<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1997
REGISTRATION NO. 33-26991
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AMCRAFT BUILDING PRODUCTS CO., INC.
MULE-HIDE PRODUCTS CO., INC.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
DELAWARE 5033 39-1413708
DELAWARE 5033 39-1701778
TEXAS 5033 62-1277211
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
ONE ABC PARKWAY
BELOIT, WISCONSIN 53511
TELEPHONE: (608) 362-7777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
COPY TO:
KENDRA STORY CARTER W. EMERSON, P.C.
AMERICAN BUILDERS & KIRKLAND & ELLIS
CONTRACTORS SUPPLY CO., INC. 200 EAST RANDOLPH, SUITE 5700
ONE ABC PARKWAY CHICAGO, ILLINOIS 60601
BELOIT, WISCONSIN 53511 TELEPHONE: (312) 861-2000
TELEPHONE: (608) 362-7777
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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 being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 24, 1997
PROSPECTUS
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AMCRAFT BUILDING PRODUCTS CO., INC.
MULE-HIDE PRODUCTS CO., INC.
OFFER TO EXCHANGE ITS 10 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING 10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997, unless extended.
American Builders & Contractors Supply Co., Inc., a Delaware corporation (the
"Company"), hereby offers (the "Exchange Offer"), upon the terms and conditions
set forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 10 5/8% Series B Senior Subordinated Notes due 2007 (the "New Notes"),
which will 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 each $1,000 principal amount of its outstanding 10
5/8% Senior Subordinated Notes due 2007 (the "Old Notes"), of which
$100,000,000 principal amount is outstanding. The New Notes and the Old Notes
are each sometimes referred to herein as the "Notes." The form and terms of the
New Notes are the same as the form and terms of the Old Notes (which they
replace) except that the New Notes will bear a Series B designation and will
have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer and will no longer be entitled to certain
rights under the Registration Agreement (as defined below), including certain
provisions thereof relating to an increase in the interest rate which were
included in the terms of the Old Notes. The New Notes evidence the same debt as
the Old Notes (which they replace) and will be issued under and be entitled to
the benefits of the Indenture dated as of May 7, 1997 (the "Indenture") between
the Company, Mule-Hide Products Co., Inc., a Texas corporation ("Mule-Hide"),
Amcraft Building Products Co., Inc., a Delaware corporation ("Amcraft"), and
Norwest Bank Minnesota, National Association, as trustee, governing the Notes.
The New Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company. The New Notes will be fully, unconditionally and
jointly and severally guaranteed, limited only by laws relating to fraudulent
conveyance, on a senior subordinated basis by the Company's existing and future
wholly-owned subsidiaries including Mule-Hide and Amcraft (the "Subsidiary
Guarantors" or the "Guarantors"). The Guarantees (as defined) will be general
unsecured obligations of the Guarantors and will be subordinated in right of
payment to all existing and future Guarantor Senior Debt (as defined). As of
June 30, 1997, the Company and its subsidiaries had approximately $87.6 million
of Senior Debt (including outstanding guarantees and letters of credit).
On or after May 15, 2002, the Company may redeem the Notes, in whole or in
part, at the redemption prices set forth herein, plus accrued and unpaid
interest thereon and Liquidated Damages (as defined), if any, to the date of
redemption. Notwithstanding the foregoing, any time on or before May 15, 2000,
the Company may redeem up to 35% of the original aggregate principal amount of
the Notes with the net cash proceeds of an initial public offering of its
common stock at a redemption price equal to 110 5/8% of the principal amount
thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the redemption date; provided that at least 65% of the original
aggregate principal amount of the Notes remains outstanding immediately after
such redemption. See "Description of the Notes--Optional Redemption." Upon a
Change of Control (as defined herein), the Company will be required to make an
offer to repurchase all outstanding Notes at 101% of the principal amount
thereof plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the date of repurchase. See "Description of the Notes--Repurchase at
the Option of Holders--Change of Control."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1997,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Notes were sold by the Company on May 7, 1997 to the Initial Purchasers
(as defined) in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act (the "Offering"). The
Initial Purchasers subsequently placed the Old Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act and
with a limited number of institutional accredited investors that agreed to
comply with certain transfer restrictions and other conditions. Accordingly,
the Old Notes may not be reoffered, resold or otherwise
(Cover continued on following page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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 , 1997
<PAGE>
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement entered into by the Company in connection with the Offering. See
"The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
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 an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "The Exchange Offer--Resale of the New
Notes." Each broker-dealer (a "Participating 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.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a participating 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
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one year
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale;
provided, however, that the Company and the Subsidiary Guarantors will have no
obligation to amend or supplement this Prospectus unless the Company has
received written notice from a Participating Broker-Dealer of their prospectus
delivery requirements under the Securities Act within fifteen business days
following consummation of the Exchange Offer. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and the Registration Rights Agreement and with respect to transfer
under the Securities Act. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) is not eligible under applicable securities laws to
participate in the Exchange Offer, and such holder has satisfied certain
conditions relating to the provision of information to the Company for use
therein, the Company has agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by the Commission as promptly as
practical on or after the consummation of the Exchange Offer. The Company has
agreed to maintain the effectiveness of the Shelf Registration Statement for,
under certain circumstances, a maximum of two years, to cover resales of the
Old Notes held by any such holders. Other than as set forth above, holders of
Old Notes who do not tender in the Exchange Offer will not have any continuing
rights under the Registration Rights Agreement. The Company will pay all the
expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer."
There has not previously been any public market for the Old Notes or 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. See "Risk Factors--Absence of a Public Market Could Adversely Affect
the Value of New Notes." Moreover, to the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Old Notes could be adversely affected.
The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to this Exchange Offer will
be issued in the form of a Global Certificate (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in the Global Certificate representing the New
Notes will be shown on, and transfers thereof to qualified institutional
buyers will be effected through, records maintained by the Depositary and its
participants. After the initial issuance of the Global Certificate, New Notes
in certified form will be issued in exchange for the Global Certificate only
on the terms set forth in the Indenture. See "Description of Notes--Book-
Entry; Delivery and Form."
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the New Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirely by such reference. The
Exchange Offer Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
the Regional Offices of the commission at 75 Park Place, New York, New York
10007 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company and the Guarantors will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
the Company and the Guarantors to file periodic reports and other information
with the Commission will be suspended if the New Notes are held of record by
fewer than 300 holders as of the beginning of any fiscal year of the Company
or the Guarantors other than the fiscal year in which the Exchange Offer
Registration Statement is declared effective. The Company will nevertheless be
required to continue to file reports with the Commission if the New Notes are
listed on a national securities exchange. The Indenture provides that, whether
or not required by the rules and regulations of the Commission, so long as any
Notes are outstanding and commencing with information relating to the fiscal
quarter ended June 30, 1997, the Company will furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports, in each case, within the time periods specified
in the Commission's rules and regulations. In addition, commencing after the
consummation of the Exchange Offer, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) within the time periods
specified in the Commission's rules and regulations, and make such information
available to securities analysts and prospective investors upon their
reasonable request. In addition, each of the Company and the Guarantors has
agreed that, for so long as any Notes remain outstanding, it will furnish to
the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, all
references herein to "ABC" or the "Company" refer to American Builders &
Contractors Supply Co., Inc. and its subsidiaries (including Mule-Hide Products
Co., Inc. ("Mule-Hide") and Amcraft Building Products Co., Inc. ("Amcraft")).
The Company's sole stockholder previously owned all of the capital stock of
Mule-Hide and Amcraft, which supply certain roofing and siding products to the
Company, and all of the capital stock of Hendricks Real Estate Properties, Inc.
("HREP"), which owned the Company's headquarters building. On or about May 1,
1997, all of the capital stock of Mule-Hide and Amcraft was contributed to the
Company and HREP merged with and into the Company (the "Combining
Transactions"). The financial statements set forth herein are presented on a
combined basis and include the results of operations of Mule-Hide, Amcraft and
HREP for all periods presented. Unless otherwise stated, all other information
contained herein assumes the completion of the Combining Transactions. See
"Recent Transactions."
THE COMPANY
ABC is the largest wholesale distributor of roofing products and one of the
largest wholesale distributors of vinyl siding materials in the United States,
operating 161 distribution centers located in 37 states as of March 31, 1997.
ABC provides its customers with access to what it believes to be the largest
selection of roofing and vinyl siding materials in the industry and with a
knowledgeable staff capable of providing product specific information, as well
as credit services and marketing support. For the year ended December 31, 1996,
the Company generated $30.2 million of EBITDA (as defined herein) from net
sales of $789.1 million. See note (5) of "--Summary Combined Historical
Financial Data."
The products distributed by the Company consist exclusively of roofing and
siding materials, windows and related tools and accessories for residential
and, to a lesser extent, commercial applications. The Company markets these
products on a wholesale basis primarily to small and medium-sized roofing and
siding contractors that are involved in the replacement segment of the
construction industry. ABC also distributes products to builders and
subcontractors involved in new construction projects. According to the National
Roofing Contractors Association, approximately 77.0% of the 1996 U.S. roofing
market consisted of replacement or remodeling projects, and the Company
believes that replacement and remodeling purchases represent a greater
proportion of its revenue than that of the industry as a whole. The Company
believes that its focus on roofing and vinyl siding products and in-depth
knowledge of such products, combined with its long-term approach to customer
relationships, allow it to distinguish itself from mass-merchandiser building
supply companies. At the same time, the Company believes that its size and
market share allow it to negotiate volume discounts and other favorable terms
with manufacturers and maintain a broader product selection than smaller local
and regional building supply distributors.
While ABC operates nationwide, the wholesale roofing and siding distribution
channel is characterized by a large number of small local and regional
participants. As a result of their small size, many of these distributors lack
the purchasing power of a larger entity, the resources to offer multiple brands
and broad product lines or the inventory control and credit management systems
necessary to operate efficiently in multiple branches. The Company believes
that the competitive environment faced by small distributors has prompted the
trend toward industry consolidation and that such consolidation offers
significant opportunities for ABC.
ABC was founded in 1982 by its President and Chief Executive Officer, Kenneth
A. Hendricks, who, as the owner of a successful roofing business, saw a market
for the Company's services. Since its inception, ABC has experienced
significant growth. The Company's net sales and EBITDA have increased from
$368.3 million and $13.1 million, respectively, for the year ended December 31,
1992, to $789.1 million and $30.2 million, respectively, for the year ended
December 31, 1996, representing compound annual growth rates of 21.0% and
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23.2%, respectively. See note (5) of "--Summary Combined Historical Financial
Data." In addition, comparable distribution center sales have grown at an
average annual rate of 14.4% over the same period. The Company is managed by a
team of experienced roofing and siding distribution professionals, including
its seven regional managers, who have an average of 20 years of experience in
the exterior building products supply industry.
BUSINESS STRATEGY
The Company's business objective is to strengthen its position as the largest
wholesale distributor of roofing products and one of the largest wholesale
distributors of vinyl siding materials in the United States. To support this
objective, the Company has adopted a business strategy that includes the
following key components:
. Offer a Broad Product Selection and Superior Customer Service: ABC
offers what it believes to be the largest selection of roofing and vinyl
siding products in the industry. The Company believes that it offers
more grades, styles and colors of roofing and vinyl siding products in
stock at multiple price points than its competitors. ABC provides its
customers with prompt product delivery as well as product specific
information, manufacturer-sponsored training, credit services and
marketing support. By providing high quality products, support services
and credit programs, ABC effectively distinguishes itself from smaller
distributors and mass-merchandisers. The Company believes its broad
roofing and vinyl siding product offerings and superior customer service
enhance its customers' ability to compete in their markets and to grow
their businesses, thereby creating customer loyalty and enhancing ABC's
growth potential.
. Expand Distribution Center Product Mix: The Company currently operates
distribution centers in 37 states, and has a market presence in 44 of
the 50 most populous metropolitan areas in the United States. Although
the Company has developed a national network of distribution centers,
not all of its locations offer the complete ABC product line. The
Company has recently increased its focus on vinyl siding and window
products, but currently distributes vinyl siding and windows in only
61.0% and 39.0%, respectively, of its distribution centers. By offering
its full product line in all of its locations, the Company believes it
can achieve considerable sales and EBITDA growth.
. Leverage Economies of Scale: The Company's size allows it to obtain
volume discounts and other favorable terms on many of its primary
products and maintain a broader selection within its product categories
than most other distributors and mass-merchandisers. The Company's size
and geographic dispersion also enable it to shift resources among its
distribution centers to offset the effects of regional product shortages
or to quickly meet market demand. By leveraging its geographic coverage
and economies of scale, the Company is able to set its prices
competitively while maintaining favorable operating results.
. Pursue Selective Acquisitions: Since January 1, 1992, the Company has
completed 24 acquisitions, acquiring 34 local distribution centers (net
of consolidations). The Company has historically selected acquisition
candidates based, in part, on the opportunity to improve their operating
results. The Company seeks to leverage its purchasing power, broad
product selection and management expertise to improve the financial
performance of its acquired distribution centers while maintaining the
acquired customer bases. Recently, the Company has considered acquiring
larger distributors with better operating results than its prior
acquisition candidates. On May 19, 1997, the Company acquired Viking (as
defined herein), a regional building supply distributor with 12
locations in the northeastern United States. See "Recent Transactions--
The Viking Acquisition." The Company believes that the ongoing
consolidation in the building materials distribution industry will
continue to provide suitable acquisition candidates in the future.
. Utilize Performance Related Incentives: The Company maintains incentive
programs designed to reward its employees for achieving positive
operating results. Each of the Company's non-union employees has the
opportunity to earn a substantial bonus based on the profitability of
such employee's
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individual operating unit. These incentive programs encourage the
Company's distribution center managers to make independent, local
market-driven decisions regarding product mix and daily operations. The
Company believes its incentive programs have contributed significantly
to its profitability and have helped it to achieve an average annual
growth rate of comparable distribution center sales of 14.4% over the
past five fiscal years.
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The Company was originally incorporated in Texas in 1982 and was
reincorporated in Delaware in 1997. Its principal executive offices are
located at One ABC Parkway, Beloit, Wisconsin 53511 and its telephone number
is (608) 362-7777.
THE OFFERING
OLD NOTES.............. The Old Notes were sold by the Company on May 7, 1997
to the Initial Purchasers pursuant to a Purchase
Agreement dated May 2, 1997 (the "Purchase
Agreement"). The Initial Purchasers subsequently
resold the Old Notes to qualified institutional
buyers pursuant to Rule 144A under the Securities Act
and to a limited number of institutional accredited
investors that agreed to comply with certain transfer
restrictions and other conditions.
REGISTRATION RIGHTS Pursuant to the Purchase Agreement, the Company and
AGREEMENT............. the Initial Purchasers entered into a Registration
Rights Agreement dated as of May 7, 1997 (the
"Registration Rights Agreement"), which grants the
holder of the Old Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange rights which terminate upon
the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED..... $100,000,000 aggregate principal amount of 10 5/8
Series B Senior Subordinated Notes due 2007 of the
Company.
THE EXCHANGE OFFER..... $1,000 principal amount of the New Notes in exchange
for each $1,000 principal amount of Old Notes. As of
the date hereof, $100,000,000 aggregate principal
amount of Old Notes are outstanding. The Company will
issue the New Notes to holders on or promptly after
the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other
than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and that such holder does not intend to
participate and has no arrangement or understanding
with any person to participate in the distribution of
such New Notes.
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<PAGE>
Each Participating 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. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating 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 Participating Broker-Dealer as a result of
market-making activities or other trading activities.
The Company has agreed that, for a period of one year
after the Expiration Date, it will make this
Prospectus available to any Participating Broker-
Dealer for use in connection with any such resale;
provided, however, that the Company and the
Subsidiary Guarantors will have no obligation to
amend or supplement this Prospectus unless the
Company has received written notice from a
Participating Broker-Dealer of their prospectus
delivery requirements under the Securities Act within
fifteen business days following consummation of the
Exchange Offer. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act for which the
holder is not indemnified by the Company.
EXPIRATION DATE......... 5:00 p.m., New York City time, on , 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.
ACCRUED INTEREST ON THE
NEW NOTES AND THE OLD
NOTES..................
Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the New Note. Such interest will be paid with the
first interest payment on the New Notes. Interest on
the Old Notes accepted for exchange will cease to
accrue upon issuance of the New Notes.
CONDITIONS TO THE
EXCHANGE OFFER.........
The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions."
PROCEDURES FOR
TENDERING OLD NOTES....
Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying 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 the Old Notes and any other
required documentation to the Exchange Agent (as
defined) at the address set forth herein. By
executing the Letter of Transmittal, each holder will
represent to the Company that, among other things,
the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course
4
<PAGE>
of business of the person receiving such New Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such New Notes and
that neither the holder nor any such other person is
an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
UNTENDERED OLD NOTES.... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but who
do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
CONSEQUENCES OF FAILURE
TO EXCHANGE............
The Old Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Old Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside the
United States to a foreign person pursuant to the
requirements of Rule 904 under the Securities Act.
See "The Exchange Offer--Consequences of Failure to
Exchange."
SHELF REGISTRATION If any holder of the Old Notes (other than any such
STATEMENT.............. holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) is
not eligible under applicable securities laws to
participate in the Exchange Offer, and such holder
has satisfied certain conditions relating to the
provision of information to the Company for use
therein, the Company has agreed to register the Old
Notes on a shelf registration statement (the "Shelf
Registration Statement") and use its best efforts to
cause it to be declared effective by the Commission
as promptly as practical on or after the consummation
of the Exchange Offer. The Company has agreed to
maintain the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a maximum
of two years, to cover resales of the Old Notes held
by any such holders. Other than as set forth above,
holders of Old Notes who do not tender in the
Exchange Offer will not have any continuing rights
under the Registration Rights Agreement.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS......
Any beneficial owner whose Old 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 such
beneficial owner's behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES.............
Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old
5
<PAGE>
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS....... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF OLD NOTES
AND DELIVERY OF NEW
NOTES..................
The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. 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."
USE OF PROCEEDS......... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT.......... Norwest Bank Minnesota, National Association
THE NEW NOTES
GENERAL................. The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they
replace) except that (i) the New Notes bear a Series
B designation, (ii) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will not
be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing
for an increase in the interest rate on the Old Notes
in certain circumstances relating to the timing of
the Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer." The
New Notes will evidence the same debt as the Notes
and will be entitled to the benefits of the
Indenture. See "Description of Notes."
SECURITIES OFFERED...... $100,000,000 in aggregate principal amount of 10 5/8%
Series B Senior Subordinated Notes due 2007 of the
Company.
MATURITY DATE........... May 15, 2007.
INTEREST PAYMENT DATES.. May 15 and November 15 of each year, commencing
November 15, 1997.
OPTIONAL REDEMPTION..... On or after May 15, 2002, the Company may redeem the
Notes, in whole or in part, at the redemption prices
set forth herein, plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the date
of redemption. Notwithstanding the foregoing, any
time on or before May 15, 2000, the Company may
redeem up to 35% of the original aggregate principal
amount of the Notes with the net cash proceeds of an
initial public offering of its common stock at a
redemption price equal to 110 5/8% of the principal
amount thereof, plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the
redemption date; provided that at least 65% of the
original aggregate principal amount of the Notes
remains outstanding immediately after such
redemption. See "Description of the Notes--Optional
Redemption."
6
<PAGE>
MANDATORY REDEMPTION.... None.
RANKING.................
The Notes will be general unsecured obligations of
the Company, subordinated in right of payment to all
existing and future Senior Debt, which will include
borrowings under the Credit Agreement. As of June 30,
1997, the Company and its subsidiaries had
approximately $87.6 million of outstanding Senior
Debt (including outstanding guarantees and letters of
credit). The indenture pursuant to which the New
Notes will be issued (the "Indenture") permits the
Company and its subsidiaries to incur additional
indebtedness, including additional Senior Debt,
subject to certain limitations. See "Description of
the Notes--Subordination."
GUARANTEES..............
The New Notes will be fully, unconditionally and
jointly and severally guaranteed, limited only by
laws relating to fraudulent conveyance, by each of
the existing and future subsidiaries of the Company.
Such subsidiary guarantees will be subordinated to
all Senior Debt of the Guarantors. As of June 30,
1997, the Company's subsidiaries had approximately
$1.5 million of Senior Debt outstanding. See
"Description of the Notes--Subsidiary Guarantees."
CHANGE OF CONTROL....... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
repurchase all outstanding Notes at 101.0% of the
principal amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to
the date of repurchase. See "Description of the
Notes--Repurchase at the Option of Holders--Change of
Control."
COVENANTS............... The Indenture will restrict, among other things, the
ability of the Company and its subsidiaries to incur
additional indebtedness and issue preferred stock,
enter into sale and leaseback transactions, incur
liens to secure pari passu or subordinated
indebtedness, pay dividends or make certain other
restricted payments, apply net proceeds from certain
asset sales, enter into certain transactions with
affiliates, incur indebtedness that is subordinate in
right of payment to any Senior Debt and senior in
right of payment to the Notes (or any guarantee
thereof), merge or consolidate with any other person,
sell stock of subsidiaries, enter into new lines of
business or sell, assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets
of the Company. See "Description of the Notes--
Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Notes.
7
<PAGE>
SUMMARY COMBINED HISTORICAL FINANCIAL DATA
The following table presents summary combined historical financial
information of the Company, Mule-Hide, Amcraft and HREP for each of the five
years in the period ended December 31, 1996. The combined historical financial
information for the years ended December 31, 1992, 1993, 1994, 1995 and 1996
has been derived from the combined financial statements of the Company, Mule-
Hide, Amcraft and HREP for such periods, which have been audited by Ernst &
Young LLP. The summary combined historical financial information for the three
months ended March 31, 1996 and 1997 has been derived from combined financial
statements of the Company, Mule-Hide, Amcraft and HREP which have not been
audited but which in the opinion of management have been prepared on the same
basis as the audited combined financial statements included herein and reflect
all adjustments (consisting of normal and recurring adjustments), which are, in
the opinion of management, necessary for a fair statement of the results of
operations for the interim periods presented. The summary combined historical
financial information should be read in conjunction with, and is qualified in
its entirety by reference to, the information set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited combined financial statements of the Company, Mule-
Hide, Amcraft and HREP as of December 31, 1995 and 1996, and for each of the
three years in the period ended December 31, 1996, and the notes thereto, which
appear elsewhere in this Prospectus. The results of operations at and for the
three months ended March 31, 1997 are not indicative of results for the full
year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $368,271 $446,384 $513,766 $638,821 $789,103 $128,704 $162,772
Cost of sales........... 287,912 350,987 403,032 501,027 615,627 100,695 126,789
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 80,359 95,397 110,734 137,794 173,476 28,009 35,983
Operating expenses:
Distribution centers.. 64,380 75,249 90,481 110,859 140,300 29,106 36,656
General and
administrative....... 6,412 9,547 7,981 10,476 12,016 2,897 3,566
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 70,792 84,796 98,462 121,335 152,316 32,003 40,222
-------- -------- -------- -------- -------- -------- --------
Operating income (loss). 9,567 10,601 12,272 16,459 21,160 (3,994) (4,239)
OTHER INCOME (EXPENSE):
Interest income....... 380 378 554 653 689 136 165
Interest expense...... (3,872) (4,522) (6,020) (9,745) (11,146) (2,572) (2,898)
-------- -------- -------- -------- -------- -------- --------
Total other income
(expense).......... (3,492) (4,144) (5,466) (9,092) (10,457) (2,436) (2,733)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations
before provision for
income taxes........... 6,075 6,457 6,806 7,367 10,703 (6,430) (6,972)
Provision for income
taxes (1).............. 124 236 260 338 329 52 32
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations.. 5,951 6,221 6,546 7,029 10,374 (6,482) (7,004)
Discontinued operations
(2).................... (598) (2,981) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ...... $ 5,353 $ 3,240 $ 6,546 $ 7,029 $ 10,374 $ (6,482) $ (7,004)
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges (3)...... 2.0x 1.9x 1.8x 1.6x 1.7x .8x .1x
OTHER DATA:
Number of distribution
centers (at period
end)................... 95 98 109 126 157 135 161
Comparable distribution
center sales growth
(4).................... 13.3% 18.7% 11.1% 17.3% 11.5% 8.7% 16.8%
Depreciation and
amortization........... $ 3,574 $ 4,261 $ 5,194 $ 6,808 $ 9,079 $ 2,066 $ 2,486
Capital expenditures.... $ 6,026 $ 7,077 $ 13,830 $ 19,922 $ 14,697 $ 3,512 $ 4,368
EBITDA (deficit) (5).... $ 13,141 $ 14,862 $ 17,466 $ 23,267 $ 30,239 $ (1,928) $ (1,753)
EBITDA margin........... 3.6% 3.3% 3.4% 3.6% 3.8% (1.5)% (1.1)%
Ratio of EBITDA to net
interest expense....... 3.8x 3.6x 3.2x 2.6x 2.9x (0.8)x (0.6)x
Pro forma net cash
interest expense (6)... $ 14,132 $3,676
Ratio of EBITDA to pro
forma net cash interest
expense................ 2.1x (0.5)x
Net cash provided by
(used in):
Operating activities.. $ 5,460 $ (3,517) $ (1,210) $ (6,282) $ 4,756 $ 2,099 $ 6,793
Financing activities.. 2,251 11,052 17,181 32,317 21,825 4,788 (3,828)
Investing activities.. (7,563) (7,319) (15,366) (25,048) (26,694) (9,361) (4,677)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED(8)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA (7):
Working capital......................................... $ 99,137 $ 99,137
Total assets............................................ 295,958 292,981
Long-term debt, less current portion.................... 137,233 144,256
Stockholder's equity (9)................................ 24,899 13,299
</TABLE>
- --------
(1) Consists of certain state and local income taxes. As subchapter S
corporations under the Internal Revenue Code of 1986, as amended (the
"Code"), ABC, Mule-Hide, Amcraft and HREP have not been subject to U.S.
federal income taxes or most state income taxes. Instead, such taxes have
been paid by Mr. Hendricks. The Company has in the past made periodic
distributions to Mr. Hendricks in respect of such tax liabilities. From and
after the date of the Indenture, such distributions will be made in
accordance with the terms of the Tax Allocation Agreement (as defined
herein). See "Certain Transactions."
(2) In 1993, Amcraft made a decision to discontinue its manufacturing
operations, which primarily produced vinyl windows. The results of
operations of Amcraft's manufacturing segment have been classified as
discontinued operations for the years ended December 31, 1992 and 1993.
(3) For purposes of calculating this ratio, "earnings" represents earnings
(loss) from continuing operations before income taxes plus fixed charges.
"Fixed charges" consists of interest expense, amortization of debt issuance
costs and the portion of rent on operating leases considered to represent
interest expense (approximated at one-third of rent expense).
(4) "Comparable distribution center sales growth" is defined as the percentage
change in distribution center sales as compared to sales for the same
distribution centers in the prior year. For purposes of this calculation,
only distribution centers that were open and operated by ABC for at least
one year as of the beginning of the applicable period are included.
(5) "EBITDA" is defined as operating income plus depreciation and amortization.
