in the name of, and delivered to, the name or address of
the person signing this Letter of Transmittal and any Existing Notes not
accepted for exchange will be returned to the name or address of the person
signing this Letter of Transmittal.
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9
Under the federal income tax laws, payments that may be made by EV
International on account of New Notes issued pursuant to the Exchange Offer may
be subject to backup withholding at the rate of 31%. In order to avoid such
backup withholding, each tendering holder should complete and sign the
Substitute Form W-9 included in this Letter of Transmittal and either (a)
provide the correct taxpayer identification number ("TIN") and certify, under
penalties of perjury, that the TIN provided is correct and that (i) the holder
has not been notified by the Internal Revenue Service (the "IRS") that the
holder is subject to backup withholding as a result of failure to report all
interest or dividends or (ii) the IRS has notified the holder that the holder is
no longer subject to backup withholding; or (b) provide an adequate basis for
exemption. If the tendering holder has not been issued a TIN and has applied for
one, or intends to apply for one in the near future, such holder should write
"Applied For" in the space provided for the TIN in Part I of the Substitute Form
W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee
Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I,
EV International (or the Transfer Agent with respect to the New Notes or a
broker or custodian) may still withhold 31% of the amount of any payments made
on account of the New Notes until the holder furnishes EV International or the
Transfer Agent with Respect to the New Notes, broker or custodian with its TIN.
In general, if a holder is an individual, the taxpayer identification number is
the Social Security number of such individual. If the Exchange Agent or EV
International is not provided with the correct TIN, the holder may be subject to
a $50 penalty imposed by the IRS. Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, such holder must submit a statement (generally,
IRS Form W-8), signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. For
further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Existing Notes are registered in more than one name), consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
3
<PAGE> 14
Failure to complete the Substitute Form W-9 will not, by itself, cause
Existing Notes to be deemed invalidly tendered, but may require EV International
or the Transfer Agent with respect to the New Notes, broker or custodian to
withhold 31% of the amount of any payments made on account of the New Notes.
Backup withholding is not an additional federal income tax. Rather, the federal
income tax liability of a person subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the IRS.
6. TRANSFER TAXES
EV International will pay all transfer taxes, if any, applicable to the
transfer of Existing Notes to it or its order pursuant to the Exchange Offer.
If, however, New Notes and/or substitute Existing Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Existing Notes tendered hereby, or if tendered
Existing Notes are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Existing Notes to EV International or its
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer taxes
will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes specified in this Letter
of Transmittal.
7. WAIVER OF CONDITIONS
EV International reserves the absolute right to waive satisfaction of
any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Existing Notes, by execution of this Letter
of Transmittal, shall waive any right to receive notice of the acceptance of
their Existing Notes for exchange.
EV International nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE
If the space provided herein is inadequate, the aggregate principal
amount of Existing Notes being tendered and the certificate number or numbers
(if available) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter of Transmittal.
10. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES
Any holder whose Existing Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
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<PAGE> 15
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number indicated
above.
5
<PAGE> 1
EXHIBIT 99.2
[FORM OF NOTICE OF GUARANTEED DELIVERY]
WITH RESPECT TO
EV INTERNATIONAL, INC.
11% SENIOR SUBORDINATED NOTES DUE 2007
This form must be used by a holder of the 11% Senior
subordinated Notes due 2007 (the "Existing Notes") of EV international, Inc., a
Delaware corporation ("EV International, Inc."), that wishes to tender Existing
Notes to the Exchange Agent pursuant to the guaranteed delivery procedures
described in "The Exchange Offer--Procedures for Tendering" of the Prospectus
dated July 30, 1997 (the "Prospectus") and in Instruction 1 to the accompanying
Letter of Transmittal. Any holder that wishes to tender Existing Notes pursuant
to such guaranteed delivery procedures must ensure that the Exchange Agent
receives this Notice of Guaranteed Delivery prior to 5:00 p.m., New York City
time, on the Expiration Date of the Exchange Offer. Capitalized terms not
defined herein have the meaning ascribed to them in the Prospectus or the Letter
of Transmittal.
To: The Bank of New York, Exchange Agent
----------------------------------------
By Mail: The Bank of New York By Facsimile: (212) 571-3080
101 Barclay Street, 7E
New York, NY 10286 (For Eligible Institutions Only)
Attention: Reorganization Section, Enrique Lopez
By Overnight Courier or
By Hand: The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, NY 10286
Attention: Reorganization Section, Enrique Lopez
For Information Call: (212) 815-2742
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to EV International, upon the
terms and subject to the conditions set forth in the Prospectus and the related
Letter of Transmittal, receipt of which is hereby acknowledged, the principal
amount of Existing Notes specified below pursuant to the guaranteed delivery
procedures set forth in the Prospectus and in Instruction 1 of the Letter of
Transmittal. The undersigned hereby tenders the Existing Notes listed below:
<PAGE> 2
<TABLE>
Certificate Number(s) (if known)
of Existing Notes or Account Aggregate Principal Amount Aggregate Principal
Number at the Book-Entry Facility Represented Amount Tendered
<S> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
SIGN HERE
Name of Registered or Acting Holder: ___________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered
national securities exchange or of the National Associates of Securities
Dealers, Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended, guarantees deposit with the Exchange Agent of the
Letter of Transmittal (or facsimile thereof), together with the Existing Notes
tendered hereby in proper form for transfer (or confirmation of the book-entry
transfers of such Existing Notes into the Exchange Agent's account at the
book-entry transfer facility described in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering" and in the Letter of Transmittal) and
any other required documents, within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery.
2
<PAGE> 3
SIGN HERE
Name of firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Name (please print): ___________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Telephone Number: ______________________________________________________________
Date: __________________________________________________________________________
DO NOT SEND EXISTING NOTES WITH THIS FORM. ACTUAL SURRENDER OF EXISTING NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF
TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly
completed and duly executed copy of this Notice of Guaranteed Delivery and any
other documents required by this Notice of Guaranteed Delivery must be received
by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of this Notice of
Guaranteed Delivery and any other required documents to the Exchange Agent is at
the election and risk of the holder and the delivery will be deemed made only
when actually received by the Exchange Agent. If delivery is by mail, registered
or certified mail properly insured, with return receipt requested, is
recommended. In all cases sufficient time should be allowed to assure timely
delivery. For a description of the guaranteed delivery procedure, see
Instruction 1 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this
Notice of Guaranteed Delivery is signed by the registered holder(s) of the
Existing Notes referred to herein, the signature must correspond with the
name(s) written on the face of the Existing Notes without alteration,
enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is
signed by a participant of the book-entry transfer facility whose name appears
on a security position listing as the owner of Existing Notes, the signature
must correspond with the name shown on the security position listing as the
owner of the Existing Notes.
If this Notice of Guaranteed Delivery is signed by a person
other than the registered holder(s) of any Existing Notes listed or a
participant of the book-entry transfer facility, this Notice of Guaranteed
Delivery must be accompanied by appropriate bond powers, signed as the name of
the registered holder(s) appears on the Existing Notes or signed as the name of
the participant shown on the book-entry transfer facility's security position
listing.
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<PAGE> 4
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and
requests for assistance and requests for additional copies of the Prospectus may
be directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