EBITDA is not a measure of performance under generally accepted accounting
principles ("GAAP"). Management believes that EBITDA, as presented,
represents a useful measure of assessing the performance of the Company's
ongoing operating activities because the Credit Agreement uses EBITDA as a
measure of compliance with one of its financial covenants, because the
Company utilizes EBITDA in evaluating acquisition candidates and because
EBITDA reflects the earnings trends of the Company without the impact of
the amortization of goodwill acquired in connection with the Company's
acquisitions or the interest expense relating to the financing of such
acquisitions. The Company understands that, while EBITDA is frequently used
by securities analysts in the evaluation of companies, EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation. EBITDA is not intended as an alternative to cash flow from
operating activities as a measure of liquidity, an alternative to net
income as an indicator of the Company's operating performance or an
alternative to any other measure of performance in conformity with
generally accepted accounting principles.
(6) For pro forma 1996, consists of interest of $10.625 million relating to the
Notes, $1.27 million relating to average outstanding borrowings under the
Credit Agreement of $17.9 million, and $2.30 million relating to other
borrowings, less $0.06 million in interest income, all after giving effect
to the Offering and the use of the net proceeds (determined as of December
31, 1996 balances) therefrom as described under "Use of Proceeds," as if
such transactions were consummated on January 1, 1996. The figure excludes
$0.35 million of non-cash interest expense associated with debt financing
costs. For the three months ended March 31, 1997 calculation, the net cash
interest components were $2.656 million for the Notes, $.42 million for
borrowings under the Credit Agreement, $.61 million related to other
borrowings, less $.01 million in interest income.
(7) The Company's business is highly seasonal. As a result, the Company's
borrowings under the Credit Agreement fluctuate significantly over the
course of the year. In 1996, the minimum and maximum amount of borrowings
outstanding under the Credit Agreement at any one time were $86.5 million
(in January) and $131.9 million (in June). The average borrowings
outstanding in 1996 were $109.5 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
(8) Reflects the results, on a pro forma basis, of the Offering and the use of
the net proceeds therefrom as described under "Use of Proceeds" as if such
events occurred at March 31, 1997.
(9) As adjusted, reflects payment of the Distribution (as defined herein) as if
it had occurred on March 31, 1997. See "Use of Proceeds." As adjusted, also
reflects the payment of a dividend to the Company's sole stockholder in
respect of 1996 federal and state income taxes of approximately $1.6
million made in April 1997 as if such payment had occurred on March 31,
1997.
9
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements. Such forward-
looking statements are based on the beliefs of the Company's management as
well as on assumptions made by and information currently available to the
Company at the time such statements were made. When used in this Prospectus
the words "anticipate," "believe," "estimate," "expect," "intend" and similar
expressions, as they relate to the Company, are intended to identify such
forward-looking statements. While the Company believes these statements are
reasonable, prospective investors should be aware that actual results could
differ materially from those projected by such forward-looking statements as a
result of the risk factors set forth below or other factors. Prospective
investors should consider carefully the following factors, as well as the
other information and data included in this Prospectus, before tendering Old
Notes in exchange for New Notes. The Company cautions the reader, however,
that this list of factors may not be exhaustive and that these or other
factors could have an adverse effect on the Company's ability to service its
indebtedness, including principal and interest payments on the Notes.
SUBSTANTIAL LEVERAGE
The Company has incurred significant debt in connection with its expansion
through acquisitions. As of March 31, 1997, after giving pro forma effect to
the Offering and the application of the net proceeds therefrom, the Company
would have had outstanding Indebtedness (as defined herein) of approximately
$157.1 million (of which $100.0 million would have consisted of the Notes) and
stockholder's equity of approximately $13.3 million. For the year ended
December 31, 1996, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company's ratio of earnings to
fixed charges would have been 1.4 to 1. As of June 30, 1997, the Company had
total Indebtedness of $187.6 million, with the increase from pro forma March
31, 1997 caused by normal seasonal patterns.
The Company's ability to make scheduled principal payments in respect of, or
to pay the interest or Liquidated Damages, if any, on, or to refinance, any of
its indebtedness (including the Notes) will depend on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive and other factors beyond its control. Based upon the Company's
current level of operations and anticipated growth, management believes that
cash flow from operations, together with available borrowings under the
Company's senior credit agreement (the "Credit Agreement"), will be adequate
to meet the Company's anticipated future requirements for working capital,
capital expenditures, scheduled lease payments and scheduled payments of
interest on its indebtedness, including the Notes, for the foreseeable future.
The Company may, however, need to refinance all or a portion of the principal
of the Notes at or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations, that
anticipated growth will occur or that future borrowings will be available
under the Credit Agreement or otherwise in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, or make anticipated
capital expenditures and lease payments. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The degree to which the Company will be leveraged following the Exchange
Offer could have important consequences to holders of the Notes, including,
but not limited to, the following: (i) a substantial portion of the Company's
cash flow from operations will be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future could be limited; and (iii) the Indenture and the
Credit Agreement contain financial and restrictive covenants that limit the
ability of the Company to, among other things, borrow additional funds.
Failure by the Company to comply with such covenants could result in an event
of default which, if not cured or waived, could have a material adverse effect
on the Company. In addition, the degree to which the Company is leveraged
could prevent it from repurchasing all Notes tendered to it upon the
occurrence of a Change of Control. See "Description of the Notes--Repurchase
at the Option of Holders--Change of Control" and "Description of the Credit
Agreement."
10
<PAGE>
SUBORDINATION OF THE NOTES AND THE GUARANTEES
The Notes and the Guarantees are unsecured and subordinated to the prior
right of payment of all existing and future Senior Debt of the Company and the
Guarantors, including obligations under the Credit Agreement. The indebtedness
under the Credit Agreement will also become due prior to the time the
principal obligations under the Notes become due. Subject to certain
limitations, the Indenture permits the Company and the Guarantors to incur
additional Senior Debt. The Guarantees are full and unconditional and are
joint and several obligations of the Guarantors, limited only by laws relating
to fraudulent conveyance. As of June 30, 1997, the Company and the Guarantors
had $86.1 million and $1.5 million, respectively, of Senior Debt outstanding,
including guarantees and letters of credit outstanding. Under the terms of the
Indenture the Company and the Guarantors may incur an unlimited amount of
Permitted Debt (as defined), including Senior Debt, and additional
Indebtedness, subject to meeting its Fixed Charge Coverage Ratio (as defined
herein) of 2.0 to 1. As of June 30, 1997, the Company and the Guarantors could
have incurred an additional $132.3 million of Senior Debt under the terms of
the Indenture and the Credit Agreement, and could have incurred approximately
$7.0 million of additional Indebtedness under the terms of the Indenture. See
"Description of the Notes--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock." Under certain circumstances, the subordination
provisions contained in the Indenture prohibit the Company and the Guarantors
from making distributions to the holders of the Notes. In addition, in the
event of a liquidation or insolvency, the assets of the Company and the
Guarantors will be available to pay obligations on the Notes only after all
Senior Debt of the Company and the Guarantors has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. In addition, substantially all of the assets of the
Company and the Guarantors will or may in the future be pledged to secure
other indebtedness of the Company and the Guarantors. Certain affiliates of
the Initial Purchasers are lenders under the Credit Agreement and as such
received a substantial portion of the net proceeds of this Offering. See "Use
of Proceeds," "Description of the Credit Agreement" and "Description of the
Notes--Subordination."
RESTRICTIONS IMPOSED BY THE CREDIT AGREEMENT AND THE INDENTURE
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. The Credit
Agreement require the Company to maintain specified financial ratios and
tests, among other obligations, including a maximum funded debt to EBITDA
ratio (currently 6.60 to 1), a minimum tangible net worth test ($85 million at
December 31, 1997 and $75 million each year end thereafter) and a minimum
fixed charge coverage ratio (currently 1.45 to 1), each as defined in the
Credit Agreement. Net worth as defined in the Credit Agreement includes the
principal outstanding under the Notes. In addition, the Credit Agreement
restrict, among other things, the Company's ability to (i) declare dividends
or redeem or repurchase capital stock; (ii) prepay, redeem or repurchase debt
(including the Notes); (iii) incur liens and engage in sale-leaseback
transactions; (iv) make loans and investments; (v) issue more debt; (vi) amend
or otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, acquisitions and asset sales; and (ix)
enter into transactions with affiliates. A failure to comply with the
restrictions contained in the Credit Agreement could lead to an event of
default thereunder which could result in an acceleration of such indebtedness.
Such an acceleration would constitute an event of default under the Indenture
relating to the Notes. In addition, the Indenture restricts, among other
things, the Company's ability to (i) incur additional indebtedness; (ii) pay
dividends and make distributions; (iii) issue stock of subsidiaries; (iv) make
certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into
transactions with affiliates; (viii) enter into sale-leaseback transactions;
(ix) merge or consolidate the Company; and (x) transfer and sell assets. A
failure to comply with the restrictions in the Indenture could result in an
event of default under the Indenture. See "Description of the Credit
Agreement" and "Description of the Notes--Certain Covenants."
The Credit Agreement contains more extensive and restrictive covenants and
restrictions than the Indenture, as described above. The Company's ability to
comply with these covenants and restrictions can be affected by events beyond
its control, and there can be no assurance that the Company will be able to do
so. In addition, such covenants and restrictions significantly limit the
Company's operating and financial flexibility. There can be no assurance that
such covenants will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities
which may be in the interests of the Company. The Credit Agreement also
restricts the Company's ability to prepay other indebtedness (including
11
<PAGE>
the Notes). Upon the occurrence of an event of default under the Credit
Agreement, the lenders thereunder could elect to declare all amounts
outstanding under the Credit Agreement, including accrued interest or other
obligations, to be immediately due and payable or proceed against the
collateral granted to them to secure that indebtedness. If any Senior Debt
were to be accelerated, there can be no assurance that the assets of the
Company would be sufficient to repay in full that indebtedness and the other
indebtedness of the Company, including the Notes. See "Description of the
Credit Agreement."
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to make an
offer to repurchase the Notes for cash at 101.0% of the principal amount
thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the repurchase date. Certain events involving a Change of Control may
result in an event of default under the Credit Agreement or other indebtedness
of the Company that may be incurred in the future. Moreover, the exercise by
the holders of the Notes of their right to require the Company to repurchase
the Notes could cause an event of default under the Credit Agreement and may
cause a default under such other indebtedness, even if the Change of Control
does not. The Company's obligations under this provision of the Indenture
could delay, deter or prevent a sale of the Company which might otherwise be
advantageous to holders of Notes. There can be no assurance that the Company
will have the financial resources necessary to repurchase the Notes upon a
Change of Control. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of the Notes--Repurchase at the Option of Holders--Change of
Control." In addition, there can be no assurance that the Company will not, in
the future, enter into transactions, including acquisitions, refinancings or
other recapitalizations or highly leveraged transactions, that would not
constitute a Change of Control, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Company's
capital structure or credit ratings or otherwise adversely affect holders of
Notes.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Guarantors' issuance of the Guarantees. To the extent that a
court were to find that (x) a Guarantee was incurred by a Guarantor with
actual intent to hinder, delay or defraud any present or future creditor or
(y) such Guarantor did not receive fair consideration or reasonably equivalent
value for issuing its Guarantee and such Guarantor (i) was insolvent, (ii) was
rendered insolvent by reason of the issuance of such Guarantee, (iii) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could avoid or subordinate such Guarantee in favor of the Guarantor's
creditors. Among other things, a legal challenge of a Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by the Company of the Notes. To the
extent any Guarantees were avoided as a fraudulent conveyance or held
unenforceable for any other reason, the claims of holders of the Notes in
respect of such Guarantor would be adversely affected and such holders would,
to such extent, be creditors solely of the Company and any Guarantor whose
Guarantee was not avoided or held unenforceable. To the extent the claims of
the holders of the Notes against the issuer of an invalid Guarantee were
subordinated, they would be subject to the prior payment of all liabilities of
such Guarantor. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of the holders
of the Notes relating to any voided portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Under one measure,
a Guarantor may be considered insolvent if the sum of its debts, including
contingent liabilities, is greater than the fair marketable value of all of
its assets at a fair valuation. Under another measure, a Guarantor may be
considered insolvent if the present fair marketable value of its assets is
less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute
and mature.
12
<PAGE>
Based upon financial and other information, the Company believes that the
Guarantees are being incurred for proper purposes and in good faith and that
each Guarantor is solvent and will continue to be solvent after issuing its
Guarantee, will have sufficient capital for carrying on its business after
such issuance and will be able to pay its debts as they mature. There can be
no assurance, however, that a court passing on such standards would agree with
the Company.
GROWTH BY ACQUISITION
The Company's growth strategy is based, in part, upon the acquisition of
other roofing and siding products distributors. The Company continually seeks
acquisition candidates in selected markets and from time to time engages in
exploratory discussions with suitable candidates. There can be no assurance,
however, that the Company will be able to continue to identify and acquire
appropriate businesses, obtain financing for such acquisitions on satisfactory
terms or successfully integrate the businesses acquired. The process of
integrating acquired businesses into the Company's operations may result in
unforeseen difficulties and may require a disproportionate amount of resources
and management's attention. Furthermore, there can be no assurance that
competition for acquisition candidates will not escalate, thereby increasing
the costs of making acquisitions.
COMPETITION
The roofing and siding products distribution industry is highly competitive
and fragmented. The Company competes with many local, regional and national
distributors, product manufacturers that engage in direct sales and, to a
lesser extent, mass merchandisers. The Company's competition varies by product
line, customer classification and geographic market. Certain of the companies
that compete with the Company have substantially greater financial and other
resources than those of the Company. See "Business--Competition."
SUPPLY AND PRICE OF PRODUCTS
The Company distributes building products manufactured by a number of major
vendors. GAF Corporation ("GAF") is the Company's largest supplier, with
purchases of GAF roofing products accounting for approximately 14.3% of the
Company's total product purchases in 1996. No other supplier accounted for
more than 10.0% of the Company's total product purchases in 1996. Although
alternative sources of supply exist, there can be no assurance that the
termination of the Company's relationship with GAF would not have a short-term
adverse effect on the Company's operations. See "Business--Purchasing."
Supply shortages occur at times as a result of unanticipated demand or
production difficulties. In such cases, building materials suppliers often
allocate products among distributors. Future supply shortages may occur from
time to time and may have a short-term adverse effect on the Company's results
of operations.
The Company has negotiated what management believes to be favorable pricing
terms from many of its suppliers. Should the Company be unable to renew its
arrangements with such suppliers or should such suppliers materially reduce or
cease to offer volume and other discounts, the Company's results of operations
could be materially adversely affected.
SEASONALITY; CYCLICALITY
Because of cold weather conditions in many of the markets in which the
Company does business and the seasonal nature of the roofing and siding
business generally, the Company's revenues vary substantially throughout the
year, with its lowest revenues typically occurring in the months of December
through February. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
The building materials industry is cyclical and is affected by changes in
general and local economic conditions, such as housing starts, interest rates,
availability of financing, employment levels and consumer confidence. A
downturn in the economy in one or more markets served by the Company could
have a material adverse effect on the Company's sales, especially its sales to
new construction subcontractors.
13
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team, including its founder, President and Chief Executive Officer, Mr.
Hendricks. Although the Company believes it could replace such key employees
in a timely fashion should the need arise, the loss of such key personnel
could have a material adverse effect on the Company. See "Management--
Directors, Executive Officers and Key Employees."
CONTROLLING STOCKHOLDER
All of the Company's capital stock is held by its founder, President and
Chief Executive Officer. Circumstances may occur in which the interests of the
sole stockholder of the Company, could be in conflict with the interests of
the holders of the Notes. For example, such stockholder may have an interest
in pursuing acquisitions, divestitures or other transactions that, in his
judgment, could enhance his equity investment, even though such transactions
might involve risks to the holders of the Notes. See "Security Ownership of
Certain Beneficial Owners and Management" and "Certain Transactions."
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF NOTES
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Old Notes have not been registered under the Securities Act and are
subject to restrictions on transferability to the extent that they are not
exchanged for New Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Old Notes (other than any such holder that is
an "affiliate" of the company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. However, to the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for the remaining untendered Old Notes could be adversely
affected. The New Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the New Notes
on any national securities exchange or to seek the admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. The Initial Purchasers have advised the Company that they currently
intend to make a market in the New Notes, but they are not obligated to do so
and may discontinue such market making at any time. In addition, such market
making activity will be subject to the limits imposed by the Securities Act
and the Exchange Act and may be limited during the Exchange Offer and the
pendency of the Shelf Registration Statements. Accordingly, no assurance can
be given that an active public or other market will develop for the New Notes
or as to the liquidity of the trading market for the New Notes. If a trading
market does not develop or is not maintained, holders of the New Notes may
experience difficulty in reselling the New Notes or may be unable to sell them
at all. If a market for the New Notes develops, any such market may be
discontinued at any time.
If a public trading market develops for the New Notes, future trading prices
of the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount from their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for New Notes should allow sufficient time
to ensure timely delivery. The Company is under no duty to give notification
of defects or irregularities with respect to the tenders of Old Notes for
exchange. Old Notes that are not tendered or are tendered but not accepted
will, following the consummation of the Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof and, upon consummation of
the
14
<PAGE>
Exchange Offer, certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
New Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transactions.
Each Participating Broker-Dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Company has agreed that, for
a period of one year after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale; provided, however, that the Company and the Subsidiary Guarantors
will have no obligation to amend or supplement this Prospectus unless the
Company has received written notice from a Participating Broker-Dealer of
their prospectus delivery requirements under the Securities Act within fifteen
business days following consummation of the Exchange Offer. See "Plan of
Distribution." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "The Exchange Offer."
15
<PAGE>
RECENT TRANSACTIONS
The Combining Transactions. The Company's sole stockholder previously owned
all of the capital stock of Mule-Hide and Amcraft, which supply certain
roofing and vinyl siding products to the Company, and HREP, which owned the
Company's headquarters building. For the year ended December 31, 1996, Mule-
Hide, Amcraft and HREP reported aggregate net sales of $40.7 million
(including $35.0 million of sales to ABC) and net income of $1.2 million. On
or about May 1, 1997, all of the capital stock of Mule-Hide and Amcraft was
contributed to the Company and HREP merged with and into the Company. Mule-
Hide and Amcraft now operate as wholly-owned subsidiaries of the Company. The
Combining Transactions were accounted for as a combination of entities under
common control (similar to a pooling of interests), wherein all prior periods
were restated to combine the historical financial statements of Mule-Hide,
Amcraft and HREP with those of the Company. The financial statements set forth
herein are presented on a combined basis and include the results of operations
of Mule-Hide, Amcraft and HREP for all periods presented.
The Viking Acquisition. On May 19, 1997, the Company acquired certain assets
and assumed a portion of the liabilities of Viking Building Products, Inc. and
certain assets of Viking Aluminum Products, Inc. ("VAP") (such acquired assets
and assumed liabilities, collectively, "Viking"). The purchase price for the
acquisition of Viking (the "Viking Acquisition") was $25.8 million, which is
net of approximately $3.9 million of assumed liabilities. The purchase price
was paid with a combination of cash and a $3.0 million seller note payable
over two years. Viking was a regional distributor of residential roofing,
siding and window products with 12 distribution centers located in the
northeastern portion of the United States and reported pre-tax income of $1.4
million on net sales of $84.1 million for its fiscal year ended February 28,
1997. In connection with the Viking Acquisition, the Company entered into a
purchase agreement with VAP pursuant to which the Company agreed to purchase a
minimum of $98.2 million of VAP products over the next five years.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreement. The Company will not receive any cash proceeds from the issuance of
the New Notes offered hereby. In consideration for issuing the New Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are the same as the forms and
terms of the New Notes (which they replace), except as otherwise described
herein. The Old Notes surrendered in exchange for New Notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the New Notes
will not result in any increase or decrease in the indebtedness of the
Company. As such, no effect has been given to the Exchange Offer in the pro
forma statements or capitalization tables.
The proceeds to the Company of the Offering were approximately $96.5 million
after deducting estimated expenses and commissions. The Company used
approximately $86.5 million of the net proceeds to repay indebtedness
outstanding under the Credit Agreement and $10.0 million to make a
distribution (the "Distribution") to the Company's sole stockholder. The
stockholder used approximately $8.3 million of the proceeds from the
Distribution to repay certain real estate related indebtedness owed to the
Company as described below; the Company, in turn, used the proceeds from such
repayment to further repay indebtedness under the Credit Agreement. After such
repayment, the net reduction in amounts outstanding under the Credit Agreement
was $94.8 million.
In connection with certain of the Company's acquisitions, Mr. Hendricks or
his affiliates have purchased the real estate of the acquired business, which
the Company has then leased from Mr. Hendricks or his affiliates. In addition,
certain of the distribution centers opened by the Company are located in
facilities purchased by and
16
<PAGE>
leased from him or his affiliates. As of December 31, 1996, the Company leased
67 of its distribution centers from Mr. Hendricks or his affiliates. These
real estate purchases have historically been financed with a combination of
bank financing and equity, and a portion of the equity has sometimes been
funded by Mr. Hendricks with borrowings from the Company. The aggregate amount
of such borrowings outstanding as of April 30, 1997 was approximately $8.3
million, which Mr. Hendricks repaid in its entirety with a portion of the
proceeds of the Distribution. The Company and Mr. Hendricks currently intend
to continue to acquire properties for the Company's occupancy using such
method of financing. The Indenture and the Credit Agreement each permit the
Company to lend additional amounts to Mr. Hendricks in connection with such
transactions in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Certain Transactions" and
"Description of the Notes--Certain Covenants--Restricted Payments."
Contemporaneously with the completion of the Offering, the Company amended
the Credit Agreement to, among other things, extend the maturity thereof and
reduce the interest rate thereunder. The Credit Agreement, as amended, matures
on June 30, 2000 and bears interest at a rate equal to, at the Company's
option, LIBOR plus 1.25% or its lenders' prime rate in effect from time to
time. See "Description of the Credit Agreement." As of March 31, 1997, the
interest rate on borrowings under the Credit Agreement (without giving effect
to the amendment) was approximately 7.6% and there was approximately $116.1
million of indebtedness outstanding under the Credit Agreement. NationsBank of
Texas, N.A., an affiliate of NationsBanc Capital Markets, Inc., and American
National Bank and Trust Company of Chicago, an affiliate of First Chicago
Capital Markets, Inc., are lenders and agents under the Credit Agreement and
received a substantial portion of the proceeds from the Offering. See "Plan of
Distribution."
17
<PAGE>
CAPITALIZATION
The following table sets forth the combined capitalization of the Company,
Mule-Hide, Amcraft and HREP as of March 31, 1997 (i) on an actual basis and
(ii) as adjusted to give pro forma effect to the Offering and the application
of the net proceeds therefrom as described under "Use of Proceeds" and the
payment of a dividend in respect of 1996 federal and state income taxes to the
Company's sole stockholder in April 1997 as if such payment had occurred on
March 31, 1997. The information in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and accompanying notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total debt:
Credit Agreement(1)(2)(3).......................... $116,108 $ 23,131
Notes.............................................. -- 100,000
Other(4)........................................... 29,633 29,633
-------- --------
Total debt(5).................................... 145,741 152,764
-------- --------
Stockholder's equity(6).............................. 24,899 13,299
-------- --------
Total capitalization................................. $170,640 $166,063
======== ========
</TABLE>
- --------
(1) Contemporaneously with the completion of the Offering, the Company amended
the Credit Agreement to, among other things, extend the maturity thereof
and reduce the interest rate thereunder. See "Use of Proceeds" and
"Description of the Credit Agreement." The Credit Agreement, as amended,
continues to provide for borrowings in the maximum principal amount of
$200.0 million based upon the Company's eligible inventory and eligible
accounts receivable. See "Description of the Credit Agreement."
(2) The Company's business is highly seasonal. As a result, the Company's
borrowings under the Credit Agreement fluctuate significantly over the
course of the year. In 1996, the minimum and maximum amount of borrowings
outstanding under the Credit Agreement at any one time were $86.5 million
(in January) and $131.9 million (in June). The average borrowings
outstanding in 1996 were $109.5 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
(3) As adjusted, reflects the repayment of $93.0 million of indebtedness under
the Credit Agreement with the net proceeds of the Offering and the
repayment of indebtedness owed to the Company by the Company's sole
stockholder of $6.5 million (which represents the actual principal amount
plus accrued interest thereon of indebtedness owed by Mr. Hendricks to the
Company as of March 31, 1997). From March 31, 1997, until the Offering was
closed, Mr. Hendricks borrowed an additional $1.8 million from the
Company. Mr. Hendricks repaid all such amounts with a portion of the
Distribution. The actual amount of such repayment by Mr. Hendricks as of
the closing of this Offering was approximately $8.3 million, which
increased the amount of repayment of indebtedness under the Credit
Agreement to $94.8 million. See "Use of Proceeds" and "Certain
Transactions."
(4) Consists of mortgages, equipment and vehicle financings and notes issued
to sellers in connection with the Company's acquisitions. Includes current
maturities of $8.5 million.
(5) Does not include $4.3 million of obligations under guarantees and letters
of credit with respect to debt of the Company's sole stockholder and his
affiliates.
(6) As adjusted, reflects payment of the Distribution as if it had occurred on
March 31, 1997. See "Use of Proceeds." As adjusted also reflects the
payment of a dividend to the Company's sole stockholder in respect of 1996
federal and state income taxes of approximately $1.6 million made in April
1997 as if such payment had occurred on March 31, 1997.
18
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL DATA
The following table presents selected combined historical financial
information of the Company, Mule-Hide, Amcraft and HREP for each of the five
years in the period ended December 31, 1996. The combined historical financial
information for the years ended December 31, 1992, 1993, 1994, 1995 and 1996
has been derived from the combined financial statements of the Company, Mule-
Hide, Amcraft and HREP for such periods, which have been audited by Ernst &
Young LLP. The summary combined historical financial information for the three
months ended March 31, 1996 and 1997 have been derived from combined financial
statements of the Company, Mule-Hide, Amcraft and HREP which have not been
audited but which in the opinion of management have been prepared on the same
basis as the audited combined financial statements included herein and reflect
all adjustments (consisting of normal and recurring adjustments) which are, in
the opinion of management, necessary for a fair statement of the results of
operations for the interim periods presented. The selected combined historical
financial information should be read in conjunction with, and is qualified in
its entirety by reference to, the information set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited combined financial statements of the Company,
Mule-Hide, Amcraft and HREP as of December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, and the notes thereto,
which appear elsewhere in this Prospectus. The results of operations for the
three months ended March 31, 1997 are not indicative of results for the full
year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales .............. $368,271 $446,384 $513,766 $638,821 $789,103 $128,704 $162,772
Cost of sales........... 287,912 350,987 403,032 501,027 615,627 100,695 126,789
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 80,359 95,397 110,734 137,794 173,476 28,009 35,983
Operating expenses:
Distribution centers... 64,380 75,249 90,481 110,859 140,300 29,106 36,656
General and
administrative........ 6,412 9,547 7,981 10,476 12,016 2,897 3,566
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............ 70,792 84,796 98,462 121,335 152,316 32,003 40,222
-------- -------- -------- -------- -------- -------- --------
Operating income (loss). 9,567 10,601 12,272 16,459 21,160 (3,994) (4,239)
Other income (expense):
Interest income........ 380 378 554 653 689 136 165
Interest expense....... (3,872) (4,522) (6,020) (9,745) (11,146) (2,572) (2,898)
-------- -------- -------- -------- -------- -------- --------
Total other income
(expense)........... (3,492) (4,144) (5,466) (9,092) (10,457) (2,436) (2,733)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations
before provision for
income taxes........... 6,075 6,457 6,806 7,367 10,703 (6,430) (6,972)
Provision for income
taxes(1)............... 124 236 260 338 329 52 32
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations.. 5,951 6,221 6,546 7,029 10,374 (6,482) (7,004)
Discontinued
operations(2).......... (598) (2,981) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 5,353 $ 3,240 $ 6,546 $ 7,029 $ 10,374 $ (6,482) $ (7,004)
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges(3)....... 2.0x 1.9x 1.8x 1.6x 1.7x (.9)x (.8)x
Pro forma ratio of
earnings to fixed
charges(3)............. 1.4x (.7)x
OTHER DATA:
Number of distribution
centers (as period
end)................... 95 98 109 126 157 135 161
Comparable distribution
center sales growth(4). 13.3% 18.7% 11.1% 17.3% 11.5% 8.7% 16.8%
Depreciation and
amortization........... $ 3,574 $ 4,261 $ 5,194 $ 6,808 $ 9,079 $ 2,066 $ 2,486
Capital expenditures.... $ 6,026 $ 7,077 $ 13,830 $ 19,922 $ 14,697 $ 3,512 $ 4,368
EBITDA (deficit)(5)..... $ 13,141 $ 14,862 $ 17,466 $ 23,267 $ 30,239 $ (1,928) $ (1,753)
EBITDA margin........... 3.6% 3.3% 3.4% 3.6% 3.8% (1.5)% (1.1)%
Ratio of EBITDA to net
interest expense....... 3.8x 3.6x 3.2x 2.6x 2.9x (0.8)x (0.6)x
Pro forma net cash
interest expense(6).... $ 14,132 $ 3,676
Ratio of EBITDA to pro
forma net cash interest
expense................ 2.1x (0.5)x
Net cash provided by
(used in):
Operating activities... $ 5,460 $ (3,517) $ (1,210) $ (6,282) $ 4,756 $ 2,099 $ 6,793
Financing activities... 2,251 11,052 17,181 32,317 21,825 4,788 (3,828)
Investing activities... (7,563) (7,319) (15,366) (25,048) (26,694) (9,361) (4,677)
BALANCE SHEET DATA (AT
PERIOD END)(7):
Working capital......... $ 40,230 $ 51,358 $ 66,512 $ 90,179 $111,989 $ 84,928 $ 99,137
Total assets............ 113,294 130,305 158,095 205,316 251,948 240,405 295,958
Long-term debt, less
current portion........ 50,277 62,040 80,799 113,397 139,664 118,526 137,233
Stockholder's equity(8). 16,323 18,165 22,027 25,524 31,960 19,013 24,899
</TABLE>
19
<PAGE>
- --------
(1) Consists of certain state and local income taxes. As subchapter S
corporations under the Code, ABC, Mule-Hide, Amcraft and HREP have not
been subject to U.S. federal income taxes or most state income taxes.
Instead, such taxes have been paid by Mr. Hendricks. The Company has in
the past made periodic distributions to Mr. Hendricks in respect of such
tax liabilities. From and after the date of the Indenture, such
distributions will be made in accordance with the terms of the Tax
Allocation Agreement (as defined herein). See "Certain Transactions."
(2) In 1993, Amcraft made a decision to discontinue its manufacturing
operations, which primarily produced vinyl windows. The results of
operations of Amcraft's manufacturing segment have been classified as
discontinued operations for the years ended December 31, 1992 and 1993.
(3) For purposes of calculating this ratio, "earnings" represents earnings
(loss) from continuing operations before income taxes plus fixed charges.
"Fixed charges" consists of interest expense, amortization of debt
issuance costs and the portion of rent on operating leases considered to
represent interest expense (approximated at one-third of rent expense).
(4) "Comparable distribution center sales growth" is defined as the percentage
change in distribution center sales as compared to sales for the same
distribution centers in the prior year. For purposes of this calculation,
only distribution centers that were open and operated by ABC for at least
one year as of the beginning of the applicable period are included.
(5) "EBITDA" is defined as operating income plus depreciation and
amortization. EBITDA is not a measure of performance under GAAP.
Management believes that EBITDA, as presented, represents a useful measure
of assessing the performance of the Company's ongoing operating activities
because the Credit Agreement uses EBITDA as a measure of compliance with
one of its financial covenants, because the Company utilizes EBITDA in
evaluating acquisition candidates and because EBITDA reflects the earnings
trends of the Company without the impact of the amortization of goodwill
acquired in connection with the Company's acquisitions or the interest
expense relating to the financing of such acquisitions. The Company
understands that, while EBITDA is frequently used by securities analysts
in the evaluation of companies, EBITDA, as used herein, is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity, an alternative to net income as an indicator of the
Company's operating performance or an alternative to any other measure of
performance in conformity with generally accepted accounting principles.
(6) For pro forma 1996, consists of interest of $10.625 million relating to
the Notes, $1.27 million relating to average outstanding borrowings under
the Credit Agreement of $17.9 million, and $2.30 million relating to other
borrowings, less $0.06 million in interest income, all after giving effect
to the Offering and the use of the net proceeds (determined as of December
31, 1996 balances) therefrom as described under "Use of Proceeds," as if
such transactions were consummated on January 1, 1996. The figure excludes
$0.35 million of non-cash interest expense associated with debt financing
costs. For the three months ended March 31, 1997 calculation, the net cash
interest components were $2.656 million for the Notes, $.42 million for
borrowings under the Credit Agreement, $.61 million related to other
borrowings, less $.01 million in interest income.
(7) The Company's business is highly seasonal. As a result, the Company's
borrowings under the Credit Agreement fluctuate significantly over the
course of the year. In 1996, the minimum and maximum amount of borrowings
outstanding under the Credit Agreement at any one time were $86.5 million
(in January) and $131.9 million (in June). The average borrowings
outstanding in 1996 were $109.5 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
(8) As adjusted, reflects payment of the Distribution as if it had occurred on
March 31, 1997. See "Use of Proceeds." As adjusted also reflects the
payment of a dividend to the Company's sole stockholder in respect of 1996
federal and state income taxes of approximately $1.6 million made in April
1997 as if such payment had occurred on March 31, 1997.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company. ABC is the largest wholesale distributor of roofing products
and one of the largest wholesale distributors of vinyl siding materials in the
United States, operating 161 distribution centers located in 37 states as of
March 31, 1997. Since January 1, 1992, the Company has opened 33 distribution
centers and acquired an additional 34 distribution centers (net of
consolidations) in connection with its acquisition program. For the year ended
December 31, 1996, the Company generated $30.2 million of EBITDA from net
sales of $789.1 million. See note (5) to "Selected Combined Historical
Financial Data."
Recent/Proposed Acquisitions. The Company completed 13 acquisitions in the
year ended December 31, 1996, which resulted in the addition of 17
distribution centers (net of consolidations). The results of operations
reported herein do not include the results of operations of such acquired
businesses from January 1, 1996 to the various dates of their acquisitions.
The Company completed the Viking Acquisition on May 19, 1997. The purchase
price in the Viking Acquisition was $25.8 million, which is net of
approximately $3.9 million of assumed liabilities. The purchase price was paid
with a combination of cash and a $3.0 million seller note payable over two
years. Viking was a regional distributor of roofing, siding and window
products with 12 distribution centers located in the northeastern portion of
the United States and reported pre-tax income of $1.4 million on net sales of
$84.1 million for its fiscal year ended February 28, 1997. In connection with
the Viking Acquisition, the Company entered into a purchase agreement with VAP
pursuant to which the Company agreed to purchase a minimum of $98.2 million of
VAP products for sale in the Company's distribution centers over the next five
years.
Effects of Acquisitions. The Company has historically selected acquisition
candidates based, in part, on the opportunity to improve their operating
results. The Company seeks to leverage its purchasing power, broad product
selection and management expertise to improve the financial performance of its
acquired distribution centers while maintaining the acquired customer bases.
Results of operations reported herein for each period only include results of
operations for acquired businesses from their respective dates of acquisition.
Full year operating results, therefore, could differ materially from that
presented. In addition, there has typically been a period following each
acquisition in which the acquired business does not perform at the same level
as the Company's existing distribution centers. As a result of the Company's
ongoing acquisition program, its results of operations have historically
reflected, and are likely to continue to reflect, the periodic inclusion of
under-performing businesses.
The Company has accounted for its acquisitions, using the purchase method of
accounting. As a result, these acquisitions have affected and will
prospectively affect the Company's results of operations in certain
significant respects. The aggregate acquisition costs are allocated to the
tangible and intangible assets acquired and liabilities assumed by the Company
based upon their respective fair values as of the acquisition date. The cost
of such assets are then amortized according to the classes of assets acquired
and the useful lives thereof. The Company has begun to acquire larger
distributors with better operating results, necessitating payment of purchase
prices in excess of the fair value of net assets acquired resulting in
goodwill, which is amortized over a period of 25 years. Similar future
acquisitions may result in additional amortization expense. In addition, due
to the effects of the increased borrowing to finance future acquisitions, the
Company's interest expense may increase in future periods.
Provision for Income Taxes. ABC, Mule-Hide, Amcraft and HREP have been
operated as subchapter S corporations under the Code. As a result, these
entities do not incur federal and state income taxes (except with respect to
certain states) and, accordingly, no discussion of income taxes is included in
"--Results of Operations" below. Federal and state income taxes (except with
respect to certain states) on the income of such corporations are incurred and
paid directly by Mr. Hendricks. Such corporations have historically made
periodic
21
<PAGE>
distributions to Mr. Hendricks in respect of such tax liabilities. In
connection with the Offering, the Company entered into the Tax Allocation
Agreement with Mr. Hendricks pursuant to which he will receive distributions
from the Company with respect to taxes associated with the Company's income.
See "Certain Transactions."
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of net sales for each of the three years ended
December 31, 1996:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------
1994 1995 1996 1996 1997
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 78.4 78.4 78.0 78.2 77.9
------- ------- ------- ----- -----
Gross profit................... 21.6 21.6 22.0 21.8 22.1
Operating expenses:
Distribution centers......... 17.6 17.4 17.8 22.6 22.5
General and administrative... 1.6 1.6 1.5 2.3 2.2
------- ------- ------- ----- -----
Total operating expense.... 19.2 19.0 19.3 24.9 24.7
------- ------- ------- ----- -----
Operating income (loss)........ 2.4% 2.6% 2.7% (3.1%) (2.6%)
======= ======= ======= ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996
The Company's results of operations are affected by the seasonal nature of
the roofing and siding business with the quarter ended March 31 typically
resulting in a loss. See "Seasonality."
Net sales for the three months ended March 31, 1997 increased by $34.1
million, or 26.5%, to $162.8 million from $128.7 million for the three months
ended March 31, 1996. Components of the change in net sales are as follows:
<TABLE>
<CAPTION>
%
DISTRIBUTION CENTERS 1996 1997 INCREASE INCREASE
- -------------------- ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
In operation prior to January 1, 1994........... $112.4 $128.7 $16.3 14.5%
Acquired in 1994................................ 2.2 2.2 -- --
Opened by the Company in 1994................... 4.8 6.2 1.4 29.2
Acquired in 1995................................ 3.9 6.4 2.5 64.1
Opened by the Company in 1995................... 3.2 4.2 1.0 31.3
Acquired in 1996................................ 1.4 9.8 8.4 600.0
Opened by the Company in 1996................... .8 4.4 3.6 450.0
Opened by the Company in 1997................... -- .9 .9 --
------ ------ ----- -----
Total....................................... $128.7 $162.8 $34.1 26.5%
====== ====== ===== =====
</TABLE>
Increases in comparable distribution center sales are almost entirely due to
increases in volumes as opposed to price increases. Such volume increases are
in part due to introduction of new products such as commercial roofing and
siding into certain distribution centers.
Cost of sales for the three months ended March 31, 1997 increased by $26.1
million, or 25.9%, to $126.8 million from $100.7 million for the three months
ended March 31, 1996, primarily as a result of costs associated with increased
sales. Cost of sales decreased as a percentage of net sales over the same
period to 77.9% in 1997 from 78.2% in 1996, primarily due to increased sales
of higher margin products such as vinyl siding and windows.
22
<PAGE>
Distribution center operating income (loss), which consists of net sales
less cost of sales and operating expenses for the distribution centers, is a
key measure that the Company uses to evaluate individual distribution center
performance. Distribution center operating income increased by $0.4 million to
a loss of $0.7 million in 1997 from a loss of $1.1 million in 1996, primarily
due to better weather conditions in early 1997. Components of distribution
center operating income (loss) and the change therein are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION CENTERS 1996 1997 CHANGE
- -------------------- ----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
In operation prior to January 1, 1994...................... $ 0.3 $ 0.9 0.6
Acquired in 1994........................................... (0.3) (0.3) --
Opened by the Company in 1994.............................. (0.3) (0.3) --
Acquired in 1995........................................... (0.3) (0.2) 0.1
Opened by the Company in 1995.............................. (0.2) (0.2) --
Acquired in 1996........................................... (0.1) (0.2) (0.1)
Opened by the Company in 1996.............................. (0.2) (0.4) (0.2)
Opened by the Company in 1997.............................. -- -- --
Acquired in 1997........................................... -- -- --
----- ----- ----
Total.................................................. $(1.1) $(0.7) 0.4
===== ===== ====
</TABLE>
General and administrative expenses increased $0.7 million to $3.6 million
in 1997 from $2.9 million in 1996 while decreasing as a percentage of net
sales to 2.2% in 1997 compared to 2.3% in 1996.
Interest expense for the three months ended March 31, 1997 increased by $0.3
million, or 12.7%, to $2.9 million from $2.6 million for the three months
ended March 31, 1996, as a result of greater borrowings associated with
increased working capital needs due to the Company's growth, partially offset
by a decrease in the interest rate on such borrowings.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net sales for the year ended December 31, 1996 increased by $150.3 million,
or 23.5%, to $789.1 million from $638.8 million for the year ended December
31, 1995. Components of the change in net sales are as follows:
<TABLE>
<CAPTION>
%
DISTRIBUTION CENTERS 1995 1996 INCREASE INCREASE
- -------------------- ------ ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
In operation prior to January 1, 1994........... $587.2 $649.5 $ 62.3 10.6%
Acquired in 1994................................ 13.1 16.0 2.9 22.1
Opened by the Company in 1994................... 23.4 30.0 6.6 28.2
Acquired in 1995................................ 9.0 31.8 22.8 253.3
Opened by the Company in 1995................... 6.1 18.1 12.0 196.7
Acquired in 1996................................ -- 33.1 33.1 --
Opened by the Company in 1996................... -- 10.6 10.6 --
------ ------ ------ -----
Total......................................... $638.8 $789.1 $150.3 23.5%
====== ====== ====== =====
</TABLE>
Increases in comparable distribution center sales were almost entirely due
to increases in volume as opposed to price increases. Such volume increases
were, in part, due to the introduction of new products, such as commercial
roofing and siding, into certain distribution centers.
Cost of sales for the year ended December 31, 1996 increased by $114.6
million, or 22.9%, to $615.6 million from $501.0 million for the year ended
December 31, 1995, primarily as a result of costs associated with
23
<PAGE>
increased sales. Cost of sales decreased as a percentage of net sales over the
same period to 78.0% in 1996 from 78.4% in 1995, primarily due to increased
sales of higher margin products such as vinyl siding and windows.
Distribution center operating income, which consists of net sales less cost
of sales and operating expenses for the distribution centers, is a key measure
that the Company uses to evaluate individual distribution center performance.
Distribution center operating income increased $6.3 million to $33.2 million
in 1996 from $26.9 million in 1995. Components of distribution center
operating income (loss) and the change therein are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION CENTERS 1995 1996 CHANGE
- -------------------- ----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
In operation prior to January 1, 1994...................... $29.2 $33.6 $4.4
Acquired in 1994........................................... 0.0 0.1 0.1
Opened by the Company in 1994.............................. (0.9) 0.2 1.1
Acquired in 1995........................................... (0.7) 0.8 1.5
Opened by the Company in 1995.............................. (0.7) (0.3) 0.4
Acquired in 1996........................................... -- 0.1 0.1
Opened by the Company in 1996.............................. -- (1.3) (1.3)
----- ----- ----
Total.................................................... $26.9 $33.2 $6.3
===== ===== ====
</TABLE>
The tables set forth above illustrate that the Company's commitment to
growth has a significant impact on operating income. Although distribution
centers in operation prior to January 1, 1994 accounted for only 82.3% of net
sales in 1996, such distribution centers accounted for 101.2% of distribution
center operating income.
General and administrative expenses increased $1.5 million to $12.0 million
in 1996 from $10.5 million in 1995 while decreasing as a percentage of net
sales to 1.5% in 1996 compared to 1.6% in 1995. Major components of the
increased expenses were salaries and benefits and a full year of depreciation
on the Company's new headquarters building as compared to a partial year of
depreciation in 1995.
Interest expense for the year ended December 31, 1996 increased by $1.4
million, or 14.4%, to $11.1 million from $9.7 million for the year ended
December 31, 1995, as a result of greater borrowings associated with increased
working capital needs due to the Company's growth, partially offset by a
decrease in the interest rate on such borrowings.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net sales for the year ended December 31, 1995 increased by $125.0 million,
or 24.3%, to $638.8 million from $513.8 million for the year ended December
31, 1994. Components of the change in net sales are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION CENTERS 1994 1995 INCREASE % INCREASE
-------------------- ------ ------ -------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
In operation prior to January 1, 1994......... $500.5 $587.2 $ 86.7 17.3%
Acquired in 1994.............................. 2.9 13.1 10.2 351.7
Opened by the Company in 1994................. 10.4 23.4 13.0 125.0
Acquired in 1995.............................. -- 9.0 9.0 --
Opened by the Company in 1995................. -- 6.1 6.1 --
------ ------ ------ -----
Total....................................... $513.8 $638.8 $125.0 24.3%
====== ====== ====== =====
</TABLE>
Cost of sales for the year ended December 31, 1995 increased by $98.0
million, or 24.3%, to $501.0 million from $403.0 million for the year ended
December 31, 1994, primarily as a result of costs associated with increased
sales. Cost of sales remained constant as a percentage of net sales over the
same period at 78.4%.
24
<PAGE>
Distribution center operating income increased $6.7 million to $26.9 million
in 1995 from $20.2 million in 1994. Components of distribution center
operating income (loss) and the change therein are as follows:
<TABLE>
<CAPTION>
DISTRIBUTION CENTERS 1994 1995 CHANGE
-------------------- ----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
In operation prior to January 1, 1994...................... $21.4 $29.2 $7.8
Acquired in 1994........................................... (0.1) 0.0 0.1
Opened by the Company in 1994.............................. (1.1) (0.9) 0.2
Acquired in 1995........................................... -- (0.7) (0.7)
Opened by the Company in 1995.............................. -- (0.7) (0.7)
----- ----- ----
Total.................................................... $20.2 $26.9 $6.7
===== ===== ====
</TABLE>
Increases in comparable distribution center sales were almost entirely due
to increases in volume as opposed to price increases. Such volume increases
were, in part, due to the introduction of new products, such as commercial
roofing and siding, into certain distribution centers.
Distribution centers in operation prior to January 1, 1994 accounted for
91.9% of net sales and 108.6% of distribution center operating income for
1995.
General and administrative expenses increased $2.5 million to $10.5 million
in 1995 from $8.0 million in 1994 and remained constant at 1.6% of net sales.
Major components of the increased expenses were salaries and benefits and
increased depreciation on the new headquarters facility which opened in mid-
1995.
Interest expense for the year ended December 31, 1995 increased by $3.7
million, or 61.7%, to $9.7 million from $6.0 million for the year ended
December 31, 1994, primarily as a result of greater borrowings associated with
increased working capital needs due to the Company's growth, as well as
increased interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities. Net cash provided by operations was
$2.1 million and $6.8 million for the three months ended March 31, 1996 and
1997, respectively. The increase was due primarily to changes in working
capital caused by the timing of payments received or made for trade
receivables and payables and inventories. Net cash provided by (used in)
operations was $4.8 million for the year ended December 31, 1996 compared to
$(6.3) million for the year ended December 31, 1995. The increase in 1996
occurred primarily as a result of increased earnings of $3.3 million,
increased depreciation and amortization of $2.3 million and the effect of
changes in operating assets and liabilities aggregating $5.1 million. Net cash
used in operations was $(1.2) million for the year ended December 31, 1994
compared to $(6.3) million for the year ended December 31, 1995. The change
from 1994 to 1995 occurred primarily as a result of the effect of operating
assets and liabilities aggregating $(7.5) million offset by increased net
income of $0.5 million and increased depreciation and amortization of $1.6
million.
Cash Flows from Investing Activities. Net cash (used in) investing
activities was $(9.4) million and $(4.7) million for the three months ended
March 31, 1996 and 1997, respectively. The smaller use of cash was due mainly
to fewer acquisitions in the first quarter of 1997 as compared to 1996. Net
cash provided by (used in) investing activities was $(15.4) million, $(25.0)
million and $(26.7) million for the years ended December 31, 1994, 1995 and
1996, respectively. The Company's investing activities consist primarily of
capital expenditures and, to a lesser extent, costs associated with the
acquisition of building products distributors. Capital expenditures were $13.8
million, $19.9 million and $14.7 million in the fiscal years ended December
31, 1994, 1995 and 1996, respectively. Capital expenditures in 1994 and 1995
included $3.5 million and $3.5 million, respectively, of costs associated with
purchasing and improving the Company's corporate headquarters building.
Cash Flows from Financing Activities. Net cash provided by (used in)
financing activities was $4.8 million and $(3.8) million for the three months
ended March 31, 1996 and 1997, respectively. The greater use of cash in the
first quarter of 1997 as compared to 1996 was due to fewer borrowings on the
line of credit, payments on other notes payable, and net advances to the sole
stockholder. Net cash provided by financing activities was $17.2
25
<PAGE>
million, $32.3 million and $21.8 million for the years ended December 31,
1994, 1995 and 1996, respectively. The Company's financing activities consist
primarily of the borrowings incurred in connection with the growth of its
existing distribution centers as well as acquisition of building products
distributors and, to a lesser extent, distributions to the Company's sole
stockholder in respect of tax liabilities related to the Company.
Liquidity. The Company's principal sources of funds following the Offering
are anticipated to be cash flows from operating activities and borrowings
under the Credit Agreement. The Company believes that these funds will provide
the Company with sufficient liquidity and capital resources for the Company to
meet its financial obligations, including the payment of principal and
interest on the Notes, as well as to provide funds for the Company's working
capital, capital expenditures and other needs for the foreseeable future. No
assurance can be given, however, that this will be the case. The Company's
future operating performance and ability to service or refinance the Notes and
to repay, extend or refinance the Credit Agreement will be subject to future
economic conditions and to financial, business and other factors, many of
which are beyond the Company's control. See "Risk Factors--Substantial
Leverage."
In connection with certain of the Company's acquisitions, the Company's sole
stockholder or his affiliates have purchased the real estate of the acquired
businesses, which the Company has then leased from Mr. Hendricks or his
affiliates. In addition, certain of the distribution centers opened by the
Company are located in facilities purchased by and leased from Mr. Hendricks
or his affiliates. As of December 31, 1996, the Company leased 67 of its
distribution centers from Mr. Hendricks or his affiliates. These real estate
purchases have historically been financed with a combination of bank financing
and equity, and a portion of the equity has sometimes been funded by Mr.
Hendricks with borrowings from the Company. Interest is charged on such loans
at a rate comparable to the rate the Company pays on its bank borrowings. The
maximum amount of such borrowings at any time during the three years ended
December 31, 1996, occurred in October 1994 and aggregated $7.3 million. The
aggregate amount of such borrowings outstanding as of April 30, 1997 was
approximately $8.3 million, which Mr. Hendricks repaid in its entirety with a
portion of the proceeds of the Distribution. The Company and Mr. Hendricks
currently intend to continue to acquire properties for the Company's occupancy
using such method of financing. The Indenture and the Credit Agreement each
permit the Company to lend additional amounts to Mr. Hendricks in connection
with such transactions in the future. See "Use of Proceeds," "Certain
Transactions" and "Description of the Notes--Certain Covenants--Restricted
Payments."
In the event of a Change of Control, the Company will be required to make an
offer for cash to repurchase the Notes at 101.0% of the principal amount
thereof, plus accrued and unpaid interest thereon and Liquidated Damages, if
any, to the repurchase date. Certain events involving a Change of Control may
result in an event of default under the Credit Agreement or other indebtedness
of the Company that may be incurred in the future. Moreover, the exercise by
the holders of the Notes of their right to require the Company to repurchase
the Notes may cause an event of default under the Credit Agreement or such
other indebtedness, even if the Change of Control does not. There can be no
assurance that the Company will have the financial resources necessary to
repurchase the Notes upon a Change of Control. See "Risk Factors--Change of
Control" and "Description of the Notes--Repurchase at the Option of Holders--
Change of Control."
SEASONALITY
Because of cold weather conditions in many of the markets in which the
Company does business and the seasonal nature of the roofing and siding
business generally, the Company's revenues vary substantially throughout the
year, with its lowest revenues typically occurring in the months of December
through February.
26
<PAGE>
The following table sets forth selected quarterly combined financial
information. This information is derived from unaudited combined financial
statements of the Company and includes, in the opinion of management, all
normal and recurring adjustments that management considers necessary for a
fair statement of the results for such periods. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
--------- -------- ------------- ------------ --------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net Sales......... $109,770 $169,913 $188,489 $170,649 $128,704 $212,959 $240,327 $207,113 $162,772
Costs of sales.... 86,079 133,202 148,508 133,238 100,695 166,845 187,432 160,655 126,789
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit...... 23,691 36,711 39,981 37,411 28,009 46,114 52,895 446,458 35,983
OPERATING
EXPENSES:
Distribution
centers.......... 23,299 27,775 30,271 29,514 29,106 35,780 38,647 36,767 36,656
General and
administrative... 2,230 3,023 2,301 2,922 2,897 3,586 2,819 2,714 3,566
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses........ 25,529 30,798 32,572 32,436 32,003 39,366 41,466 39,481 40,222
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)........... $ (1,838) $ 5,913 $ 7,409 $ 4,975 $ (3,994) $ 6,748 $ 11,429 $ 6,977 $ (4,239)
======== ======== ======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Inventory......... $ 99,283 $ 96,446 $ 82,249 $ 79,297 $112,961 $112,459 $114,644 $ 95,778 $137,147
Amounts
receivable....... 56,785 80,734 87,804 73,133 73,146 102,171 109,388 92,360 93,075
Accounts payable.. 89,563 86,614 88,290 49,739 88,912 109,273 112,339 57,700 109,658
Long-term debt,
less current
portion.......... 78,959 109,442 97,031 113,394 118,526 132,583 129,912 139,664 137,233
</TABLE>
INFLATION
The Company believes that inflation did not have a material impact on its
results of operations for the three years ended December 31, 1996 or the three
months ended March 31, 1997.
27
<PAGE>
BUSINESS
OVERVIEW
ABC is the largest wholesale distributor of roofing products and one of the
largest wholesale distributors of vinyl siding materials in the United States,
operating 161 distribution centers located in 37 states as of March 31, 1997.
ABC provides its customers with access to what it believes to be the largest
selection of roofing and vinyl siding materials in the industry and with a
knowledgeable staff capable of providing product specific information, as well
as credit services and marketing support. For the year ended December 31,
1996, the Company generated $30.2 million of EBITDA from net sales of $789.1
million. See Note (5) to "Selected Combined Historical Financial Data."
The products distributed by the Company consist exclusively of roofing and
siding materials, windows and related tools and accessories for residential
and, to a lesser extent, commercial applications. The Company markets these
products on a wholesale basis primarily to small and medium-sized roofing and
siding contractors that are involved in the replacement segment of the
construction industry. ABC also distributes products to builders and
subcontractors involved in new construction projects. According to the
National Roofing Contractors Association, approximately 77.0% of the 1996 U.S.
roofing market consisted of replacement or remodeling projects, and the
Company believes that replacement and remodeling purchases represent a greater
proportion of its revenue than that of the industry as a whole. The Company
believes that its focus on roofing and vinyl siding products and in-depth
knowledge of such products, combined with its long-term approach to customer
relationships, allow it to distinguish itself from mass-merchandiser building
supply companies. At the same time, the Company believes that its size and
market share allow it to negotiate volume discounts and other favorable terms
with manufacturers and maintain a broader product selection than smaller local
and regional building supply distributors.
ABC was founded in 1982 by its President and Chief Executive Officer,
Kenneth A. Hendricks, who, as the owner of a successful roofing business, saw
a market for the Company's services. Since its inception, ABC has experienced
significant growth. The Company's net sales and EBITDA have increased from
$368.3 million and $13.1 million, respectively, for the year ended December
31, 1992 to $789.1 million and $30.2 million, respectively, for the year ended
December 31, 1996, representing compound annual growth rates of 21.0% and
23.2%, respectively. See Note (5) to "Selected Combined Historical Financial
Data."In addition, comparable distribution center sales have grown at an
average annual rate of 14.4% over the same period. The Company is managed by a
team of experienced roofing and siding distribution professionals, including
its seven regional managers, who have an average of 20 years of experience in
the exterior building products supply industry.
BUSINESS STRATEGY
The Company's business objective is to strengthen its position as the
largest wholesale distributor of roofing and vinyl siding products in the
United States. To support this objective, the Company has adopted a business
strategy that includes the following key components:
. Offer a Broad Product Selection and Superior Customer Service: ABC
offers what it believes to be the largest selection of roofing and vinyl
siding products in the industry. The Company believes that it offers
more grades, styles and colors of roofing and vinyl siding products in
stock at multiple price points than its competitors. ABC provides its
customers with prompt product delivery as well as product specific
information, manufacturer-sponsored training, credit services and
marketing support. By providing high quality products, support services
and credit programs, ABC effectively distinguishes itself from smaller
distributors and mass-merchandisers. The Company believes its broad
roofing and vinyl siding product offerings and superior customer service
enhance its customers' ability to compete in their markets and to grow
their businesses, thereby creating customer loyalty and enhancing ABC's
growth potential.
. Expand Distribution Center Product Mix: The Company currently operates
distribution centers in 37 states, and has a market presence in 44 of
the 50 most populous metropolitan areas in the United States. Although
the Company has developed a national network of distribution centers,
not all of its locations
28
<PAGE>
offer the complete ABC product line. The Company has recently increased
its focus on vinyl siding and window products, but currently distributes
vinyl siding and windows in only 61.0% and 39.0%, respectively, of its
distribution centers. By offering its full product line in all of its
locations, the Company believes it can achieve considerable sales and
EBITDA growth.
. Leverage Economies of Scale: The Company's size allows it to obtain
volume discounts and other favorable terms on many of its primary
products and maintain a broader selection within its product categories
than most other distributors and mass-merchandisers. The Company's size
and geographic dispersion also enable it to shift resources among its
distribution centers to offset the effects of regional product shortages
or to quickly meet market demand. By leveraging its geographic coverage
and economies of scale, the Company is able to set its prices
competitively while maintaining favorable operating results.
. Pursue Selective Acquisitions: Since January 1, 1992, the Company has
completed 24 acquisitions, acquiring 34 local distribution centers (net
of consolidations). The Company has historically selected acquisition
candidates based, in part, on the opportunity to improve their operating
results. The Company seeks to leverage its purchasing power, broad
product selection and management expertise to improve the financial
performance of its acquired distribution centers while maintaining the
acquired customer bases. Recently, the Company has considered acquiring
larger distributors with better operating results than its prior
acquisition candidates. On May 19, 1997, the Company acquired Viking, a
regional building supply distributor with 12 locations in the
northeastern United States. See "Recent Transactions--The Viking
Acquisition." The Company believes that the ongoing consolidation in the
building materials distribution industry will continue to provide
suitable acquisition candidates in the future.
. Utilize Performance Related Incentives: The Company maintains incentive
programs designed to reward its employees for achieving positive
operating results. Each of the Company's non-union employees has the
opportunity to earn a substantial bonus based on the profitability of
such employee's individual operating unit. These targeted incentive
programs encourage the Company's distribution center managers to make
independent, local market-driven decisions regarding product mix and
daily operations. The Company believes its incentive programs have
contributed significantly to its profitability and have helped it to
achieve an average annual growth rate of comparable distribution center
sales of 14.4% over the past five years.
INDUSTRY OVERVIEW
The roofing and vinyl siding products industry contains three primary
distribution channels: manufacturers' direct sales; mass merchandisers, such as
Home Depot; and wholesale distributors, such as the Company. Mass merchandisers
primarily sell products to homeowners and small contractors, tend to stock
items across a multitude of building supply categories and stock a relatively
narrow selection of non-premium grade roofing and siding products. Roofing and
siding manufacturers sell a small percentage of products to a limited number of
large national contractors. Typically, manufacturers do not sell products
directly to retail customers or small contractors. Since 1983, the Company has
purchased all or a significant portion of the wholesale distribution capacities
of the following roofing and siding manufacturers: GAF (13 facilities),
Nichols-Homeshield (7 facilities), GS Roofing Products Company, Inc. (13
facilities) and Owens-Corning Fiberglass Corporation (6 facilities).
While ABC operates nationwide, the wholesale roofing and siding distribution
channel is characterized by a large number of small local and regional
participants. As a result of their small size, many of these distributors lack
the purchasing power of a larger entity, the resources to offer multiple brands
and broad product lines or the inventory control and credit management systems
necessary to operate efficiently in multiple branches. The Company believes
that the competitive environment faced by small distributors has prompted the
trend toward industry consolidation and that such consolidation offers
significant opportunities for ABC.
29
<PAGE>
PRODUCTS
The products distributed by the Company consist primarily of roofing
products (both residential and commercial), siding products, windows, and
related tools, equipment and accessories. ABC provides its customers with what
it believes to be the largest selection of roofing and vinyl siding materials
in the industry. The Company believes that it offers more grades, styles and
colors of roofing and vinyl siding materials in stock at multiple price points
than its competitors. For example, the Company carries shingles from 12
manufacturers, in 5 different grades, over 170 different styles and over 400
different colors. The products that the Company distributes can be classified
in the following four categories:
Residential roofing products and accessories. The Company distributes a
broad selection of shingles, felt, roof tile, wood shakes, flashings, vents
and other roofing products to residential roofing contractors. Principal
brands of residential roofing products include GAF(R), GS(R), CertainTeed(R),
Globe(R), Elk(R) and Owens-Corning(R). The Company generated $267.7 million,
$318.3 million and $391.8 million of revenue from the sale of residential
roofing products and accessories in the years ended December 31, 1994, 1995
and 1996, respectively.
Commercial roofing products and accessories. The Company distributes a broad
selection of modified bitumen, EPDM, hypalon, other rolled roofing, felts,
coatings, asphalt, flashings, vents, fasteners, roof insulation and other
roofing products to commercial roofing contractors. Principal brands of
commercial roofing products include GAF(R), GS(R), US Intec, Celotex(R),
Firestone(R), Versico, Trumbull Asphalt, Atlas(R), Schuller International and
Mule-Hide(R). Mule-Hide primarily sells its private label roofing systems
through ABC's distribution centers. In addition, Mule-Hide sells its products
directly to commercial roofing contractors and other distributors in markets
not serviced by ABC. The Company generated $141.3 million, $181.5 million and
$214.2 million of revenue from the sale of commercial roofing products and
accessories in the years ended December 31, 1994, 1995 and 1996, respectively.
Siding products and accessories. The Company distributes a broad selection
of siding products to siding contractors. The Company's siding products
consist primarily of vinyl siding, soffits and accessories and, to a lesser
extent, aluminum and wood siding. Principal vinyl siding brands include
Alcoa(R), Wolverine(R) and Amcraft(R). The Company generated $57.9 million,
$70.6 million and $90.5 million of revenue from the sale of siding products
and accessories in the years ended December 31, 1994, 1995 and 1996,
respectively.
Windows and accessories. The Company distributes a broad selection of window
products and accessories to residential window installers, including vinyl,
wood and aluminum window frames and single, double and triple glazed windows.
Principal window brands include CertainTeed(R), Simonton Windows(R) and
Weather-Shield(R). In addition, the Company has begun distributing window
products made by VAP. The Company generated $21.3 million, $35.4 million and
$53.6 million of revenue from the sale of window products and accessories in
the years ended December 31, 1994, 1995 and 1996, respectively.
Other building products and accessories. The Company distributes a variety
of roofing and siding products to complement its primary product lines. Such
products include gutters, sheet metal, roofing and siding equipment, tools and
other related accessories. Most of these products are featured in the
Company's catalog. The Company generated $25.6 million, $33.0 million and
$39.0 million of revenue from the sale of these products in the years ended
December 31, 1994, 1995 and 1996, respectively.
The following table sets forth certain information regarding the Company's
net sales by product for year ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
% GROWTH OVER
% OF TOTAL NET SALES PRIOR YEAR
---------------------- --------------
PRODUCT CATEGORIES 1994 1995 1996 1995 1996
- ------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Residential roofing..................... 52.1% 49.8% 49.7% 18.9% 23.1%
Commercial roofing...................... 27.5 28.4 27.1 28.6 18.0
Siding.................................. 11.3 11.1 11.5 21.8 28.1
Windows................................. 4.1 5.5 6.8 66.3 51.3
Other................................... 5.0 5.2 4.9 28.7 18.3
------ ------ ------ ------ ------
Total for all categories.............. 100.0% 100.0% 100.0% 24.3% 23.5%
====== ====== ====== ====== ======
</TABLE>
30
<PAGE>
TARGET MARKET
The Company distributes roofing, siding, windows and related products on a
wholesale basis primarily to small and medium-sized roofing and siding
contractors that are involved in the replacement segment of the construction
industry. ABC also distributes products to builders and subcontractors
involved in new construction projects. According to the National Roofing
Contractors Association, approximately 77.0% of the 1996 U.S. roofing market
consisted of replacement or remodeling projects, and the Company believes that
replacement and remodeling purchases represent a greater proportion of its
revenue than that of the industry as a whole. By focusing on the replacement
and remodeling sector of the industry, the Company believes it is able to
distribute its products to the largest segment of the roofing and siding
market and to reduce the impact of the cyclical nature of the new construction
segment on its operations.
ABC offers what it believes to be the largest selection of roofing and vinyl
siding products in the industry. The Company believes that it offers more
grades, styles and colors of roofing and vinyl siding products in stock at
multiple price points than its competitors. ABC provides its customers with
prompt product delivery as well as product specific information, manufacturer-
sponsored training, credit services and marketing support. By providing high
quality products, support services and credit programs, ABC effectively
distinguishes itself from smaller distributors and mass-merchandisers. The
Company believes its broad roofing and vinyl siding product offerings and
superior customer service enhance its customers' ability to compete in their
markets and assist in growing their businesses, thereby creating customer
loyalty and enhancing ABC's growth potential.
The Company provides a number of services designed to enhance customer
relationships. Such services include: flexible delivery schedules (including
roof top deliveries in some markets), customer training, in-store seminars
conducted by product manufacturers and a variety of marketing programs
tailored to meet specific customer needs. For example, the Company maintains a
warranty eligibility certification program in which customers receive
professional training in the proper application of Mule-Hide products. The
Company also maintains a toll-free telephone service providing product support
for a variety of the Company's products. ABC also provides its customers with
support in marketing their services to the ultimate consumer, including
providing construction site signs, business cards, banners, product brochures,
truck lettering and other promotional materials to its customers for a nominal
fee. In addition, American Patriot Insurance Agency, Inc., an affiliate of the
Company, offers insurance programs designed for roofing and siding contractors
that the Company believes result in savings on such contractors' insurance
premiums, which typically comprise a significant portion of such contractors'
business expenses. The Company believes these services have contributed to its
development of a large and diverse customer base of over 109,000 roofing and
siding contractors.
CREDIT POLICY
The Company believes its credit policies are a key element in its customers'
success and represent a significant competitive advantage over distributors
who do not offer such services. The Company offers standard as well as job
specific credit terms. The Company believes its credit policy is a
determinative factor in many of its customers' purchasing decisions. During
1996, the Company provided credit to over 34,000 customers.
The Company's credit program is managed by its Corporate Credit Manager, who
has over 30 years of experience in managing credit risks. The Company
establishes and maintains overall credit policy and terms at the corporate
level. Regional credit managers provide training and support for distribution
center managers and credit managers and approve credit lines beyond
distribution center managers' authority limits. Distribution center managers
and credit managers receive extensive training in the Company's credit
policies and practices and are generally responsible for overseeing the
extension of credit and the collection of past due accounts. All credit
decisions outside of ABC's standard practices are made by ABC's Corporate
Credit Manager. The Company's central credit function assists distribution
centers with major accounts and past due account collections. The Company
obtains lien rights and security interests where appropriate. Management keeps
credit lines reasonable with respect to customer needs and financial resources
and maintains a low tolerance for exceeding credit limits or terms. The
Company's bad debt expense has averaged 0.5% of sales over the past five
years, a level which the Company believes is significantly lower than the
industry average.
31
<PAGE>
PURCHASING
ABC purchases its products directly from a wide variety of manufacturers,
including GAF, GS Roofing Products Company, Inc., Elk Corporation of America,
Owens-Corning Fiberglass Corporation, Schuller International, Inc. and
Aluminum Company of America. Payment, discount and volume purchase programs
are negotiated directly by the Company with its major suppliers, with a
significant portion of the Company's purchases made from suppliers offering
these programs. The Company believes it is the largest or a significant
customer to many of its primary suppliers, and, as a result, is able to
negotiate volume discounts and other favorable terms. At 14.3% of the
Company's 1996 product purchases, GAF was the only supplier which represented
more than 10.0% of the Company's total purchases. The Company typically
purchases its products from manufacturers pursuant to individual purchase
orders, and does not generally enter into long-term contracts for the purchase
of products. However, in connection with the Viking Acquisition, the Company
entered into a purchase agreement with VAP pursuant to which the Company
agreed to purchase a minimum of $98.2 million of VAP products for sale in the
Company's distribution centers over the next five years.
Regional and local managers are responsible for inventory selection and
ordering on terms negotiated centrally, which allows the Company to remain
responsive to local market demands. Distribution center managers are also
responsible for inventory management. From time to time the Company also
negotiates large block purchases of roofing, vinyl siding and other products
to capture additional purchasing economies.
SALES AND MARKETING
As of December 31, 1996, the Company employed over 380 field sales
representatives. Each distribution center has at least two sales
representatives who are responsible for promoting ABC products and services in
their respective markets. The sales representatives report to the distribution
center manager and are supported by customer service representatives. A
substantial portion of each representative's pay is derived from sales
commissions. In addition, the Company employs a number of regional product
managers and sales managers who educate the Company's sales personnel and
customers regarding the technical specifications and marketability of certain
products.
The Company utilizes a variety of marketing techniques to increase its
overall sales and stimulate specific product line sales increases. For
example, the Company makes sample packages available to its customers to aid
in their sales efforts to the end-consumer. The Company also sponsors
incentive programs and educational seminars for its customers, providing
travel or other incentives for achieving certain purchase levels and
opportunities for its customers to increase their knowledge and expertise in
roofing and vinyl siding materials and techniques. The Company also is an
active participant in a variety of trade associations and advertises in trade
journals and other targeted forms of media.
DISTRIBUTION CENTER OPERATIONS
As of March 31, 1997, the Company operates 161 local distribution centers
located in 37 states, and has a market presence in 44 of the 50 most populous
metropolitan areas in the United States. Since January 1, 1992, the Company
has opened 33 distribution centers and acquired an additional 34 distribution
centers (net of consolidations) in connection with its selective acquisition
program. A typical distribution center is comprised of showroom space, office
space, warehouse and receiving space, secure outdoor holding space and a
loading dock. ABC's distribution centers range in size from approximately
15,000 to approximately 110,000 square feet, with a typical size of
approximately 40,000 square feet.
The Company's distribution center showrooms are unique in the industry. The
Company's showrooms feature tools and equipment from the Company's catalog and
allow its customers to view or handle the Company's products, to compare
different types of products and to discuss the products with the Company's
knowledgeable sales representatives.
32
<PAGE>
ABC's national distribution center network is the backbone of its service
strategy. By operating local distribution centers, supported by manufacturer
direct shipments, ABC is able to fill customer orders in a timely and
efficient manner. Furthermore, ABC maintains a minimum of two delivery trucks
at each location to provide for prompt job site or roof top delivery.
Each location is managed by a distribution center manager who oversees the
center's employees, including a credit manager, various sales personnel,
customer service representatives and delivery and warehouse personnel. The
Company allows each distribution center manager to alter the product mix of a
given center to meet local market demands and to stock regional products (such
as roof tile in the Florida, Texas and California markets). Distribution
center employees' bonus levels are largely driven by location profitability.
The Company believes its incentive programs have contributed significantly to
its growth and have helped it to achieve an average annual growth rate of
comparable distribution center sales of 14.4% over the past five years.
The following table sets forth the Company's growth in terms of distribution
centers in each of the past three years:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Distribution centers on January 1............................. 98 109 126
Distribution centers acquired................................. 7 14 22
Distribution centers opened................................... 7 7 14
Acquired distribution centers consolidated.................... (3) (4) (5)
--- --- ---
Distribution centers on December 31........................... 109 126 157
=== === ===
</TABLE>
CATALOG OPERATIONS
The Company publishes a full-color 150+ page catalog annually which
illustrates the equipment and accessories offered by the Company to complement
its primary roofing, siding and window lines. Smaller catalogs are published
quarterly. Each catalog issue is mailed directly to approximately 70,000 of
ABC's customers and to each of ABC's distribution centers. In 1996, catalog
purchases by customers through distribution centers totaled $27.8 million and
direct sales to customers totaled $1.8 million.
COMPETITION
The roofing and siding products distribution industry is highly competitive
and fragmented. The Company competes directly with a large number of local and
regional building products distributors and, in certain markets and product
categories, with two national distributors, Cameron Ashley Building Products
and Allied Building Products. The Company also competes to a lesser extent
with mass-merchandisers, such as Home Depot, and with direct sales from
building products manufacturers. The Company believes that its customers are
not typically inclined to purchase products from mass-merchandisers who lack
the broad roofing and vinyl siding product lines offered by ABC, including
most premium products, and are not typically large enough to be able to
purchase their products directly from manufacturers. In addition, a number of
manufacturers have eliminated or downsized their distribution operations. For
example, since 1983, the Company has purchased all or a significant portion of
the wholesale distribution capacities of the following roofing and siding
manufacturers: GAF (13 facilities), Nichols-Homeshield (7 facilities), GS
Roofing Products Company, Inc. (13 facilities) and Owens-Corning Fiberglass
Corporation (6 facilities).
The Company believes that its customers generally select building products
distributors on the basis of product availability, customer service and
relationships, delivery responsiveness and credit availability, and that it
competes effectively on each of these bases. The Company believes that its
focused product selection and in-depth product knowledge, combined with its
long-term approach to customer relationships, result in competitive advantages
over mass-merchandisers. At the same time, the Company believes that its size
and market share allow it to negotiate volume discounts and other favorable
terms with manufacturers and maintain a broader product selection than smaller
local and regional building supply distributors.
33
<PAGE>
PROPERTIES
The Company operates its corporate headquarters out of a 118,000 square foot
facility (of which approximately 60,000 square feet are dedicated to the
Company's catalog operations) located in Beloit, Wisconsin. The following
table sets forth certain information regarding the Company's distribution
centers as of March 31, 1997:
<TABLE>
<CAPTION>
TOTAL NUMBER OF
REGION LOCATIONS
------ ---------------
<S> <C>
Lake Central(1).......... 20
Mid-Atlantic(2).......... 16
Midwest(3)............... 28
Northeast(4)............. 5
Rocky Mountain(5)........ 17
Southeast(6)............. 28
Southwest(7)............. 28
Western(8)............... 19
---
161
===
</TABLE>
- --------
(1) Indiana, Kentucky, Michigan and Ohio.
(2) Maryland, a portion of New Jersey, Pennsylvania and Virginia.
(3) Illinois, Iowa, a portion of Missouri, Minnesota and Wisconsin.
(4) Connecticut, Delaware, a portion of New Jersey and New York.
(5) Arizona, Colorado, a portion of Kansas, a portion of Missouri, Nebraska,
Nevada, New Mexico and Utah.
(6) Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee.
(7) Arkansas, a portion of Kansas, Louisiana, Oklahoma and Texas.
(8) California, Hawaii, Oregon and Washington.
The Company leases 67 of its facilities from the Company's sole stockholder
and certain of his affiliates. See "Certain Transactions." The Company owns
directly seven of its facilities (including its corporate headquarters
building) and leases the remainder from third parties. The Company believes
that its facilities are suitable and adequate to support its current
operations.
ENVIRONMENTAL MATTERS
A number of roofing materials are considered environmentally hazardous. The
Company typically handles and stores a variety of these materials at its
distribution center locations. The Company maintains appropriate environmental
compliance programs at each of its distribution centers and has never been the
subject of any material enforcement action by any governmental agency.
Many of the Company's distribution centers are located in areas of current
or former industrial activity, where environmental contamination may have
occurred. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
estate may be required to investigate and remediate releases or threatened
releases of hazardous or toxic substances or petroleum products located at
such property, and may be held liable for property damage and for
investigation and remediation costs in connection with the contamination.
The Company does not believe there are any material environmental
liabilities at any of its distribution center locations. Nevertheless, there
can be no assurance that the Company's knowledge is complete with regard to
all material environmental liabilities and it could subsequently discover
potential environmental liabilities arising from its sites or from neighboring
facilities.
34
<PAGE>
EMPLOYEES
As of March 31, 1997, the Company employed 2,339 full-time and 63 part-time
employees, of whom 24 were members of a union. The Company's collective
bargaining agreements with its union expire on various dates, from June 1997
through September 1999. The Company believes that its relations with its
employees are good.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
of the matters in which it is currently involved will have a material adverse
effect on its financial condition or results of operations.
35
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to (i) each
member of the Company's Board of Directors (the "Board"), (ii) each executive
officer of the Company and (iii) certain key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth A. Hendricks....... 55 President, Chief Executive Officer and Director
Diane Hendricks............ 50 Executive Vice President, Secretary and Director
Kendra Story............... 37 Chief Financial Officer, Treasurer and Director
Gil Aleman................. 53 Director
Kent Nelson................ 52 Director
Jeffrey Stentz............. 37 Director of Acquisitions
Robert Bartels............. 48 Director of Purchasing
Ellen Baker................ 44 General Manager of Amcraft
Duane Blakely.............. 59 Corporate Credit Manager
Kenneth Dobkin............. 51 Lake Central Regional Manager
Phillip Gentry............. 48 Southeast Regional Manager
Kimberlee Hendricks........ 35 President of Mule-Hide
Ronald Hritz............... 51 Western Regional Manager
Jerry Juszak............... 48 Mid-Atlantic Regional Manager
Kathleen Murray............ 34 Director of Management Information Systems
John Simonelli............. 43 Rocky Mountain Regional Manager
Frank Sperl................ 46 Northeast Regional Manager
John Yonkin................ 40 Southwest Regional Manager
</TABLE>
Kenneth A. Hendricks has served as President, Chief Executive Officer and a
director of the Company since its inception in June 1982. Mr. Hendricks is
also President of Amcraft and Chairman of the Board of Mule-Hide. Prior to
1982, Mr. Hendricks was the owner and operator of a number of successful
exterior building contracting businesses and real estate businesses. Mr.
Hendricks is a member of the board of directors of Blackhawk Bancorp, Inc.
Diane Hendricks has served as Executive Vice President, Secretary and a
director of the Company since its inception. Ms. Hendricks is also President
of American Patriot Insurance Agency, Inc. Ms. Hendricks is primarily
responsible for overseeing insurance, personnel matters, bonus programs,
profit sharing and legal matters for the Company.
Kendra Story has served as the Chief Financial Officer, Treasurer and a
director of the Company since its inception. Ms. Story is primarily
responsible for overseeing finance, accounting, internal audit and inventory
management for the Company.
Gil Aleman has served as a director of the Company since 1997. Mr. Aleman is
recently retired from Jim Walter Corporation, where he served as President of
its Celotex roofing division from 1985 to 1997. Prior to 1985, Mr. Aleman
served as President of Jim Walter Window Components, a division of Jim Walter
Corporation.
Kent Nelson has served as a director of the Company since 1997. Mr. Nelson
has been Managing Director and a member of the Executive Committee of Aon Risk
Services, Inc., an insurance company, since 1989, and is an adjunct professor
at the Management Graduate School of Business of Northern Illinois University.
Robert Bartels has served as the Company's Director of Purchasing since
1996. From 1992 to 1996, Mr. Bartels served as national marketing and sales
director for Globe Industries Incorporated and IKO Industries, Inc., each of
which is a manufacturer of roofing materials. From 1971 to 1992, Mr. Bartels
was employed by
36
<PAGE>
The Celotex Corporation, a manufacturer of roofing and siding products, in a
variety of positions with increasing responsibility, most recently as vice
president of sales.
Jeffrey Stentz has served as the Company's Director of Acquisitions since
1995. From 1993 to 1995, Mr. Stentz served as chief financial officer of PDQ
Food Stores, Inc., a privately owned convenience food store chain. Prior to
that time, Mr. Stentz was a senior lending officer at Valley Bank and a credit
analyst at NBD Bank and at First Interstate Bancorp.
Ellen Baker has served as the General Manager of Amcraft since 1995. From
1975 to 1995, Ms. Baker was employed by Wickes Lumber Company in a variety of
positions with increasing responsibility, including as director of sales and
marketing.
Duane Blakely has served as the Company's Corporate Credit Manager since
1986. Mr. Blakely is responsible for the Company's credit policies and
practices.
Kenneth Dobkin has served as the Company's Lake Central Regional Manager
since 1995. From 1975 to 1995, Mr. Dobkin was employed by Wickes Lumber in a
variety of positions with increasing responsibility, including as regional
manager.
Phillip Gentry has served the Company as Southeast Regional Manager since
1997. Prior to that time, Mr. Gentry served the Company as a distribution
center manager since 1988, and as an assistant distribution center manager
from 1984 to 1988.
Kimberlee Hendricks is the President of Mule-Hide and has been with the
Company in a variety of positions with increasing responsibility since 1984.
Ronald Hritz has served the Company in variety of positions with increasing
responsibility since 1984, most recently as Western Regional Manager. Prior to
that time, Mr. Hritz was employed in a variety of positions with increasing
responsibility by Bird & Sons Rain Gutter, a roofing and siding manufacturer.
Jerry Juszak has been with the Company since 1992, initially as the manager
of its catalog operations and most recently as Mid-Atlantic Regional Manager.
From 1981 to 1992, Mr. Juszak was employed by Servistar Corporation, a
hardware and building materials company, in a variety of positions with
increasing responsibility, including as Vice President of Marketing and
Advertising.
Kathleen Murray has served as the Company's Director of Management
Information Systems since 1985. Ms. Murray is responsible for the
implementation and operation of the Company's information systems.
John Simonelli has served as the Company's Rocky Mountain Regional Manager
since 1997. Prior to that time, Mr. Simonelli served the Company as a
distribution center manager since 1988.
Frank Sperl has served as the Company's Northeast Regional Manager since
1996. From 1968 to 1996, Mr. Sperl served in a variety of positions with
increasing responsibility in the roofing industry, most recently as president
of New York Building Products, a wholesale building products distributor.
John Yonkin has served the Company in variety of positions with increasing
responsibility since 1985, most recently as Southwest Regional Manager. Prior
to that time, Mr. Yonkin was employed in a variety of positions with
increasing responsibility by GS Roofing Products Company, Inc., a distributor
of exterior building products. Mr. Yonkin joined the Company at the time of
the acquisition by the Company of GS Roofing Products Company, Inc.'s
distribution operations.
Kenneth and Diane Hendricks are husband and wife. Kendra Story, Kathleen
Murray and Kimberlee Hendricks are daughters of Mr. Hendricks.
37
<PAGE>
EXECUTIVE COMPENSATION
The compensation of executive officers of the Company is determined by the
Board. The following Summary Compensation Table includes individual
compensation information for the Chief Executive Officer and each of the four
other most highly compensated executive officers of the Company in the year
ended December 31, 1996 for services rendered in all capacities to the Company
and its subsidiaries during the year ended December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
-------------------- COMPENSATION
NAME AND PRINCIPAL POSITION ANNUAL BONUS (1)
- --------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Kenneth A. Hendricks........................ $ 751,000 $ -- $3,880
President, Chief Executive Officer and
Director
Diane Hendricks............................. 125,000 75,000 3,583
Executive Vice President, Secretary and
Director
Kendra Story................................ 119,000 50,000 4,204
Treasurer, Chief Financial Officer and
Director
Robert Bartels (2).......................... 77,885 -- 1,400
Director of Purchasing
Jeffrey Stentz.............................. 90,000 25,000 2,100
Director of Acquisitions
</TABLE>
- --------
(1) Consists of estimated amounts paid by the Company for automobiles and for
matching payments under the Company's 401(k) Profit Sharing Plan,
respectively, as follows: Mr. Hendricks--$2,100 and $1,780; Ms.
Hendricks--$2,100 and $1,483; Ms. Story--$2,100 and $2,104; Mr. Bartels--
$1,400 and $0; and Mr. Stentz--$2,100 and $0.
(2) Mr. Bartels joined the Company in May 1996. His annual base salary as of
December 31, 1996 was $125,000.
For a description of the employment agreement entered into between Mr.
Hendricks and the Company in connection with the Offering, see "Certain
Transactions."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's capital stock is owned beneficially and of record by
the Company's founder, President and Chief Executive Officer. There are no
outstanding options or other rights to purchase any shares of the Company's
capital stock.
38
<PAGE>
CERTAIN TRANSACTIONS
ABC transacts business with a number of entities, including Corporate
Contractors, Inc. ("CCI"), Gordon Metals Co., Inc. ("Gordon"), ABC Express,
Inc. ("Express"), Water Tower Industrial Properties ("Water Tower"), Hendricks
Commercial Properties ("HCP"), Hendricks Carolina Properties, L.L.C.
("Carolina"), Patriot, Ltd. ("Patriot") and American Patriot Insurance Agency,
Inc. ("APIA") (collectively, the "Related Entities"), which are owned by ABC's
sole stockholder and his spouse. CCI performs construction work such as
interior renovations and additions at ABC locations. Gordon provides metal
roofing materials to the Company on a purchase order basis. Express provides
transportation services for the Company. The Company leases properties from
Water Tower, Carolina and HCP. The Company believes that the transactions
between ABC and the Related Entities have generally been on terms that are no
less favorable to ABC than those that could have been obtained from third
parties.
In connection with certain of the Company's acquisitions, the Company's sole
stockholder or his affiliates have purchased the real estate of the acquired
business, which the Company has then leased from Mr. Hendricks or his
affiliates. In addition, certain of the distribution centers opened by the
Company are located in facilities purchased by and leased from Mr. Hendricks
or his affiliates. These real estate purchases have historically been financed
with a combination of debt financing and equity, and a portion of the equity
has sometimes been funded by Mr. Hendricks with borrowings from ABC. The
aggregate amount of such borrowings from ABC outstanding as of March 31, 1997
was $6.5 million and as of April 30, 1997 was approximately $8.3 million,
which Mr. Hendricks repaid in its entirety with a portion of the proceeds of
the Distribution. The Company and Mr. Hendricks currently intend to continue
to acquire properties for the Company's occupancy using such method of
financing. The Indenture and the Credit Agreement each permit the Company to
lend additional amounts to Mr. Hendricks in connection with such transactions
in the future. Interest is charged on such loans at a rate comparable to the
rate the Company pays on its bank borrowings. The maximum amount of such
borrowings at any time during the three years ended December 31, 1996,
occurred in October 1994 and aggregated $7.3 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of the Notes--Certain
Covenants--Restricted Payments."
As described above, as of December 31, 1996, the Company leased 67
facilities from Mr. Hendricks or his affiliates. For the year ended December
31, 1996, the Company paid $6.2 million in lease payments to Mr. Hendricks or
his affiliates in respect of such properties. In connection with the Offering,
the Company entered into a series of amended leases with lease terms of at
least ten years for such properties (such leases, the "Related Party Leases").
Annual payments due under such leases are based on the prevailing market rates
in the areas in which such properties are located, adjusted annually to
reflect changes in the consumer price index.
As of December 31, 1994, 1995, 1996 and March 31, 1997, the Company had
obligations outstanding under guarantees and other credit support in respect
of debt of Mr. Hendricks and his affiliates in the amounts of $2.3 million,
$2.7 million, $3.9 million and $4.3 million, respectively. A portion of such
credit support related to certain indebtedness of the Company which was
retained by Mr. Hendricks in connection with the sale by him of certain
properties to the Company pursuant to which Mr. Hendricks remained as primary
obligor under the mortgages relating thereto and the Company became
secondarily liable as the owner of the subject properties. No compensation has
been paid to ABC for issuing such guarantees or other credit support or to Mr.
Hendricks for remaining as primary obligor under such mortgages. The maximum
amount of such guarantees and other credit support at any time during the
three years ended December 31, 1996 occurred in July 1996 and aggregated $4.0
million. Through March 31, 1997, the maximum was $4.3 million.
Patriot, an insurance company owned by Mr. Hendricks and his spouse,
provides certain insurance coverage to the Company, which is subsequently
reinsured in part by third party insurance carriers. APIA serves as a broker
with respect to insurance facilities for the Company and the Related Entities.
The Company paid Patriot $5.4 million, $5.2 million and $6.0 million in 1994,
1995 and 1996, respectively, for reported and unreported claim liabilities (as
determined by an unrelated third-party claims adjusting service) that are not
the subject of reinsurance, as well as costs of reinsurance premiums and other
related costs.
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In connection with the Offering, the Company entered into an employment
agreement (the "Employment Agreement") with Mr. Hendricks which provides for an
annual salary of $1.0 million, subject to annual increases, if approved by a
majority of ABC's disinterested directors, of up to 20.0% of his salary in the
preceding year. The Employment Agreement is for a term of three years,
renewable annually thereafter upon the mutual agreement of the Company and Mr.
Hendricks.
In connection with the Offering, the Company also entered into the Tax
Allocation Agreement with Mr. Hendricks pursuant to which he will receive
distributions from each of ABC, Mule-Hide and Amcraft with respect to taxes
payable by Mr. Hendricks associated with the operations of each entity.
Payments to Mr. Hendricks under the Tax Allocation Agreement are permitted by
the Indenture and the Credit Agreement.
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DESCRIPTION OF THE CREDIT AGREEMENT
In connection with the Offering, the Company amended the Credit Agreement
to, among other things, extend the maturity thereof and reduce the interest
rate thereunder. See "Use of Proceeds." The following description sets forth
certain terms and covenants contained in the Credit Agreement, as so amended:
Use of Proceeds. The Credit Agreement is available to finance working
capital requirements and general corporate purposes of the Company, including
additional acquisitions.
Principal Amount. The Credit Agreement provides for revolving credit
borrowings in a maximum aggregate principal amount of $200.0 million, subject
to borrowing base eligibility, of which $10.0 million is available for
issuances of letters of credit. Borrowing base eligibility is based on 85.0%
of the Company's eligible receivables and up to 65.0% of its eligible
inventory. As of June 30, 1997, the Company and its subsidiaries had
outstanding borrowings under the Credit Agreement of $53.0 million and
additional availability of $132.3 million.
Maturity; Interest; Fees. The Credit Agreement has an initial maturity date
of June 30, 2000, subject to subsequent one-year extensions upon the mutual
consent of the parties, and is secured by a first priority lien on
substantially all of the properties and assets of the Company and its
subsidiaries, now owned or acquired later. At the Company's option, the
interest rate per annum applicable to the Credit Agreement will be a
fluctuating rate of interest measured by reference either to LIBOR plus 1.25%
or the published prime rate of the Agent Bank (the "ABR"). The Company has
agreed to pay certain fees with respect to the Credit Agreement including: (i)
agent fees and (ii) commitment fees of 0.25% per annum on up to $25.0 million
of the unused availability under the Credit Agreement.
Covenants. The Credit Agreement contains covenants restricting the ability
of the Company to, among other things: (i) declare dividends or redeem or
repurchase capital stock; (ii) prepay, redeem or repurchase debt; (iii) incur
liens; (iv) make loans and investments; (v) issue more debt; (vi) amend or
otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, acquisitions and asset sales and (ix)
enter into transactions with affiliates. The Company has also made certain
customary indemnifications of the Lenders and their agents and is required to
comply with financial covenants including: (i) a maximum funded debt to EBITDA
ratio (currently 6.60 to 1); (ii) a minimum tangible net worth test ($85
million at December 31, 1997 and $75 million at each year ended thereafter);
and (iii) a minimum fixed charge coverage ratio (currently 1.45 to 1). Net
worth as defined in the Credit Agreement includes the principal outstanding
under the Notes. The Credit Agreement also contains certain customary
affirmative covenants.
Events of Default. Events of default under the Credit Agreement include: (i)
the Company's failure to pay principal or interest when due; (ii) the
Company's material breach of any covenant, representation or warranty
contained in the loan documents; (iii) customary cross-default provisions
relating to a breach by the Company or any of its subsidiaries of any material
agreement, document or instrument that continues beyond any applicable cure
period or that permits the acceleration of indebtedness for borrowed money in
excess of $200,000; (iv) events of bankruptcy, insolvency or dissolution of
the Company or its subsidiaries; (v) the levy of certain judgments against the
Company, its subsidiaries, or their assets; (vi) certain adverse events under
ERISA plans of the Company or its subsidiaries; (vii) the actual or asserted
invalidity of security documents or guarantees of the Company or its
subsidiaries; and (viii) a change of control of the Company.
NationsBank of Texas, N.A., an affiliate of NationsBanc Capital Markets,
Inc., and American National Bank and Trust Company of Chicago, an affiliate of
First Chicago Capital Markets, Inc., are lenders and agents under the Credit
Agreement, for which they receive customary fees. See "Plan of Distribution."
As lenders under the Credit Agreement, these affiliates of the Initial
Purchasers received a substantial portion of the proceeds of the Offering. See
"Use of Proceeds."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on May 7, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and to a limited number of
institutional accredited investors that agreed to comply with certain transfer
restrictions and other conditions. As a condition to the Purchase Agreement,
the Company entered into the Registration Rights Agreement pursuant to which
the Company has agreed, for the benefit of the holders of the Old Notes, at
the Company's cost, to use its best efforts to (i) file the Exchange Offer
Registration Statement within 45 days after the date of the original issue of
the Old Notes with the Commission with respect to the Exchange Offer for the
New Notes, (ii) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 120 days
after the date of original issuance of the Old Notes and (iii) use its best
efforts to consummate the Exchange Offer within 150 days after the Issue Date.
Upon the Exchange Offer Registration Statement being declared effective, the
Company will offer the New Notes in exchange for surrender of the Old Notes.
The Company will keep the Exchange Offer open for not less than 20 business
days (or longer if required by applicable law) after the date on which notice
of the Exchange Offer is mailed to the holders of the Old Notes. For each Old
Note surrendered to the Company pursuant to the Exchange Offer, the holder of
such Old Note will receive an New Note having a principal amount equal to that
of the surrendered Old Note. Interest on each New Note will accrue from the
last interest payment date on which interest was paid on the Old Note
surrendered in exchange therefor or, if no interest has been paid on such Old
Note, from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes would in general be
freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate"
of the Company or who intends to participate in the Exchange Offer for the
purpose of distributing the New Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Old Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange the Old Notes for New Notes in the Exchange Offer will be
required to represent in the Letter of Transmittal that (i) it is not an
affiliate of the Company, (ii) the New Notes to be received by it were
acquired in the ordinary course of its business and (iii) at the time of
commencement of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes. In addition, in connection with any resales of New Notes, any
Participating Broker-Dealer who acquired the Old Notes for its own account as
a result of market-making or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the New Notes (other than a
resale of an unsold allotment from the original sale of the Old Notes) with
the prospectus contained in the Exchange Offer Registration Statement. Under
the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
New Notes. The Company has agreed that, for a period of one year after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale; provided, however,
that the Company and the Subsidiary Guarantors will have no obligation to
amend or supplement this Prospectus unless the Company has received written
notice from a Participating Broker-Dealer of their prospectus delivery
requirements under the Securities Act within fifteen business days following
consummation of the Exchange Offer.
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In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Guarantors to effect the Exchange Offer, or,
under certain circumstances, if the Initial Purchasers shall so request, each
of the Company and the Guarantors, jointly and severally, will at their cost,
(a) as promptly as practicable, file a shelf registration statement covering
resales of the Old Notes (a "Shelf Registration Statement"), (b) use its best
efforts to cause such Shelf Registration Statement to be declared effective
under the Securities Act and (c) use its best efforts to keep effective such
Shelf Registration Statement until the earlier of two years after the Issue
Date and such time as all of the applicable Old Notes have been sold
thereunder. The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Old Notes copies of the
prospectus which is a part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Old Notes. A holder that sells its Old Notes pursuant to a Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations). Other than as set
forth above, holders of Old Notes who do not tender in the Exchange Offer will
not have any continuing rights under the Registration Agreement.
If (a) the Company fails to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default,
in an amount equal to $.05 per week per $1,000 principal amount of Notes held
by such Holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount of Notes with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Notes. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
This summary of certain provisions of the Registration Rights Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by, all the provisions of the Registration Rights Agreement, a copy of which
is available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
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The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the New Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange
Offer, all of which rights will terminate when the Exchange Offer is
terminated. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with die Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied 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. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the registered
holders.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from their date of issuance. Holders of Old
Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the New Notes. Such
interest will be paid with the first interest payment on the New Notes on
November 15, 1997. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
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Interest on the New Notes is payable semi-annually on each May 15 and
November 15, commencing on November 15, 1997.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-
entry transfer) an Agent's Message (as defined below) in lieu of the Letter of
Transmittal, and any other required documents, must be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
The tender of Old Notes via Agent's Message will not constitute notice to the
Company of a holder's status as a Participating Broker-Dealer. Participating
Broker-Dealers desiring to provide such notice must still do so in writing
within fifteen business days following the consummation of the Exchange Offer.
See "--Resale of the New Notes." To be tendered effectively, the Old Notes,
the Letter of Transmittal (or Agent's Message) and other required documents
must be completed and received by the Exchange Agent at the address set forth
below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Old Notes may be made by book entry transfer
in accordance with the procedures described below. Confirmation of such book-
entry transfer must be received by the Exchange Agent prior to the Expiration
Date. The term "Agent's Message" means a message, transmitted by the Book-
Entry Transfer Facility (as defined below) to and received by the Exchange
Agent and forming a part of a book-entry confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce the terms of the Letter of Transmittal against
such participant.
By executing the Letter of Transmittal or delivering an Agent's Message,
each holder will make to the Company the representations set forth above in
the third paragraph under the heading "--Purpose and Effect of the Exchange
Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute 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.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust Company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
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If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agents account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agents account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee or Agent's
Message and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
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 Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old 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 Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends, to notify holders of defects or irregularities with respect to
tenders of Old Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects
or irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal
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(or facsimile thereof) together with the certificate(s) representing the
Old Notes (or a confirmation of book-entry transfer of such Old Notes into
the Exchange Agents account at the Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agents account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old 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 Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal 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. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein prior to the
Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
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(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
Norwest Bank Minnesota, National Association
Corporate Trust Services, 12th Floor
608 Second Avenue South, North Star East
Minneapolis, Minnesota 55402
Telecopier No.: (612) 667-9825
Attention: Kurt Schwegman
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the
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United States whom the seller reasonably believes is a qualified institutional
buyer within the meaning of Rule 144A under the Securities Act in a
transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Company), (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act, or (iv) pursuant to an effective registration
statement under the Securities Act in each case in accordance with any
applicable securities laws of any state of the United States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. The
Company has agreed that, for a period of one year after the Expiration Date,
it will make this Prospectus available to any Participating Broker-Dealer for
use in connection with any such resale; provided, however, that the Company
and the Subsidiary Guarantors will have no obligation to amend or supplement
this Prospectus unless the Company has received written notice from a
Participating Broker-Dealer of their prospectus delivery requirements under
the Securities Act within fifteen business days following consummation of the
Exchange Offer.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution
of the New Notes, (iii) the holder or any such other person has no arrangement
or understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. As indicated above, each
Participating Broker-Dealer that receives a New Note for its own account in
exchange for Old Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
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DESCRIPTION OF THE NOTES
GENERAL
The Old Notes were issued, and the New Notes will be issued, pursuant to an
indenture (the "Indenture") between the Company and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete, and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
Copies of the proposed form of Indenture and Registration Rights Agreement are
available as set forth under the caption "--Additional Information." The
definitions of certain terms used in the following summary are set forth below
under the caption "--Certain Definitions." For purposes of this summary, the
term "Company" refers only to American Builders & Contractors Supply Co., Inc.
and not to any of its Subsidiaries.
The New Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to all current and future Senior Debt of
the Company. The New Notes will be guaranteed by all of the Company's current
and future subsidiaries. Such subsidiary guarantees will be subordinated to all
Senior Debt of the Guarantors. As of March 31, 1997, on a pro forma basis
giving effect to the Offering and the application of the net proceeds therefrom
as described under "Use of Proceeds," the Company and its Subsidiaries would
have had Senior Debt of approximately $57.1 million (including guarantees and
letters of credit) and would have had additional liabilities (consisting of
trade payables and accrued liabilities) of approximately $125.3 million. As of
June 30, 1997, the Company had Senior Debt of $87.6 million. The Indenture
permits the incurrence of additional Senior Debt in the future, subject to
certain limitations in the Indenture. See "--Subordination" and "--Certain
Covenants--Incurrence of Additional Indebtedness and Issuance of Preferred
Stock."
The form and terms of the New Notes are the same as the form and terms of the
Notes (which they replace) except that (i) the New Notes bear a Series B
designation, (ii) the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of New Notes will not be entitled to certain rights under the
Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Notes in certain circumstances relating to
the timing of the Exchange Offer, which rights will terminate when the Exchange
Offer is consummated.
PRINCIPAL, MATURITY AND INTEREST
The Notes were initially issued in an aggregate principal amount of $100.0
million and will mature on May 15, 2007. The Indenture provides for the
issuance of up to $50.0 million in aggregate principal amount of additional
Notes having identical terms and conditions to the Notes offered hereby (the
"Additional Notes"), subject to compliance with the covenants contained in the
Indenture. Any Additional Notes issued in the future would be part of the same
issue as the Notes offered hereby for purposes of the Indenture and would vote
on all matters with the Notes offered hereby. For purposes of this summary,
references to the Notes do not include any Additional Notes. Interest on the
Notes accrues at the rate of 10% per annum and is payable semi-annually in
arrears on May 15 and November 15 of each year, commencing on November 15,
1997, to Holders of record on the immediately preceding May 1 and November 1.
Interest on the Notes accrues from the most recent date to which interest has
been paid or, if no interest has been paid, from the date of original issuance.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months. Principal, premium, if any, interest and Liquidated Damages, if any, on
the Notes is payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments of principal, premium, interest
and Liquidated Damages with respect to Notes the Holders of which have given
wire transfer instructions to the Company is required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York is the office of the Trustee maintained for such
purpose. The Notes were initially issued in denominations of $1,000 and
integral multiples thereof.
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SUBORDINATION
The payment of principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes is subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt are entitled to receive
payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the Holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled will be made to the holders of
Senior Debt (except that Holders of Notes may receive Permitted Junior
Securities and payments made from the trust described under the caption "--
Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under the
caption "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice
of such default (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in the case of a nonpayment default, on the earlier of
the date on which such nonpayment default is cured or waived or 179 days after
the date on which the applicable Payment Blockage Notice is received, unless
the maturity of any Designated Senior Debt has been accelerated. No new period
of payment blockage may be commenced unless and until (i) 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice and (ii) all scheduled payments of principal, premium, if any, and
interest and Liquidated Damages, if any, on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if maturity of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Offering and the application of the net proceeds
therefrom, the principal amount of Senior Debt outstanding at December 31,
1996 would have been approximately $60.4 million. The Indenture limits,
subject to certain financial tests, the amount of additional Indebtedness,
including Senior Debt, that the Company and its Subsidiaries can incur. See
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are fully, unconditionally
and jointly and severally guaranteed (the "Subsidiary Guarantees") by the
Guarantors. The Subsidiary Guarantee of each Guarantor is subordinated to the
prior payment in full of all Senior Debt of such Guarantor, which would
include approximately $1.5 million of Senior Debt outstanding as of June 30,
1997, and the amounts for which the Guarantors are liable under the guarantees
issued from time to time with respect to Senior Debt. The obligations of each
Guarantor under its Subsidiary Guarantee is limited only by laws relating to
fraudulent conveyance. See "Risk Factors--Fraudulent Conveyance."
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<PAGE>
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity unless (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation
or merger (if other than such Guarantor) assumes all the obligations of such
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, (ii) except in the case of a merger of
a Guarantor with or into the Company or another Subsidiary of the Company,
immediately after giving effect to such transaction, no Default or Event of
Default exists, (iii) except in the case of a merger of a Guarantor with or
into the Company or another Subsidiary of the Company, such Guarantor, or any
Person formed by or surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to such transaction),
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction and (iv) except in the case of a merger
of a Guarantor with or into the Company or another Subsidiary of the Company,
the Company would be permitted by virtue of the Company's pro forma Fixed
Charge Coverage Ratio, immediately after giving effect to such transaction, to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant described under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture. See
"--Repurchase at the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to May 15, 2002.
Thereafter, the Notes will be subject to redemption at any time at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on May 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.......................... 105.3125%
2003.......................... 103.5416%
2004.......................... 101.7708%
2005 and thereafter........... 100.0000%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
this Offering Memorandum, the Company may on any one or more occasions redeem
up to an aggregate of 35% of the original aggregate principal amount of Notes
at a redemption price of 110 5/8% of the principal amount thereof, plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of an initial public offering of
common stock of the Company; provided that at least 65% of the aggregate
principal amount of Notes originally issued remain outstanding immediately
after the occurrence of such redemption; and provided, further, that such
redemption shall occur within 60 days of the date of the closing of such
initial public offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee
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<PAGE>
shall deem fair and appropriate; provided that no Notes of $1,000 or less
shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
Except as set forth below under the caption "--Repurchase at the Option of
Holders," the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon and Liquidated Damages, if any, to the date of
purchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will be required to mail a notice to each
Holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Notes on the date specified in such
notice, which date shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
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The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution
of the Board of Directors set forth in an Officers' Certificate delivered to
the Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 80.0% of the consideration therefor received by
the Company or such Subsidiary is in the form of cash; provided that the
amount of (x) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet) of the Company or any Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the
Company or such Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such Subsidiary from
such transferee that are converted by the Company or such Subsidiary into cash
(to the extent of the cash received) within five business days of the receipt
thereof, shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or its applicable Subsidiary may apply such Net Proceeds, at such
person's option, (a) to reduce Senior Debt, or (b) to the acquisition of a
controlling interest in another business, the making of a capital expenditure
or the acquisition of other long-term assets, in each case, in the same or a
similar line of business as the Company and its Subsidiaries were engaged in
on the date of the Indenture. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Senior Debt or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph and within the time period specified
therein will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds has exceeded $5.0 million, the Company will be
required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100.0% of
the principal amount thereof plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Credit Agreement restricts the Company's ability to purchase Notes and
provides that certain change of control events with respect to the Company
would constitute a default under the Credit Agreement. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event
a Change of Control Offer or an Asset Sale Offer is required by the Indenture
to be made at a time when the Company is prohibited by the Credit Agreement or
another senior debt agreement from purchasing Notes, the Company could seek
the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any
of its Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
or to the direct or indirect holders of the Company's or any of its
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock)
of the Company); (ii) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company or other Affiliate of the Company
that is not a Subsidiary of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Subsidiary of the Company); (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value, any Indebtedness that is subordinated
to the Notes, except a payment of interest or principal at Stated Maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is
less than the sum of (i) 50.0% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100.0% of such deficit), plus (ii) 100.0% of the aggregate net cash
proceeds received by the Company from the issue or sale since the date of
the Indenture of Equity Interests of the Company (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the Company that have
been converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or repaid for cash
or is sold for non-cash consideration and such non-cash consideration is
subsequently sold for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment.
The foregoing provisions do not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
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(iv) the payment of any dividend by a Subsidiary of the Company to the holders
of its common Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company or any Subsidiary of the Company held by any member
of the Company's (or any of its Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement; provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $250,000 in any twelve-month period
and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (vi) payments by the Company or any
Subsidiary of the Company, directly or indirectly, to the Company's current or
future stockholder or stockholders to satisfy tax obligations in accordance
with the Tax Allocation Agreement as in effect on the date of the Indenture
("Tax Distributions"); and (vii) so long as no Default or Event of Default
shall have occurred and be continuing, other Restricted Payments in an
aggregate amount not to exceed $5.0 million since the date of the Indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the
Board of Directors, whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if such fair market value exceeds $5.0 million. Not later than the
date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant described under this caption were computed, together with a copy
of any fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company or any of the Guarantors may incur
Indebtedness (including Acquired Debt), the Company may issue shares of
Disqualified Stock and the Company's Subsidiaries may issue shares of
preferred stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or Subsidiary
preferred stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock or Subsidiary preferred stock had been issued, as the case
may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness under Credit Facilities
and the Guarantee thereof by the Guarantors; provided that the aggregate
principal amount of all Indebtedness (with letters of credit being deemed
to have a principal amount equal to the maximum potential liability of the
Company and its Subsidiaries thereunder) outstanding under all Credit
Facilities after giving effect to such incurrence, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (i), does not exceed an
amount equal to the greater of (x) $200.0 million less the aggregate amount
of all Net Proceeds of Asset Sales that have been applied since the date of
the Indenture to repay Indebtedness pursuant to the covenant described
above under the caption "--Asset Sales" and (y) the Borrowing Base;
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Company and its Subsidiaries of Indebtedness
represented by the Notes and the Subsidiary Guarantees;
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(iv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary, in an aggregate principal
amount at any one time outstanding under this clause (iv), including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (iv), not to exceed $5.0
million;
(v) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Subsidiary and (B) any sale
or other transfer of any such Indebtedness to a Person that is not either
the Company or a Wholly Owned Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of hedging interest rate risk with respect to
Indebtedness that is permitted by the terms of the Indenture to be
incurred;
(viii) the Guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant;
(ix) extensions, renewals or replacements of the Existing Guarantees on
terms that are no less favorable to the Holders of Notes than those
existing on the date of the Indenture;
(x) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accredit
value, as applicable) at any time outstanding under this clause (x),
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause (x),
not to exceed $5.0 million;
(xi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness incurred in respect of performance, surety and similar bonds
provided by the Company or any of its Subsidiaries in the ordinary course
of business; and
(xii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the
ordinary course of business.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xii) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this covenant, and at any given
time such item of Indebtedness will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, the accretion of accredit value and the payment
of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant. The Company shall
not be deemed to be in breach of this covenant solely as the result of
fluctuations in currency exchange rates.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company may enter into a sale and leaseback transaction if
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(i) the Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Incurrence of Additional Indebtedness
and Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described under the caption "--Liens,"
(ii) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by the Board
of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described under the caption "--
Repurchase at the Option of Holders--Asset Sales."
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness on any asset now owned or hereafter
acquired, or any income or profits therefrom, or assign or convey any right to
receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits or (b) pay any indebtedness owed to the Company or
any of its Subsidiaries, (ii) make loans or advances to the Company or any of
its Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) the Indenture and the Notes,
(b) applicable law, (c) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Subsidiaries or any
instrument governing Indebtedness secured by assets acquired by the Company or
any of its Subsidiaries, in each case, as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, or
the property or asset so acquired, provided that, in the case of Indebtedness,
such Indebtedness was permitted by the terms of the Indenture to be incurred,
(d) customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (e) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (f) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced or (g) customary non-
assignment provisions in documents entered into by a Subsidiary of the Company
in connection with a receivables or equipment financing that impose
restrictions of the nature described in clause (iii) above on the property
securing such financings. The Indenture does not limit the Company's ability
to make payments to Mr. Hendricks pursuant to the Tax Allocation Agreement.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia, (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of
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the Company under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, (iii) immediately
after such transaction no Default or Event of Default exists and (iv) except
in the case of a merger of the Company with or into a Wholly Owned Subsidiary
of the Company, the Company or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm of
national standing; provided that the following shall not be deemed to be
Affiliate Transactions: (1) the Related Party Leases as in effect on the date
of the Indenture or as amended (as long as an amended Related Party Lease is
on terms no less favorable to the Holders of the Notes than those existing on
the date of the Indenture) and any transactions pursuant thereto, (2) the
Employment Agreement as in effect on the date of the Indenture or as amended
(as long as the amended Employment Agreement is on terms no less favorable to
the Holders of the Notes than those existing on the date of the Indenture) and
any transactions pursuant thereto, (3) any other employment arrangement
entered into by the Company or any of its Subsidiaries with anyone other than
the Company's President and Chief Executive Officer in the ordinary course of
business that provides for aggregate annual compensation in an amount less
than or equal to $250,000 and any transactions pursuant thereto, (4)
transactions between or among the Company and/or its Wholly-Owned
Subsidiaries, (5) Restricted Payments that are permitted by the provisions of
the Indenture described above under the caption "--Restricted Payments"
including payments to Mr. Hendricks pursuant to the Tax Allocation Agreement,
(6) the Distribution (as defined under the caption "Use of Proceeds"), (7)
Permitted Real Estate Loans, (8) transfers of receivables or equipment to a
Subsidiary of the Company for the sole purpose of effecting a receivables or
equipment financing for the benefit of the Company and (9) extensions,
renewals or replacements of the Existing Guarantees on terms that are no less
favorable to the Holders of the Notes than those existing on the date of the
Indenture. For purposes of determining whether any particular transaction or
series of related transactions with an Affiliate relating to purchases or
placements of insurance exceeds the $1.0 million or $5.0 million thresholds
set forth in the first sentence of this covenant, the gross amounts paid to
the Affiliate shall be calculated net of any amounts paid by such Affiliate to
third parties (including claimants, legal and claims management services,
insurers or reinsurers) on behalf of the Company or one of its Subsidiaries.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease
or otherwise dispose of any Capital Stock of any Wholly Owned
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Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale,
lease or other disposition is of all the Capital Stock of such Wholly Owned
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant
described under the caption "--Repurchase at the Option of Holders--Asset
Sales" and (ii) will not permit any Wholly Owned Subsidiary of the Company to
issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Subsidiary of the Company.
Business Activities
The Company will not, and will not permit any of its Subsidiaries to, engage
in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
No Senior Subordinated Debt
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes and (ii) no Guarantor will incur,
create, assume, guarantee or otherwise become liable for any Indebtedness of
such Guarantor that is subordinate or junior in right of payment to any
Indebtedness of such Guarantor and senior in right of payment to the Guarantee
of such Guarantor.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Subsidiaries shall
acquire or create another Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary shall execute a Subsidiary Guarantee
and deliver an opinion of counsel, in accordance with the terms of the
Indenture.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding and
commencing with information relating to the fiscal quarter ended June 30,
1997, the Company will furnish to the Holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports, in each case, within the time periods specified in the Commission's
rules and regulations. In addition, commencing after the consummation of the
Exchange Offer, whether or not required by the rules and regulations of the
Commission, the Company will file
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a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) within the
time periods specified in the Commission's rules and regulations, and make
such information available to securities analysts and prospective investors
upon their reasonable request. In addition, each of the Company and the
Guarantors has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to comply with the provisions described under the captions "--
Repurchase at the Option of Holders--Change of Control," "--Repurchase at the
Option of Holders--Asset Sales," "--Certain Covenants--Restricted Payments" or
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock"; (iv) failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or the Notes; (v) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries), whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating
in excess of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Subsidiaries; and (viii) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acting
on behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25.0% in principal amount of the then outstanding Notes may
declare all of the Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events
of bankruptcy or insolvency with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. A Holder of a Note may pursue a remedy with
respect to the Indenture only if (i) the Holder of a Note gives the Trustee
written notice of a continuing Event of Default; (ii) the Holders of at least
25% in principal amount of the then outstanding Notes make a written request
to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to,
and if requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer, and if
requested, the provision of indemnity; and (v) during such 60-day period the
Holders of a majority in principal amount of the then outstanding Notes do not
give the Trustee a direction inconsistent with such request. Otherwise, the
Trustee is solely responsible for the enforcement against the Company and the
Guarantors of the terms of the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to May
15, 2002, by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition
on redemption of the Notes prior to May 15, 2002, then the premium specified
in the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under the caption "--Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, interest and Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company must have delivered to
the
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Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company must have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default can have
occurred and be continuing on the date of such deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit) or, insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or New Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company will not be required to transfer or exchange any Note
selected for redemption. Also, the Company will not be required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note is treated as the owner of such Note for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection
with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment, supplement or
waiver may not (with respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of
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or change the time for payment of interest on any Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of the Notes and
a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or Events of Default or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of the Indenture which relate to subordination will require the
consent of the Holders of at least 75.0% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee is permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue, or resign.
The Holders of a majority in principal amount of the then outstanding Notes
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which is not cured), the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes unless such Holder offers to the Trustee
security and indemnity satisfactory to the Trustee against any loss, liability
or expense.
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to
American Builders & Contractors Supply Co., Inc., One ABC Parkway, Beloit, WI
53511, Attention: Kendra A. Story.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein were initially issued in the form of one Global Note (the "Global
Note"). The Global Note was deposited on the date of the closing of the sale
of the Notes offered hereby (the "Closing Date") with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede
& Co., as nominee of the Depositary (such nominee being referred to herein as
the "Global Note Holder").
Notes that are issued as described below under the caption "--Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
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The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
Pursuant to procedures established by the Depositary (i) upon deposit of the
Global Note, the Depositary credited the accounts of Participants designated
by the Initial Purchasers with portions of the principal amount of the Global
Note and (ii) ownership of the Notes evidenced by the Global Note were shown
on, and the transfer of ownership thereof was effected through, records
maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
evidenced by the Global Note is limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder is considered to be the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note are not considered to be the owners or Holders thereof
under the Indenture for any purpose, including with respect to the giving of
any directions, instructions or approvals to the Trustee thereunder. Neither
the Company nor the Trustee have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date are payable by the Trustee to or at
the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. 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 Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes are
governed by standing instructions and customary practice and are the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
any nominee thereof). All such certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in the form of Certificated Securities under the Indenture, then,
upon surrender by the Global Note Holder of its Global Note, Notes in such
form will be issued to each person that the Global Note Holder and the
Depositary identify as being the beneficial owner of the related Notes.
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Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Company will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's registered
address. The Company expects that secondary trading in the Certificated
Securities will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Amcraft" means Amcraft Building Products Co., Inc.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described under the caption "--Repurchase at the Option of Holders--
Change of Control" and/or the provisions described under the caption "--
Certain Covenants--Merger, Consolidation, or Sale of Assets" and not by the
provisions of the Asset Sale covenant) and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $500,000 or (b) for net proceeds in excess of $500,000.
Notwithstanding the foregoing, the following items will not be deemed to be
Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary, (iii) a
Restricted Payment that is permitted by the covenant described under the
caption "--Certain Covenants--Restricted Payments" and (iv) the sale of up to
$5.0 million of real estate since the date of the Indenture.
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"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85.0% of the face amount of all accounts receivable owned by the Company and
its Subsidiaries as of such date that are not more than 90 days past due and
(b) 65.0% of the book value of all inventory owned by the Company and its
Subsidiaries as of such date, all calculated on a consolidated basis and in
accordance with GAAP. To the extent that information is not available as to
the amount of accounts receivable or inventory or trade payables as of a
specific date, the Company may utilize the most recent available information
for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500.0 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, and (v) commercial paper
having the highest rating obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Corporation and in each case maturing within six months
after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition), directly or indirectly, of more than
the Specified Percentage of the Voting Stock of the Company (measured by
voting power rather than number of shares), (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors or (v) any transaction the result of which is (x) if such
transaction occurs prior to the first sale of common equity of the Company
pursuant to a registration statement under the Securities Act that results in
at least 25.0% of the then outstanding common equity of the Company being sold
to the public, that the Principals and their Related Parties beneficially own,
directly or indirectly, less than 51.0% of the Voting Stock of the Company
(measured by voting power rather than number of shares) beneficially owned by
the Principals, directly or indirectly, on the date of the Indenture, and (y)
if such transaction occurs thereafter, that any "person" (as defined above)
(other than the Principals and their Related Parties) owns, directly or
indirectly,
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more of the Voting Stock of the Company (measured by voting power rather than
number of shares) than the Principals and their Related Parties. For purposes
of this definition, any transfer of an equity interest of an entity that was
formed for the purpose of acquiring Voting Stock of the Company will be deemed
to be a transfer of such portion of such Voting Stock as corresponds to the
portion of the equity of such entity that has been so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period (to the extent
that such provision for taxes was included in computing such Consolidated Net
Income), plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) (to the
extent that any such expense was deducted in computing such Consolidated Net
Income), plus (iv) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period (to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income), plus (v) one-third of the Consolidated Lease Expense
of such Person for such period (to the extent that such Consolidated Lease
Expense was deducted in computing such Consolidated Net Income), minus (vi)
non-cash items increasing such Consolidated Net Income for such period, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation, amortization and other non-cash expenses of,
a Subsidiary of the referent Person shall be added to Consolidated Net Income
to compute Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Lease Expense" means, with respect to any Person for any
period, the aggregate rental obligations of such Person and its consolidated
Subsidiaries for operating leases determined on a consolidated basis in
accordance with GAAP payable in respect of such period under leases of real
and/or personal property (net of income from subleases thereof, but including
taxes, insurance, maintenance and similar expenses that the lessee is
obligated to pay under the terms of such leases), whether or not such
obligations are reflected as liabilities or commitments on a consolidated
balance sheet of such Person and its Subsidiaries or in the notes thereto.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP and
reduced by the amount of Tax Distributions that would be permitted since the
date of the Indenture (whether or not such Tax Distributions have actually
been distributed); provided that (i) the Net Income (but not loss) of any
Person that is not a Subsidiary or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly Owned
Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument,
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judgment, decree, order, statute, rule or governmental regulation applicable
to that Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person and (y) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), all of the foregoing determined
in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of July 1,
1993, by and among the Company, NationsBank of Texas, N.A. and American
National Bank and Trust Company of Chicago, providing for up to $200.0 million
of revolving credit borrowings, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced
or refinanced from time to time.
"Credit Facilities" means, with respect to the Company or any of its
Subsidiaries, one or more debt facilities (including, without limitation, the
Credit Agreement) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on
the date on which Notes are first issued and authenticated under the Indenture
shall be deemed to have been incurred on such date in reliance on the
exception provided by clause (i) of the definition of Permitted Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other series of Senior Debt permitted under the
Indenture the aggregate principal amount of which is $15.0 million or more and
that has been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature.
"Employment Agreement" means the Employment Agreement dated as of May 1,
1997, between Kenneth A. Hendricks and American Builders & Contractors Supply
Co., Inc.
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"Existing Guarantees" means the obligations of the Company outstanding under
guarantees and letters of credit in respect of certain outstanding
Indebtedness of its Affiliates in an aggregate principal amount of up to $4.3
million.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $32.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Agreement) in existence on the date of the
Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee
or redemption of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the applicable four-
quarter reference period. In addition, for purposes of making the computation
referred to above, (i) acquisitions that have been made by the Company or any
of its Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference period
or subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period, and Consolidated Cash Flow for such reference period shall
be calculated without giving effect to clause (iii) of the proviso set forth
in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), (ii) the consolidated interest of such
Person and its Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon), (iv) one-third of the Consolidated Lease Expense of such Person
for such period and (v) the product of (a) all dividend payments, whether or
not in cash, on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely
in Equity Interests of the Company (other than Disqualified Stock), times (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
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"GAAP" means generally accepted accounting principles 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 have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest or (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described under the caption "--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Mule-Hide" means Mule-Hide Products Co., Inc.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of
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any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Businesses" means any business conducted by the Company or any of
its Subsidiaries as of the date of the Indenture, any other business related
to the distribution or manufacture of commercial or residential building
products, or any business reasonably related to the foregoing.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company, (b) any Investment in Cash Equivalents, (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if as
a result of such Investment (i) such Person becomes a Subsidiary of the
Company or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Subsidiary of the Company, (d) any
Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales," (e) any acquisition of assets to the extent
such assets are acquired solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company, (f) Permitted Real
Estate Loans, (g) extensions or renewals of the Existing Guarantees on terms
that are no less favorable to the Holders of Notes than those existing on the
date of the Indenture, and (h) other Investments in any Person having an
aggregate fair market value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (h) that are
at the time outstanding, not to exceed $1.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to
a greater extent than, the Notes are subordinated to Senior Debt pursuant to
the Indenture.
"Permitted Liens" means (i) Liens on assets of the Company or any of its
Subsidiaries securing Senior Debt that was permitted by the terms of the
Indenture to be incurred, (ii) Liens in favor of the Company, (iii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company, provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company, (iv) Liens on property existing
at the time of acquisition thereof by the Company or any Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition, (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business, (vi) Liens to
secure Indebtedness (including Capital Lease Obligations) permitted to be
incurred pursuant to clause (iv) of the second paragraph of the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock," covering only the assets acquired with such
Indebtedness, (vii) Liens existing on the date of the Indenture, (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor, (ix) liens relating to trade payables of
the Company or its Subsidiaries and (x) Liens incurred in the ordinary course
of business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary.
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"Permitted Real Estate Loan" means a loan from the Company or any of its
Subsidiaries to an Affiliate of the Company (i) the proceeds of which are used
by such Affiliate to finance the purchase or improvement of real estate which
is or will, upon such purchase or improvement, be leased to the Company or one
of its Subsidiaries on terms comparable to those that would occur in an arm's-
length transaction, (ii) that is evidenced by a note, payable upon the demand
of the Company or such Subsidiary, (iii) the interest on which is payable in
cash semi-annually at an interest rate at least equal to the prime rate of
NationsBank of Texas, N.A., announced from time to time, (iv) with full
recourse to such Affiliate, its assets and its properties, and (v) the
aggregate principal amount of which at any one time outstanding (when taken
together with all other Permitted Real Estate Loans) does not exceed the
greater of (x) $10.0 million and (y) $10.0 million plus 10.0% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first quarter commencing after the date of
the Indenture and ending on the last day of the most recently ended fiscal
quarter.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount (or accredit value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accredit
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Kenneth A. Hendricks, Diane Hendricks, any lineal
descendant of either of them and the spouse of Kenneth A. Hendricks (if other
than Diane Hendricks).
"Related Party" with respect to any Principal means any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a majority and controlling interest of which
consist of such Principal and/or one or more other Principals.
"Related Party Leases" means the leases identified as such under the caption
"Certain Transactions."
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Senior Debt" means (i) all Indebtedness of the Company or any of its
Subsidiaries outstanding under Credit Facilities and all Hedging Obligations
with respect thereto, (ii) any other Indebtedness permitted to be incurred by
the Company or any of its Subsidiaries under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the Notes or any Guarantor's Subsidiary Guarantee of the Notes and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt does not include (w) any liability for
federal, state, local or other taxes owed or owing by the Company or any of
its Subsidiaries, (x) any Indebtedness of the Company or any of its
Subsidiaries to any Subsidiary or other Affiliate of the Company, (y) any
trade payables or (z) any Indebtedness that is incurred in violation of the
Indenture (other than Indebtedness under the Credit Agreement that is incurred
on the basis of a representation by the Company to the applicable lenders that
it is permitted to incur such Indebtedness under the Indenture).
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
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"Specified Percentage" means at any time at which the Principals and their
Related Parties collectively own more than 50.0% of the Voting Stock of the
Company (measured by voting power rather than number of shares), 50.0% and at
any time thereafter, 35%.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock 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 such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof). With respect to the Company, the term "Subsidiary" shall include,
but not be limited to, Mule-Hide and Amcraft.
"Tax Allocation Agreement" means the Tax Allocation Agreement dated as of
May 1, 1997, among the Company, Mule-Hide, Amcraft and Kenneth A. Hendricks.
"Tax Distributions" has the meaning set forth in the covenant described
under the caption "--Certain Covenants--Restricted Payments."
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned, directly
or indirectly, by such Person or by one or more Wholly Owned Subsidiaries of
such Person.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary
view, and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Company
recommends that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Notes for New Notes,
including the applicability and effect of any state, local or foreign tax
laws.
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The exchange of the Notes for New Notes pursuant to the Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the
New Notes should not be considered to differ materially in kind or extent from
the Notes. Rather, the New Notes received by a holder will be treated as a
continuation of the Notes in the hands of such holder. As a result there will
be no federal income tax consequences to holders exchanging Notes for New
Notes pursuant to the Exchange Offer. If, however, the exchange of Notes for
New Notes were treated as an "exchange" for federal income tax purposes, such
exchange should constitute a recapitalization for federal income tax purposes.
Holders exchanging Notes for New Notes pursuant to such recapitalization
should not recognize any gain or loss upon the exchange.
PLAN OF DISTRIBUTION
Each Participating 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
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Notes where such Notes were acquired as a result of market-
making activities or other trading activities. The Company has agreed that,
for a period of one year after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale; provided, however, that the Company and the Subsidiary
Guarantors will have no obligation to amend or supplement this Prospectus
unless the Company has received written notice from a Participating Broker-
Dealer of their prospectus delivery requirements under the Securities Act
within fifteen business days following consummation of the Exchange Offer. In
addition, until , 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 sales of the New Notes by
Participating Broker-Dealers. New Notes received by Participating 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 purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the 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 on 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
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Offer will be passed
upon for the Company by Kirkland & Ellis, Chicago, Illinois (a partnership
which includes professional corporations).
EXPERTS
The combined financial statements of the Company as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as stated in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Combined Balance Sheets as of December 31, 1995 and 1996.................. F-3
Combined Statements of Income and Retained Earnings for the years ended
December 31, 1994, 1995 and 1996......................................... F-4
Combined Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996............................................................ F-5
Notes to Combined Financial Statements.................................... F-6
Condensed Combined Balance Sheets (Unaudited) as of December 31, 1996 and
March 31, 1997........................................................... F-12
Condensed Combined Statements of Operations and Retained Earnings
(Unaudited) for the three months ended March 31, 1996 and 1997........... F-13
Condensed Combined Statements of Cash Flows (Unaudited) for the three
months ended March 31, 1996 and 1997..................................... F-14
Notes to Condensed Combined Financial Statements (Unaudited).............. F-15
</TABLE>
F-1
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
American Builders & Contractors Supply Co., Inc. and Certain Affiliates
We have audited the accompanying combined balance sheets of American
Builders & Contractors Supply Co., Inc., Mule-Hide Products Co., Inc., Amcraft
Building Products Co., Inc., and Hendricks Real Estate Properties, Inc.
(collectively, the Company) as of December 31, 1995 and 1996, and the related
combined statements of income and retained earnings and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company at December 31, 1995 and 1996, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Milwaukee, Wisconsin
March 21, 1997, except as to Note 12,
the date of which is May 7, 1997
F-2
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS 1995 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash............................................... $ 2,742,560 $ 2,630,337
Accounts receivable, less allowance for doubtful
accounts of $3,904,000--1995 and $4,325,000--1996. 73,132,506 92,360,063
Inventories........................................ 79,296,857 95,778,586
Prepaid expenses and other......................... 1,401,916 1,544,128
------------ ------------
Total current assets............................. 156,573,839 192,313,114
Property and equipment, net (Note 4)................. 43,175,637 49,944,290
Net receivable from sole stockholder (Note 6)........ 3,971,801 5,149,185
Intangible assets, net of accumulated amortization of
$166,014--1995 and $433,198--1996................... 1,029,760 3,311,146
Security deposits.................................... 547,514 1,117,855
Other assets......................................... 17,580 112,723
------------ ------------
$205,316,131 $251,948,313
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable................................... $ 49,739,317 $ 57,700,357
Accrued liabilities................................ 11,329,607 14,104,151
Current portion of long-term debt (Note 3)......... 5,325,782 8,519,814
------------ ------------
Total current liabilities........................ 66,394,706 80,324,322
Long-term debt (Note 3).............................. 113,397,201 139,663,817
Commitments and contingent liabilities (Notes 5, 6
and 7)
Stockholder's equity:
Common stock (Note 9).............................. 109,001 109,001
Additional paid-in capital......................... 1,215,053 1,215,053
Retained earnings.................................. 24,200,170 30,636,120
------------ ------------
Total stockholder's equity....................... 25,524,224 31,960,174
------------ ------------
$205,316,131 $251,948,313
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................ $513,766,337 $638,821,047 $789,102,559
Cost of sales........................ 403,031,776 501,026,597 615,626,559
------------ ------------ ------------
Gross profit......................... 110,734,561 137,794,450 173,476,000
Operating expenses:
Distribution centers (Note 5)...... 90,481,269 110,859,487 140,299,777
General and administrative......... 7,980,835 10,475,757 12,016,139
------------ ------------ ------------
98,462,104 121,335,244 152,315,916
------------ ------------ ------------
Operating income..................... 12,272,457 16,459,206 21,160,084
Other income (expense):
Interest income.................... 554,255 652,978 689,205
Interest expense................... (6,020,714) (9,745,252) (11,146,057)
------------ ------------ ------------
(5,466,459) (9,092,274) (10,456,852)
------------ ------------ ------------
Income before provision for income
taxes............................... 6,805,998 7,366,932 10,703,232
Provision for income taxes........... 260,181 338,386 329,509
Net income........................... 6,545,817 7,028,546 10,373,723
Retained earnings at beginning of
year................................ 16,840,699 20,702,521 24,200,170
Distributions to sole stockholder.... (2,683,995) (3,530,897) (3,937,773)
------------ ------------ ------------
Retained earnings at end of year... $ 20,702,521 $ 24,200,170 $ 30,636,120
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income........................... $ 6,545,817 $ 7,028,546 $10,373,723
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation......................... 5,110,982 6,639,351 8,750,803
Amortization......................... 82,765 168,745 328,614
Provision for doubtful accounts...... 2,647,326 3,164,991 3,603,631
Loss on disposal of property and
equipment........................... 296,285 103,428 17,412
Change in operating assets and
liabilities:
Accounts receivable................ (8,770,617) (19,061,181) (18,328,728)
Inventories........................ (11,318,137) (13,033,846) (9,832,405)
Prepaid expenses and other......... (756,380) (101,276) (142,212)
Security deposits.................. 2,435 (77,921) (570,341)
Other assets....................... 131,978 (143,021) (179,614)
Accounts payable................... 5,721,049 6,929,014 7,961,040
Accrued liabilities................ (903,505) 2,101,027 2,774,544
----------- ----------- -----------
Cash provided by (used in)
operating activities............ (1,210,002) (6,282,143) 4,756,467
Investing activities
Additions to property and equipment.. (13,830,265) (19,922,034) (14,697,361)
Proceeds from disposal of property
and equipment....................... 702,301 445,121 688,209
Acquisition of businesses............ (2,238,045) (5,571,511) (12,684,977)
----------- ----------- -----------
Cash used in investing
activities...................... (15,366,009) (25,048,424) (26,694,129)
Financing activities
Net borrowings under line of credit.. 16,038,040 23,524,699 23,381,086
Proceeds from long-term debt......... 5,817,993 14,983,005 9,734,539
Payments on long-term debt........... (2,745,451) (4,147,483) (6,175,029)
Net change in receivable from/payable
to sole stockholder................. 990,347 1,487,500 (1,177,384)
Distributions paid to sole
stockholder......................... (2,683,995) (3,530,897) (3,937,773)
Deferred financing costs............. (235,695) -- --
----------- ----------- -----------
Cash provided by financing
activities...................... 17,181,239 32,316,824 21,825,439
----------- ----------- -----------
Net increase (decrease) in cash........ 605,228 986,257 (112,223)
Cash at beginning of year........ 1,151,075 1,756,303 2,742,560
----------- ----------- -----------
Cash at end of year.............. $ 1,756,303 $ 2,742,560 $ 2,630,337
=========== =========== ===========
Supplemental disclosures of cash flow
information are as follows:
Cash paid for interest............... $ 5,894,415 $ 9,355,205 $10,982,497
Cash paid for income taxes........... 233,053 344,151 345,459
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The accompanying combined financial statements include the accounts of
American Builders & Contractors Supply Co., Inc. (ABC) and certain companies
affiliated by common ownership (all of which are wholly-owned by ABC's sole
stockholder), Mule-Hide Products Co., Inc. (Mule-Hide), Amcraft Building
Products Co., Inc. (Amcraft), and Hendricks Real Estate Properties, Inc.
(HREP) (collectively, the Company). A legal reorganization is planned for the
near future whereby Mule-Hide and Amcraft will become wholly-owned
subsidiaries of ABC and HREP will be merged into ABC (see Note 12). Such
reorganization will be accounted for as a combination of entities under common
control, which is similar to a pooling of interests.
The Company is primarily engaged in the sale of roofing and siding products
throughout the United States. There were 109, 126 and 157 distribution center
locations at December 31, 1994, 1995 and 1996, respectively.
Inventories
Inventories, which consist primarily of purchased roofing and siding
products, are stated at the lower of cost (average cost basis) or market.
Property and Equipment
Property and equipment additions (including leasehold improvements) are
capitalized at cost. Depreciation on these assets is calculated using the
straight-line method over the estimated useful lives of the related assets or,
in the case of leasehold improvements, the life of the lease, if shorter.
Estimated useful lives are as follows (in years):
<TABLE>
<S> <C>
Buildings and improvements.............. 39 years
Warehouse equipment..................... 5-7 years
Vehicles................................ 5-10 years
Office furniture and equipment.......... 3-7 years
Leasehold improvements.................. 5 years or life of lease, if less
</TABLE>
Intangibles
Intangibles consist primarily of goodwill recorded in acquisitions of
businesses, which is amortized over 25 years using the straight-line method.
Advertising
Advertising costs are expensed in the period incurred. Total advertising
expense was $2,296,782, $2,481,540 and $3,311,658 for 1994, 1995 and 1996,
respectively.
Income Taxes
ABC and the combined affiliates have elected to be treated as Subchapter S
Corporations for federal and state income tax purposes. As a result, the
Company's sole stockholder includes the taxable income of ABC and the combined
affiliates in his personal income tax returns. Accordingly, with the exception
of the amounts described in the following paragraph, the accompanying
financial statements include no provision or liability for income taxes.
Certain states impose a corporate state tax on earnings of a Subchapter S
Corporation. Provisions of $260,181, $338,386 and $329,509 have been made for
such income taxes for the years ended December 31, 1994, 1995 and 1996,
respectively.
F-6
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Net income differs from income currently taxable to the Company's
stockholder due to certain items which are reported differently for financial
reporting purposes than for income tax purposes; principally inventory costs
capitalized, bad debts and depreciation.
Revenue Recognition
The Company recognizes revenue upon delivery of product to the customer,
which typically occurs at the Company's distribution center locations.
Late Payment Charges
Late payment charges are recorded in connection with past due receivable
balances and are reflected as a reduction to the expenses incurred in
collecting those accounts, all within distribution center operating expenses.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. BUSINESS ACQUISITIONS
Business acquisitions have been accounted for using the purchase method and
operations are reflected from the dates of acquisition forward.
During the year ended December 31, 1994, six locations were acquired by ABC.
The assets of one of the locations were merged into an existing branch. The
total purchase price of approximately $2,238,000 included inventory, accounts
receivable and fixed assets.
During the year ended December 31, 1995, ABC acquired the inventory,
accounts receivable and fixed assets of eleven locations for a total purchase
price of approximately $5,905,000. In connection with these transactions, ABC
recorded $550,000 in goodwill.
In 1996, ABC acquired the inventory, accounts receivable and fixed assets of
seventeen locations for a total purchase price of approximately $15,205,000.
In connection with these transactions, the Company recorded $2,510,000 in
goodwill.
A summary of the purchase allocation for the acquisitions is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Fixed assets.......................... 656,181 573,744 1,527,716
Inventories........................... 1,194,851 3,743,218 6,649,324
Accounts receivable................... 325,613 1,031,452 4,502,460
Other................................. 61,400 6,097 15,529
Goodwill.............................. -- 550,000 2,510,000
---------- ---------- -----------
2,238,045 5,904,511 15,205,029
Less seller notes..................... -- (333,000) (2,520,052)
---------- ---------- -----------
Net effect on cash.................... $2,238,045 $5,571,511 $12,684,977
========== ========== ===========
</TABLE>
Due to the relative insignificance of the acquisitions, pro forma financial
information has not been included.
F-7
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
------------ ------------
<S> <C> <C>
Notes payable to banks under Revolver--ABC..... $ 93,099,023 $116,480,109
Installment loans on vehicles and equipment--
ABC........................................... 18,015,109 22,574,795
Mortgage notes payable on real estate--HREP.... 5,969,804 5,900,477
Other notes payable............................ 1,639,047 3,228,250
------------ ------------
118,722,983 148,183,631
Less current maturities........................ 5,325,782 8,519,814
------------ ------------
$113,397,201 $139,663,817
============ ============
</TABLE>
As of December 31, 1996, ABC has a financing agreement with a group of banks
(Revolver) which expires on June 30, 1998, under which ABC may borrow, on a
revolving credit basis, up to a maximum of $200,000,000 based on a percentage
of eligible accounts receivable and eligible inventory. Interest on the
Revolver at December 31, 1996 was largely based on LIBOR (5.5%) plus 2%. The
weighted average interest rate on all borrowings outstanding under the
Revolver at December 31, 1996 was 7.6%.
The agreement contains various covenants, including provisions that place
restrictions on ABC's ability to merge or sell its business, sell assets, make
investments other than in the ordinary course of business, repurchase stock,
or pay dividends. Additional provisions require ABC to maintain specified
tangible net worth and cash flow amounts and require that ABC's current sole
stockholder continue to own at least 51% of the Company's stock. The agreement
also includes a prepayment fee.
The mortgage notes payable of HREP relate to ABC's corporate offices, and
are due in monthly principal and interest installments of approximately
$50,000 through April 2002, with a final maturity date of May 31, 2002.
Interest on the mortgage notes is computed at 8.75% through October 31, 1997,
with variable interest thereafter based on an average yield of one-year U.S.
Treasury securities plus 3.5%.
The Company has various other financing agreements with maturity dates
ranging from 1998 through 2002, and interest rates ranging from 7.22% to
9.25%. Substantially all of the Company's assets are collateral for Company
indebtedness.
Future maturities of long-term debt as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
Year Ending December 31,
1997....................................................... $ 8,519,814
1998....................................................... 122,915,869
1999....................................................... 5,112,061
2000....................................................... 3,807,934
2001....................................................... 2,654,473
Thereafter................................................. 5,173,480
------------
$148,183,631
============
</TABLE>
F-8
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Land............................................. $ 1,750,673 $ 1,915,519
Buildings and improvements....................... 10,889,390 10,889,390
Warehouse equipment.............................. 5,871,936 7,045,874
Vehicles......................................... 31,133,740 39,914,661
Office furniture and equipment................... 6,968,585 8,482,177
Leasehold improvements........................... 8,116,295 10,696,340
----------- -----------
64,730,619 78,943,961
Less accumulated depreciation.................... 21,554,982 28,999,671
----------- -----------
$43,175,637 $49,944,290
=========== ===========
</TABLE>
5. LEASE COMMITMENTS
ABC conducts the majority of its operations in leased facilities under
operating leases expiring at various dates through 2005. Generally, the leases
provide that ABC pay all insurance, maintenance, and other costs and expenses
associated with use of the buildings. Some of the leases also require ABC to
pay real estate taxes.
As of December 31, 1996, the real estate for 67 of the distribution centers
was owned by a related party. The total rent expense for these related-party
leases was $3,476,000, $4,629,000 and $6,249,000 for the years ended December
31, 1994, 1995 and 1996, respectively.
Rent expense under all leases totaled $8,365,000, $9,838,000 and $12,592,000
for the years ended December 31, 1994, 1995 and 1996, respectively. Future
minimum rental payments required as of December 31, 1996, under leases with an
original term of more than one year are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Year ending December 31,
1997....................................................... $11,150,754
1998....................................................... 9,762,045
1999....................................................... 6,383,791
2000....................................................... 4,839,162
2001....................................................... 1,202,913
Thereafter................................................. 1,698,276
-----------
Future minimum payments required........................... $35,036,941
===========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
The Company is related to certain other affiliates by common ownership and
management. Transactions and balances with these entities are as follows for
the reporting periods:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable..................... $ 311,698 $ 281,809 $ 288,024
Security deposits....................... 259,899 374,044 374,044
Accounts payable........................ 2,620 4,974 11,340
Sales................................. 126,211 172,830 65,969
Purchases............................. 26,929 65,759 556,390
Rent expense--buildings............... 3,476,387 4,629,109 6,248,942
</TABLE>
F-9
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has the following receivables from, and payables to, its sole
stockholder:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Receivables..................................... $ 7,400,358 $ 7,304,164
Payables........................................ (3,428,557) (2,154,979)
----------- -----------
$ 3,971,801 $ 5,149,185
=========== ===========
</TABLE>
Interest on the receivables and payables is charged/incurred at a rate
comparable to the interest rate ABC pays on its Revolver and was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Interest income........................... $544,835 $ 628,908 $ 627,751
Interest expense.......................... (64,002) (207,823) (239,397)
-------- --------- ---------
$480,833 $ 421,085 $ 388,354
======== ========= =========
</TABLE>
At December 31, 1995 and 1996, the Company had guaranteed debt of the sole
stockholder in the amounts of $2,199,000 and $3,616,000, respectively. Certain
assets owned by the Company are utilized as collateral as part of an overall
guaranty of this debt by the Company. The Company also had outstanding letters
of credit of $500,000 and $300,000 at December 31, 1995 and 1996,
respectively, with respect to debt of the sole stockholder and his affiliates.
An insurance company, owned by the sole stockholder, provides property and
casualty insurance, including workers compensation insurance, to the Company.
The Company paid the insurance company for reported and unreported claim
liabilities, as determined by an unrelated third-party claims adjusting
service, amounting to $5,414,000, $5,175,000 and $6,008,000 in 1994, 1995 and
1996, respectively.
7. LITIGATION
The Company is involved in various legal matters arising in the normal
course of business. In the opinion of management and legal counsel, the amount
of losses that may be sustained, if any, would not have a material effect on
the financial position of the Company.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan covering substantially all employees. The
Company may make elective contributions. Discretionary contributions of
$561,000, $614,000 and $716,000 were made for 1994, 1995 and 1996,
respectively.
F-10
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC. AND CERTAIN AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMON STOCK
Common stock at December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<C> <S>
ABC....... No par value; 10,000 shares authorized, 147.04 shares issued
and outstanding
Mule-Hide. No par value; 10,000 shares authorized, 100 shares issued and
outstanding
Amcraft... $.01 par value; 100,000 shares authorized, 100 shares issued
and outstanding.
HREP...... $.01 par value; 9,000 shares authorized, 1,000 shares issued
and outstanding
</TABLE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, which consist of
cash, accounts receivable, accounts payable and borrowings, approximates their
fair value at both December 31, 1995 and 1996.
Substantially all of the Company's accounts receivable are due from
contractors located throughout the United States. Credit is extended based on
an evaluation of the customer's financial condition and projects, where
applicable. Credit losses are provided for in the financial statements and
have consistently been within management's expectations.
11. SUMMARIZED COMBINED FINANCIAL INFORMATION ABOUT CERTAIN AFFILIATES
The following is summarized aggregated financial information for Mule-Hide
and Amcraft, which will become wholly-owned subsidiaries of ABC subsequent to
the legal reorganization referred to in Note 1. The amounts are before
combination-level elimination entries (i.e., sales to ABC and accounts
receivable from ABC are eliminated in combination and are separately shown
below; all other amounts are unaffected). Both subsidiaries will fully,
unconditionally, jointly, and severally guarantee certain debt to be issued by
ABC (see Note 12). Separate financial statements of the guarantors are not
presented because, in the opinion of management, such financial statements are
not material to investors.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- ----------
<S> <C> <C>
Current assets:
Accounts receivable from ABC..................... $ 2,197,963 $1,165,462
Other current assets--third parties.............. 2,867,937 4,088,947
----------- ----------
Total........................................ 5,065,900 5,254,409
Noncurrent assets................................ 1,209,122 1,340,694
Current liabilities.............................. (6,214,805) (6,471,068)
Noncurrent liabilities........................... (1,908,950) (653,148)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
To ABC................................ $21,311,643 $27,034,490 $33,922,487
To third parties...................... 5,348,903 4,853,632 5,532,971
----------- ----------- -----------
Total ............................ 26,660,546 31,888,122 39,455,458
Gross profit.......................... 3,874,554 5,483,012 6,784,164
Net income............................ 537,965 772,841 1,577,620
</TABLE>
12. SUBSEQUENT EVENT
On May 7, 1997, ABC issued $100,000,000 principal amount of 10 5/8% Senior
Subordinated Notes due 2007, for which it received net proceeds of
approximately $96,500,000 after deducting expenses and commissions. Net
proceeds of $10,000,000 were distributed to the Company's sole stockholder,
who simultaneously repaid to the Company approximately $8,300,000 of net
borrowings. The remainder of the net proceeds combined with the repayment of
the net stockholder advances approximated $94,800,000 and was used to repay
indebtedness outstanding under the Revolver. In addition, the legal
reorganization referred to in Note 1 was completed on May 1, 1997.
F-11
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AND CERTAIN AFFILIATES
CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDER'S
EQUITY AT
DECEMBER 31, MARCH 31, MARCH 31,
ASSETS 1996 1997 1997 (NOTE 3)
------ ------------ ------------ -------------
<S> <C> <C> <C>
Current assets:
Cash.................................. $ 2,630,000 $ 918,000
Accounts receivable................... 92,360,000 93,075,000
Inventories........................... 95,779,000 137,147,000
Prepaid expenses and other............ 1,544,000 1,823,000
------------ ------------
Total current assets................ 192,313,000 232,963,000
Property and equipment, net............. 49,944,000 51,871,000
Net receivable from sole stockholder.... 5,149,000 6,477,000
Intangible assets, net.................. 3,311,000 3,231,000
Security deposits....................... 1,118,000 1,190,000
Other assets............................ 113,000 226,000
------------ ------------
$251,948,000 $295,958,000
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable...................... $ 57,700,000 $109,658,000
Accrued liabilities................... 14,104,000 15,660,000
Current portion of long-term debt..... 8,520,000 8,508,000
------------ ------------
Total current liabilities........... 80,324,000 133,826,000
Long-term debt.......................... 139,664,000 137,233,000
Contingent liabilities (Note 2)
Stockholder's equity:
Common stock.......................... 109,000 109,000 109,000
Additional paid-in capital............ 1,215,000 1,215,000 1,215,000
Retained earnings..................... 30,636,000 23,575,000 11,975,000
------------ ------------ -----------
Total stockholder's equity.......... 31,960,000 24,899,000 $13,299,000
------------ ------------ ===========
$251,948,000 $295,958,000
============ ============
</TABLE>
See notes to condensed combined financial statements.
F-12
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AND CERTAIN AFFILIATES
CONDENSED COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Net sales........................................... $128,704,000 $162,772,000
Cost of sales....................................... 100,695,000 126,789,000
------------ ------------
Gross profit........................................ 28,009,000 35,983,000
Operating expenses:
Distribution centers.............................. 29,106,000 36,656,000
General and administrative........................ 2,897,000 3,566,000
------------ ------------
32,003,000 40,222,000
------------ ------------
Operating loss...................................... (3,994,000) (4,239,000)
Other income (expense):
Interest income................................... 136,000 165,000
Interest expense.................................. (2,572,000) (2,898,000)
------------ ------------
(2,436,000) (2,733,000)
------------ ------------
Loss before provision for income taxes.............. (6,430,000) (6,972,000)
Provision for income taxes.......................... 52,000 32,000
------------ ------------
Net loss............................................ (6,482,000) (7,004,000)
Retained earnings at beginning of period............ 24,200,000 30,636,000
Distributions to sole stockholder................... (30,000) (57,000)
------------ ------------
Retained earnings at end of period.................. $ 17,688,000 $ 23,575,000
============ ============
</TABLE>
See notes to condensed combined financial statements.
F-13
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AND CERTAIN AFFILIATES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Operating activities
Net loss.......................................... $ (6,482,000) $ (7,004,000)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation.................................... 1,972,000 2,406,000
Amortization.................................... 94,000 80,000
Provision for doubtful accounts................. 615,000 967,000
(Gain) loss on disposal of property and
equipment...................................... (9,000) 30,000
Change in operating assets and liabilities:
Accounts receivable........................... 1,293,000 (1,576,000)
Inventories................................... (30,793,000) (41,150,000)
Prepaid expenses and other.................... (20,000) (289,000)
Security deposits............................. (188,000) (72,000)
Other assets.................................. (201,000) (113,000)
Accounts payable.............................. 34,256,000 51,958,000
Accrued liabilities........................... 1,562,000 1,556,000
------------ ------------
Cash provided by operating activities....... 2,099,000 6,793,000
Investing activities
Additions to property and equipment............. (3,512,000) (4,368,000)
Proceeds from disposal of property and
equipment...................................... 73,000 86,000
Acquisitions of businesses...................... (5,922,000) (395,000)
------------ ------------
Cash used in investing activities........... (9,361,000) (4,677,000)
Financing activities
Net borrowings (payments) under line of credit.... 4,526,000 (372,000)
Proceeds from notes payable....................... 1,185,000 85,000
Payments on notes payable......................... (1,263,000) (2,156,000)
Net change in receivable from sole stockholder.... 370,000 (1,328,000)
Distributions paid to sole stockholder............ (30,000) (57,000)
------------ ------------
Cash used in financing activities........... 4,788,000 (3,828,000)
------------ ------------
Net decrease in cash.............................. (2,474,000) (1,712,000)
Cash at beginning of period................. 2,743,000 2,630,000
------------ ------------
Cash at end of period....................... $ 269,000 $ 918,000
============ ============
</TABLE>
See notes to condensed combined financial statements.
F-14
<PAGE>
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AND CERTAIN AFFILIATES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed combined financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1997 are not
indicative of the results that may be expected for the year ending December
31, 1997. For further information, refer to the December 31, 1996 combined
financial statements and footnotes thereto included elsewhere in this
registration statement.
2. CONTINGENT LIABILITIES
At December 31, 1996 and March 31, 1997, the Company had guaranteed debt of
the sole stockholder in the amounts of $3,616,000 and $3,600,219,
respectively. Certain assets owned by the Company are utilized as collateral
as part of an overall guaranty of this debt by the Company. The Company also
had outstanding letters of credit of $300,000 and $711,000 at December 31,
1996 and March 31, 1997, respectively, with respect to debt of the Company's
sole stockholder and his affiliates.
3. PRO FORMA STOCKHOLDER'S EQUITY
Pro forma stockholder's equity reflects the payment of a $10,000,000
distribution from the proceeds of the May offering (see Note 4), and the April
1997 payment of a dividend to the Company's sole stockholder in respect of
1996 federal and state income taxes of approximately $1,600,000, as if both
such transactions had occurred on March 31, 1997.
4. SUBSEQUENT EVENTS
In April 1997, ABC made a distribution of approximately $1,600,000 to the
sole stockholder relating to 1996 federal and state income taxes.
On May 1, 1997, all of the capital stock of Mule-Hide Products Co., Inc.
(Mule-Hide) and Amcraft Building Products Co., Inc. (Amcraft), companies
previously wholly-owned by the sole stockholder, was contributed to the
Company. Thereafter, Mule-Hide and Amcraft will operate as wholly-owned
subsidiaries of the Company. In addition, Hendricks Real Estate Properties,
Inc (HREP), whose capital stock was also wholly-owned by the sole stockholder,
merged with and into the Company.
On May 7, 1997, American Builders and Contractors Supply Co., Inc. (ABC)
issued $100,000,000 principal amount of 10 5/8% Senior Subordinated Notes due
2007, for which it received net proceeds of approximately $96,500,000 after
deducting expenses and commissions. Net proceeds of $10,000,000 were
distributed to ABC's sole stockholder, who simultaneously repaid to the
Company approximately $8,300,000 of net borrowings. The remainder of the net
proceeds combined with the repayment of the net stockholder advances
approximated $94,800,000 and was used to repay indebtedness outstanding under
the Revolver.
F-15
<PAGE>
On May 19, 1997, ABC acquired certain assets and assumed a portion of the
liabilities of Viking Products, Inc. and certain assets of Viking Aluminum
Products, Inc. (collectively Viking). The purchase price was paid with a
combination of cash and a $3,000,000 seller note payable over two years.
Viking was a regional distributor of residential roofing, siding and window
products with 12 distribution centers located in the Northeastern portion of
the United States. An estimated allocation of the purchase price of Viking is
as follows:
<TABLE>
<S> <C>
Accounts receivable.......................................... $ 8,534,000
Inventories.................................................. 11,314,000
Property and equipment....................................... 2,439,000
Goodwill and other intangible assets......................... 7,200,000
Other assets................................................. 263,000
Liabilities assumed.......................................... (3,928,000)
-----------
Cost of purchase............................................. $25,822,000
===========
</TABLE>
The Viking acquisition was accounted for as a purchase; accordingly, the
results of operations of Viking will be included with those of ABC from the
date of acquisition. Unaudited pro forma financial information is not
presented because the Viking acquisition does not have a material impact on
ABC's results of operations.
F-16
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... iii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 10
Recent Transactions....................................................... 16
Use of Proceeds........................................................... 16
Capitalization............................................................ 18
Selected Combined Historical Financial Data............................... 19
Management's Discussion And Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 28
Management................................................................ 36
Security Ownership of Certain Beneficial Owners and Management............ 38
Certain Transactions...................................................... 39
Description of The Credit Agreement....................................... 41
The Exchange Offer........................................................ 42
Description of the Notes.................................................. 50
Certain Federal Income Tax Consequences................................... 74
Plan of Distribution...................................................... 75
Legal Matters............................................................. 75
Experts................................................................... 75
Index to Combined Financial Statements.................................... F-1
</TABLE>
UNTIL , 1996 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OF-
FER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO-
SPECTUS. THIS DELIVERY REQUIREMENT 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
AMERICAN
BUILDERS & CONTRACTORS
SUPPLY CO., INC.
AMCRAFT BUILDING PRODUCTS CO., INC.
MULE-HIDE PRODUCTS CO., INC.
OFFER TO EXCHANGE ITS
10 5/8% SERIES B
SENIOR SUBORDINATED NOTES
DUE 2007 FOR ITS OUTSTANDING
10 5/8% SENIOR SUBORDINATED NOTES
DUE 2007
---------------
PROSPECTUS
---------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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 General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties 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
such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty as a director.
Article V of the By-laws of the Company ("Article V") provides, among other
things, that each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he or a person of whom he is the legal representative, is or was a director or
officer, of the corporation or is or was serving at the request of the Company
as a director, officer, employee, fiduciary, or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee, fiduciary or agent or in any other capacity while serving as a
director, officer, employee, fiduciary or agent, shall be indemnified and held
harmless by the Company to the fullest extent which it is empowered to do so
by the General Corporation Law of the State of Delaware, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law' permitted the corporation to provide
prior to such amendment) against all expense, liability and loss (including
attorneys' fees actually and reasonably incurred by such person in connection
with such proceeding and such indemnification shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, the
Company shall indemnify any such person seeking indemnification in connection
with a proceeding initiated by such person only if such proceeding was
authorized by the board of directors of the Company.
Article V also provides that persons who are not covered by the foregoing
provisions of Article V and who are or were employees or agents of the
Company, or who are or were serving at the request of the Company as employees
or agents of another corporation, partnership, joint venture, trust or other
enterprise, may be indemnified to the extent authorized at any time or from
time to time by the board of directors.
II-1
<PAGE>
Section 145 further authorizes a corporation 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
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Article V further provides that the Company may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the Company or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her
in any such capacity, whether or not the Company would have the power to
indemnify such person against such liability under Article V.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the Company.**
3.2 By-laws of the Company.**
3.3 Articles of Incorporation of Mule-Hide.**
3.4 By-laws of Mule-Hide.**
3.5 Certificate of Incorporation of Amcraft.**
3.6 By-laws of Amcraft.**
4.1 Indenture dated as of May 6, 1997 between the Company, Mule-Hide and
Amcraft and Norwest Bank Minnesota, National Association, as trustee
(including form of New Note and Senior Subordinated Guarantees).
4.2 Purchase Agreement dated as of May 2, 1997 between the Company,
Mule-Hide and Amcraft and NationsBanc Capital Markets, Inc. and
First Chicago Capital Markets, Inc.+**
4.3 Registration Rights Agreement dated as of May 6, 1997 between the
Company, Mule-Hide and Amcraft and NationsBanc Capital Markets, Inc.
and First Chicago Capital Markets, Inc.**
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Asset Purchase Agreement, dated as of April 12, 1997, by and between
Viking Aluminum Products, Inc. and the Company.+**
10.2 Asset Purchase Agreement, dated as of April 12, 1997, by and between
Viking Building Products, Inc. and the Company.+**
10.3 Employment Agreement, dated as of May 1, 1997, between the Company
and Kenneth A. Hendricks.**
10.4 Tax Allocation Agreement, dated as of May 1, 1997, among the
Company, Mule-Hide and Amcraft and Kenneth A. Hendricks.**
10.5 Form of lease agreement between the Company and Hendricks Real
Estate Properties and schedule of lease terms for all properties
leased pursuant thereto.**
10.6 Amended and Restated Loan and Security Agreement among American
National Bank and Trust Company of Chicago, NationsBank of Texas,
N.A., Bankamerica Business Credit, Inc. and the Company, as amended
to date (the "Credit Agreement").**
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7 Amended and Restated Patent, Trademark and License Mortgage by the
Company in favor of NationsBank of Texas, N.A., as agent for the
lenders under the Credit Agreement, as amended.**
10.8 Amended and Restated Limited Guaranty Agreement by Kenneth A.
Hendricks, dated as of February 8, 1996, in favor of NationsBank of
Texas, N.A., individually or as agent for the lenders under the
Credit Agreement.**
10.9 Continuing Guarantee Agreement, dated July 20, 1996, between Mule-
Hide and Heritage Bank, N.A., for the benefit of Kenneth A.
Hendricks.**
10.10 Guaranty, dated December 22, 1992, between the Company and Transohio
Savings Bank, for the benefit of Kenneth A. Hendricks.**
10.11 Guaranty, dated December 22, 1996, between the Company and MetLife
Capital Corporation, for the benefit of Kenneth A. Hendricks.**
12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company, Mule-Hide and Amcraft**
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).**
25.1 Statement of Eligibility of Trustee on Form T-1.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- --------
**Previously filed.
+The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule to such agreement upon the request of the Commission in
accordance with Item 601(b)(2) of Regulation S-K.
(b) Financial Statement Schedule.
Report of Ernst & Young LLP, Independent Auditors, on Schedule
Schedule II--Valuation and Qualifying Accounts (for each of the three
years in the period ended December 31, 1996)
Note: All other financial statement schedules have been omitted because
the required information is not present or is not present in
amounts sufficient to require submission of the schedules, or
because the information required is included in the combined
financial statements and notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned 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 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;
(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
II-3
<PAGE>
therein, and the offering of such securities at the time shall be deemed to
be the initial bonafide 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; and
(4) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(5) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMERICAN
BUILDERS & CONTRACTORS SUPPLY CO., INC. HAS DULY CAUSED THIS AMENDMENT NO. 3
TO REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BELOIT, STATE OF
WISCONSIN, ON JULY 24, 1997.
American Builders & Contractors
Supply Co., Inc.
*
By:__________________________________
Kenneth A. Hendricks
President and Chief Executive
Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON JULY 24, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* President and Chief Executive Officer,
___________________________________________ Director (principal executive officer)
Kenneth A. Hendricks
* Chief Financial Officer and Treasurer
___________________________________________ (principal financial and accounting
Kendra A. Story officer) and Director
* Executive Vice President, Secretary and
___________________________________________ Director
Diane M. Hendricks
* Director
___________________________________________
Gil Aleman
* Director
___________________________________________
Kent A. Nelson
* The undersigned, by signing her name hereto, does sign and execute this
Amendment No. 3 pursuant to the Power of Attorney executed by the above-
named officers and directors of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such officers and directors.
/s/ Kendra Story Attorney-in-Fact
___________________________________________
Kendra Story
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMERICAN
BUILDERS & CONTRACTORS SUPPLY CO., INC. HAS DULY CAUSED THIS AMENDMENT NO. 3
TO REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BELOIT, STATE OF
WISCONSIN, ON JULY 24, 1997.
Mule-Hide Products Co., Inc.
*
By:__________________________________
Kenneth A. Hendricks
President and Chief Executive
Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON JULY 24, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* Chief Executive Officer, Director
___________________________________________ (principal executive officer)
Kenneth A. Hendricks
* Chief Financial Officer, Director
___________________________________________ (principal financial and accounting
Kendra A. Story officer
* Director
___________________________________________
Diane M. Hendricks
* The undersigned, by signing her name hereto, does sign and execute this
Amendment No. 3 pursuant to the Power of Attorney executed by the above-
named officers and directors of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such officers and directors.
/s/ Kendra Story Attorney-in-Fact
___________________________________________
Kendra Story
</TABLE>
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, MULE-HIDE
PRODUCTS CO., INC. HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION
STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF BELOIT, STATE OF WISCONSIN, ON JULY 24, 1997.
Amcraft Building Products Co., Inc.
*
By: _________________________________
Kenneth A. Hendricks
Chief Executive Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON JULY 24, 1997
BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
* Chief Executive Officer, Director
___________________________________________ (principal executive officer)
Kenneth A. Hendricks
* Chief Financial Officer, Director
___________________________________________ (principal financial and accounting
Kendra A. Story officer
* Director
___________________________________________
Diane M. Hendricks
* The undersigned, by signing her name hereto, does sign and execute this
Amendment No. 3 pursuant to the Power of Attorney executed by the above-
named officers and directors of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such officers and directors.
/s/ Kendra Story Attorney-in-Fact
___________________________________________
Kendra Story
</TABLE>
II-7
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS, ON SCHEDULE
We have audited the combined financial statements of American Builders &
Contractors Supply Co., Inc., Mule-Hide Products Co., Inc., Amcraft Building
Products Co., Inc. and Hendricks Real Estate Properties, Inc. (collectively,
the "Company") as of December 31, 1995 and 1996, and for each of the three
years in the period ended December 31, 1996, and have issued our report
thereon dated March 21, 1997, except as to Note 12, the date of which is May
7, 1997, included elsewhere in this Registration Statement. Our audits also
included the financial statement schedule listed at Item 21(b) of this
Registration Statement. That schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Milwaukee, Wisconsin
March 21, 1997
II-8
<PAGE>
SCHEDULE II
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC.
AND CERTAIN AFFILIATES
COMBINED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
DESCRIPTION OF YEAR EXPENSE DEDUCTIONS (1) YEAR
- ----------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Accounts Receivables--
Allowance for doubtful
accounts:
1994........................ $2,833,000 $2,647,000 $2,087,000 $3,393,000
1995........................ 3,393,000 3,165,000 2,654,000 3,904,000
1996........................ 3,904,000 3,604,000 3,183,000 4,325,000
</TABLE>
- --------
(1) Consist of charge-offs, net of recoveries
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
3.1 Certificate of Incorporation of the Company.**
3.2 By-laws of the Company.**
3.3 Articles of Incorporation of Mule-Hide.**
3.4 By-laws of Mule-Hide.**
3.5 Certificate of Incorporation of Amcraft.**
3.6 By-laws of Amcraft.**
4.1 Indenture dated as of May 6, 1997 between the Company,
Mule-Hide and Amcraft and Norwest Bank Minnesota,
National Association, as trustee (including form of New
Note and Senior Subordinated Guarantees).
4.2 Purchase Agreement dated as of May 2, 1997 between the
Company, Mule-Hide and Amcraft and NationsBanc Capital
Markets, Inc. and First Chicago Capital Markets, Inc.+**
4.3 Registration Rights Agreement dated as of May 6, 1997
between the Company, Mule-Hide and Amcraft and
NationsBanc Capital Markets, Inc. and First Chicago
Capital Markets, Inc.**
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Asset Purchase Agreement, dated as of April 12, 1997, by
and between Viking Aluminum Products, Inc. and the
Company.+**
10.2 Asset Purchase Agreement, dated as of April 12, 1997, by
and between Viking Building Products, Inc. and the
Company.+**
10.3 Employment Agreement, dated as of May 1, 1997, between
the Company and Kenneth A. Hendricks.**
10.4 Tax Allocation Agreement, dated as of May 1, 1997, among
the Company, Mule-Hide and Amcraft and Kenneth A.
Hendricks.**
10.5 Form of lease agreement between the Company and Hendricks
Real Estate Properties and schedule of lease terms for
all properties leased pursuant thereto.**
10.6 Amended and Restated Loan and Security Agreement among
American National Bank and Trust Company of Chicago,
NationsBank of Texas, N.A., Bankamerica Business Credit,
Inc. and the Company, as amended to date (the "Credit
Agreement").**
10.7 Amended and Restated Patent, Trademark and License
Mortgage by the Company in favor of NationsBank of Texas,
N.A., as agent for the lenders under the Credit
Agreement, as amended.**
10.8 Amended and Restated Limited Guaranty Agreement by
Kenneth A. Hendricks, dated as of February 8, 1996, in
favor of NationsBank of Texas, N.A., individually or as
agent for the lenders under the Credit Agreement.**
10.9 Continuing Guarantee Agreement, dated July 20, 1996,
between Mule-Hide and Heritage Bank, N.A., for the
benefit of Kenneth A. Hendricks.**
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.10 Guaranty, dated December 22, 1992, between the Company
and Transohio Savings Bank, for the benefit of Kenneth A.
Hendricks.**
10.11 Guaranty, dated December 22, 1996, between the Company
and MetLife Capital Corporation, for the benefit of
Kenneth A. Hendricks.**
12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company, Mule-Hide and Amcraft**
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).**
25.1 Statement of Eligibility of Trustee on Form T-1.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- --------
**Previously filed.
+The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule to such agreement upon the request of the Commission in
accordance with Item 601(b)(2) of Regulation S-K.
E-2
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
AMERICAN BUILDERS & CONTRACTORS
SUPPLY CO., INC.
Issuer
________________
AMCRAFT BUILDING PRODUCTS CO., INC.
MULE-HIDE PRODUCTS CO., INC.
Guarantors
________________
SERIES A AND SERIES B
10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
________________
INDENTURE
Dated as of May 7, 1997
________________
Norwest Bank Minnesota,
National Association
Trustee
________________
================================================================================
<PAGE>
Table of Contents
-----------------
<TABLE>
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Page
----
<C> <S> <C>
1 DEFINITIONS AND INCORPORATION BY REFERENCE........................... 1
1.01 DEFINITIONS.................................................... 1
1.02 OTHER DEFINITIONS.............................................. 15
1.03 INCORPORATION BY PREFERENCE OF TRUST INDENTURE ACT............. 16
1.04 RULES OF CONSTRUCTION.......................................... 16
2 THE NOTES............................................................ 17
2.01 FORM AND DATING................................................ 17
2.02 EXECUTION AND AUTHENTICATION................................... 17
2.03 REGISTRAR AND PAYING AGENT..................................... 18
2.04 PAYING AGENT TO HOLD MONEY IN TRUST............................ 18
2.05 HOLDER LISTS................................................... 18
2.06 TRANSFER AND EXCHANGE.......................................... 19
2.07 REPLACEMENT NOTES.............................................. 24
2.08 OUTSTANDING NOTES.............................................. 25
2.09 TREASURY NOTES................................................. 25
2.10 TEMPORARY NOTES................................................ 25
2.11 CANCELLATION................................................... 26
2.12 DEFAULTED INTEREST............................................. 26
3 REDEMPTION AND PREPAYMENT............................................ 26
3.01 NOTICES TO TRUSTEE............................................. 26
3.02 SELECTION OF NOTES TO BE REDEEMED.............................. 26
3.03 NOTICE OF REDEMPTION........................................... 27
3.04 EFFECT OF NOTICE OF REDEMPTION................................. 28
3.05 DEPOSIT OF REDEMPTION PRICE.................................... 28
3.06 NOTICES REDEEMED IN PART....................................... 28
3.07 OPTIONAL REDEMPTION............................................ 28
3.08 MANDATORY REDEMPTION........................................... 29
3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS............ 29
4 COVENANTS............................................................ 31
4.01 PAYMENT OF NOTES............................................... 31
4.02 MAINTENANCE OF OFFICE OR AGENCY................................ 31
4.03 REPORTS........................................................ 32
4.04 COMPLIANCE CERTIFICATE......................................... 33
4.05 TAXES.......................................................... 33
4.06 STAY, EXTENSION AND USURY LAWS................................. 33
4.07 RESTRICTED PAYMENTS............................................ 34
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.................................................. 36
4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED
STOCK......................................................... 36
4.10 ASSET SALES.................................................... 38
4.11 TRANSACTIONS WITH AFFILIATES................................... 39
4.12 LIENS.......................................................... 40
4.13 ADDITIONAL SUBSIDIARY GUARANTEES............................... 40
4.14 CORPORATE EXISTENCE............................................ 40
4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL..................... 41
4.16 LIMITATION ON LAYERING......................................... 42
4.17 SALE AND LEASEBACK TRANSACTIONS................................ 42
4.18 LIMITATION ON ISSUANCES AND SALES OF
CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES.................... 42
4.19 BUSINESS ACTIVITIES............................................ 42
4.20 PAYMENTS FOR CONSENT........................................... 43
5 SUCCESSORS........................................................... 43
5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS....................... 43
5.02 SUCCESSOR CORPORATION SUBSTITUTED.............................. 43
6 DEFAULTS AND REMEDIES................................................ 44
6.01 EVENTS OF DEFAULT.............................................. 44
6.02 ACCELERATION................................................... 46
6.03 OTHER REMEDIES................................................. 46
6.04 WAIVER OF PAST DEFAULTS........................................ 47
6.05 CONTROL BY MAJORITY............................................ 47
6.06 LIMITATION ON SUITS............................................ 47
6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.................. 48
6.08 COLLECTION SUIT BY TRUSTEE..................................... 48
6.09 TRUSTEE MAY FILE PROOFS OF CLAIM............................... 48
6.10 PRIORITIES..................................................... 49
6.11 UNDERTAKING FOR COSTS.......................................... 49
7 TRUSTEE.............................................................. 49
7.01 DUTIES OF TRUSTEE.............................................. 49
7.02 RIGHTS OF TRUSTEE.............................................. 51
7.03 INDIVIDUAL RIGHTS OF TRUSTEE................................... 51
7.04 TRUSTEE'S DISCLAIMER........................................... 51
7.05 NOTICE OF DEFAULTS............................................. 52
7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES..................... 52
7.07 COMPENSATION AND INDEMNITY..................................... 52
7.08 REPLACEMENT OF TRUSTEE......................................... 53
7.09 SUCCESSOR TRUSTEE BY MERGER, ETC............................... 54
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
7.10 ELIGIBILITY; DISQUALIFICATION................................. 54
7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY............. 54
8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE............................ 55
8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE................................................... 55
8.02 LEGAL DEFEASANCE AND DISCHARGE................................ 55
8.03 COVENANT DEFEASANCE........................................... 55
8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.................... 56
8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS................ 57
8.06 REPAYMENT To COMPANY.......................................... 58
8.07 REINSTATEMENT................................................. 58
9 AMENDMENT, SUPPLEMENT AND WAIVER..................................... 59
9.01 WITHOUT CONSENT OF HOLDERS OF NOTES........................... 59
9.02 WITH CONSENT OF HOLDERS OF NOTES.............................. 59
9.03 COMPLIANCE WITH TRUST INDENTURE ACT........................... 61
9.04 REVOCATION AND EFFECT OF CONSENTS............................. 61
9.05 NOTATION ON OR EXCHANGE OF.................................... 61
9.06 TRUSTEE TO SIGN AMENDMENT, ETC................................ 62
10 SUBORDINATION........................................................ 62
10.01 AGREEMENT TO SUBORDINATE...................................... 62
10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY.......................... 62
10.03 DEFAULT ON DESIGNATED SENIOR DEBT............................. 63
10.04 ACCELERATION OF NOTES......................................... 63
10.05 WHEN DISTRIBUTION MUST BE PAID OVER........................... 64
10.06 NOTICE BY COMPANY............................................. 64
10.07 SUBROGATION................................................... 64
10.08 RELATIVE RIGHTS............................................... 64
10.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.................. 65
10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE...................... 65
10.11 RIGHTS OF TRUSTEE AND PAYING AGENT............................ 65
10.12 AUTHORIZATION TO EFFECT SUBORDINATION......................... 66
10.13 AMENDMENTS.................................................... 66
11 SUBSIDIARY GUARANTEES................................................ 66
11.01 SUBSIDIARY GUARANTEES......................................... 66
11.02 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE................ 67
11.03 GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS............ 68
11.04 RELEASES FOLLOWING SALE OF ASSETS............................. 69
11.05 "TRUSTEE" TO INCLUDE PAYING AGENT............................. 69
11.06 SUBORDINATION OF SUBSIDIARY GUARANTEE......................... 69
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
12 MISCELLANEOUS........................................................ 70
12.01 TRUST INDENTURE ACT CONTROLS.................................. 70
12.02 NOTICES....................................................... 70
12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS
OF NOTES..................................................... 71
12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT............ 71
12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION................. 71
12.06 RULES BY TRUSTEE AND AGENTS................................... 72
12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND STOCKHOLDERS............................................. 72
12.08 GOVERNING LAW................................................. 72
12.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS................. 72
12.10 SUCCESSORS.................................................... 73
12.11 SEVERABILITY.................................................. 73
12.12 COUNTERPART ORIGINALS......................................... 73
12.13 TABLE OF CONTENTS, HEADINGS, ETC.............................. 73
</TABLE>
-iv-
<PAGE>
INDENTURE dated as of May 7, 1997 among American Builders & Contractors
Supply Co., Inc., a Delaware corporation (the "Company"), Amcraft Building
Products Co., Inc., a Delaware corporation ("Amcraft"), Mule-Hide Products Co.,
Inc., a Texas corporation (together with Amcraft, the "Guarantors"), and Norwest
Bank Minnesota, National Association, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the 10 5/8% Series A
Senior Subordinated Notes due 2007 (the "Series A Notes") and the 10% Series B
Senior Subordinated Notes due 2007 (the "Series B Notes" and, together with the
Series A Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Notes" means up to $50.0 million aggregate principal amount of
Notes (other than the Initial Notes) issued under this Indenture as part of the
same Series As the Initial Notes.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Amcraft" means Amcraft Building Products Co., Inc, a Delaware corporation.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken
<PAGE>
as a whole will be governed by the provisions of Section 4.15 hereof and/or the
provisions of Section 5.01 hereof and (ii) the issue or sale by the Company or
any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $500,000 or (b) for net proceeds in excess of $500,000.
Notwithstanding the foregoing, the following items will not be deemed to be
Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary, (iii) a
Restricted Payment that is permitted by Section 4.07 hereof and (iv) the sale of
up to $5.0 million of real estate since the date hereof.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of such Board of
Directors.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85.0% of the face amount of all accounts receivable owned by the Company and its
Subsidiaries as of such date that are not more than 90 days past due and (b)
65.0% of the book value of all inventory owned by the Company and its
Subsidiaries as of such date, all calculated on a consolidated basis and in
accordance with GAAP. To the extent that information is not available as to the
amount of accounts receivable or inventory or trade payables as of a specific
date, the Company may utilize the most recent available information for purposes
of calculating the Borrowing Base.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
-2-
<PAGE>
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Keefe Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties, (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than the Specified Percentage of the
Voting Stock of the Company (measured by voting power rather than number of
shares), (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors or (v) any transaction the
result of which is (x) if such transaction occurs prior to the first sale of
common equity of the Company pursuant to a registration statement under the
Securities Act that results in at least 25.0% of the then outstanding common
equity of the Company being sold to the public, that the Principals and their
Related Parties beneficially own, directly or indirectly, less than 51.0% of the
Voting Stock of the Company (measured by voting power rather than number of
shares) beneficially owned by the Principals, directly or indirectly, on the
date hereof, and (y) if such transaction occurs thereafter, that any "person"
(as defined above) (other than the Principals and their Related Parties) owns,
directly or indirectly, more of the Voting Stock of the Company (measured by
voting power rather than number of shares) than the Principals and their Related
Parties. For purposes of this definition, any transfer of an equity interest of
an entity that was formed for the purpose of acquiring Voting Stock of the
Company will be deemed to be a transfer of such portion of such Voting Stock as
corresponds to the portion of the equity of such entity that has been so
transferred.
"Company" means American Builders & Contractors Supply Co., Inc., a
Delaware corporation.
-3-
<PAGE>
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period (to the extent that
such provision for taxes was included in computing such Consolidated Net
Income), plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations) (to the extent that any such expense
was deducted in computing such Consolidated Net Income), plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash expenses (excluding any such non-cash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period (to the extent that
such depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income), plus (v) one-third of the Consolidated
Lease Expense of such Person for such period (to the extent that such
Consolidated Lease Expense was deducted in computing such Consolidated Net
Income), minus (vi) non-cash items increasing such Consolidated Net Income for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation, amortization and other non-cash expenses
of, a Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Lease Expense" means, with respect to any Person for any
period, the aggregate rental obligations of such Person and its consolidated
Subsidiaries for operating leases determined on a consolidated basis in
accordance with GAAP payable in respect of such period under leases of real
and/or personal property (net of income from subleases thereof, but including
taxes, insurance, maintenance and similar expenses that the lessee is obligated
to pay under the terms of such leases), whether or not such obligations are
reflected as liabilities or commitments on a consolidated balance sheet of such
Person and its Subsidiaries or in the notes thereto.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP and reduced
by the amount of Tax Distributions that would be permitted since the date hereof
(whether or not such Tax Distributions have actually been
-4-
<PAGE>
distributed); provided that (i) the Net Income (but not loss) of any Person that
is not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii)
the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date hereof in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person and (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), all of the
foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date hereof or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Agreement" means that certain Amended and Restated Loan and
Security Agreement, dated as of July 1, 1993, by and among the Company,
NationsBank of Texas, N.A., as Agent and American National Bank and Trust
Company of Chicago, as Co-Agent, and the lenders from time to time a party
thereto providing for up to $200.0 million of revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
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"Credit Facilities" means, with respect to the Company or any of its
Subsidiaries, one or more debt facilities (including, without limitation, the
Credit Agreement) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under this Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (i) of the
definition of Permitted Debt.
"Custodian" means any receiver, trustee, assignee, liquidator, sequester or
similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of the Notes attached
hereto as Exhibit A, that do not include the information called for by footnotes
1 and 3 thereof.
"Depositary" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other series of Senior Debt permitted under this
Indenture the aggregate principal amount of which is $15.0 million or more and
that has been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature.
"Employment Agreement" means the Employment Agreement dated as of May 1,
1997, between Kenneth A. Hendricks and the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company pursuant
to the Registration Rights Agreement to exchange Series B Notes for Series A
Notes.
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"Existing Guarantees" means the obligations of the Company outstanding
under guarantees and letters of credit in respect of certain outstanding
Indebtedness of its Affiliates in an aggregate principal amount of up to $4.3
million.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $32.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Agreement) in existence on the date hereof, until
such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period, and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest of such Person and its
Subsidiaries that was capitalized during such period, (iii) any interest expense
on Indebtedness
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<PAGE>
of another Person that is Guaranteed by such Person or one of its Subsidiaries
or secured by a Lien on assets of such Person or one of its Subsidiaries
(whether or not such Guarantee or Lien is called upon), (iv) one-third of the
Consolidated Lease Expense of such Person for such period and (v) the product of
(a) all dividend payments, whether or not in cash, on any series of preferred
stock of such Person or any of its Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock), times (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 such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles 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 have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Global Note" means a Note that contains the paragraph referred to in
footnote I and the additional schedule referred to in footnote 3 to the form of
the Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantor" means (i) each of the Company's Subsidiaries which becomes a
guarantor of the Notes pursuant to Article 11 and (ii) each of the Company's
Subsidiaries executing a supplemental indenture in which such Subsidiary agrees
to be bound by the terms of this indenture; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Subsidiary Guarantee is released in accordance
with the terms hereof.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's
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acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest or (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Initial Notes" means $100,000,000 aggregate principal amount of Notes
issued pursuant to this Indenture.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
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"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Mule-Hide" means Mule-Hide Products Co., Inc., a Texas corporation.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Note Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company, that meets the requirements of Section 12.05
hereof.
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"Opinion of Counsel" means an opinion from legal -counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 12.05 hereof.
The counsel may be an employee of or counsel to the Company or the Trustee.
"Permitted Businesses" means any business conducted by the Company or any
of its Subsidiaries as of the date hereof, any other business related to the
distribution or manufacture of commercial or residential building products, or
any business reasonably related to the foregoing.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company, (b) any Investment in Cash Equivalents, (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Subsidiary of the Company, (d) any Restricted Investment made
as a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with Section 4.10 hereof, (e) any acquisition
of assets to the extent such assets are acquired solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company, (f)
Permitted Real Estate Loans, (g) extensions or renewals of the Existing
Guarantees on terms that are no less favorable to the Holders of Notes than
those existing on the date hereof, and (h) other Investments in any Person
having an aggregate fair market value (measured on the date each such Investment
was made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (h) that are at
the time outstanding, not to exceed $1.0 million.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to this
Indenture.
"Permitted Liens" means (i) Liens on assets of the Company or any of its
Subsidiaries securing Senior Debt that was permitted by the terms hereof to be
incurred, (ii) Liens in favor of the Company, (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company, (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition, (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business, (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted to be incurred pursuant to clause (iv) of
the second paragraph of Section 4.09 hereof, covering only the assets acquired
with such Indebtedness, (vii) Liens existing on the date hereof, (viii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve
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or other appropriate provision as shall be required in conformity with GAAP
shall have been made therefor, (ix) liens relating to trade payables of the
Company or its Subsidiaries and (x) Liens incurred in the ordinary course of
business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary.
"Permitted Real Estate Loan" means a loan from the Company or any of its
Subsidiaries to an Affiliate of the Company (i) the proceeds of which are used
by such Affiliate to finance the purchase or improvement of real estate which is
or will, upon such purchase or improvement, be leased to the Company or one of
its Subsidiaries on terms comparable to those that would occur in an arm's-
length transaction, (ii) that is evidenced by a note, payable upon the demand of
the Company or such Subsidiary, (iii) the interest on which is payable in cash
semi-annually at an interest rate at least equal to the prime rate of
NationsBank of Texas, N.A., announced from time to time, (iv) with full recourse
to such Affiliate, its assets and its properties, and (v) the aggregate
principal amount of which at any one time outstanding (when taken together with
all other Permitted Real Estate Loans) does not exceed the greater of (x) $10.0
million and (y) $10.0 million plus 10.0% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the date hereof and ending on the last
day of the most recently ended fiscal quarter.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision
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thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principals" means Kenneth A. Hendricks, Diane Hendricks, any lineal
descendant of either of them and the spouse of Kenneth A. Hendricks (if other
than Diane Hendricks).
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of May 7, 1997, by and among the Company and the other parties named on
the signature pages thereof, as such agreement may be amended, modified or
supplemented from time to time.
"Related Party" with respect to any Principal means any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a majority and controlling interest of which
consist of such Principal and/or one or more other Principals.
"Related Party Leases" means the leases delivered to the Trustee within 30
days of the date hereof in accordance with the terms of the letter agreement
(and form of lease attached thereto) attached hereto as Exhibit C.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
by any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness of the Company or any of its
Subsidiaries outstanding under Credit Facilities and all Hedging Obligations
with respect thereto, (ii) any other Indebtedness permitted to be incurred by
the Company or any of its Subsidiaries under the terms hereof, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Notes or any
Guarantor's Subsidiary Guarantee of the Notes and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company or any of its Subsidiaries,
(x) any Indebtedness of the Company or any of its Subsidiaries to any Subsidiary
or other Affiliate of the Company, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of this Indenture (other than
Indebtedness under the Credit Agreement that is incurred on the basis of a
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representation by the Company to the applicable lenders that it is permitted to
incur such Indebtedness under the Indenture).
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof
"Specified Percentage" means at any time at which the Principals and their
Related Parties collectively own more than 50.0% of the Voting Stock of the
Company (measured by voting power rather than number of shares), 50.0% and, at
any time thereafter, 35.0%.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock 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 such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). With respect to the
Company, the term "Subsidiary" shall include, but not be limited to, Mule-Hide
and Amcraft.
"Subsidiary Guarantee" means, individually and collectively, the guarantees
given by the Guarantors pursuant to Article 11 hereof, including a notation in
the Securities substantially in the form included in Exhibit A.
"Tax Allocation Agreement" means the Tax Allocation Agreement dated as of
May 1, 1997, among the Company, Mule-Hide, Amcraft and Kenneth A. Hendricks.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date on which this Indenture is qualified under the TIA.
"Transfer Restricted Securities" means securities that bear or are required
to bear the legend set forth in Section 2.06 hereof
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
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"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned, directly
or indirectly, by such Person or by one or more Wholly Owned Subsidiaries of
such Person.
SECTION 1.02 OTHER DEFINITIONS
<TABLE>
<CAPTION>
Defined
in
Term Section
----------------------------------- -------
<S> <C>
"Affiliate Transaction"............ 4.11
"Asset Sale"....................... 4.10
"Asset Sale Offer"................. 3.09
"Change of Control Offer".......... 4.15
"Change of Control Payment"........ 4.15
"Change of Control Payment Date"... 4.15
"Covenant Defeasance".............. 8.03
"Event of Default"................. 6.01
"Excess Proceeds".................. 4.10
"incur"............................ 4.09
"Legal Defeasance"................. 8.02
"Offer Amount"..................... 3.09
"Offer Period"..................... 3.09
"Paying Agent"..................... 2.03
"Payment Default".................. 2.03
"Permitted Debt"................... 4.09
"Purchase Date".................... 3.09
"Registrar"........................ 2.03
"Restricted Payments".............. 4.07
"Tax Distributions"................ 4.07
</TABLE>
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SECTION 1.03 INCORPORATION BY PREFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes and the Subsidiary Guaranties;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor upon the
Notes or any Guarantor.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
SECTION 1.04 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement or successor sections or rules adopted
by the SEC from time to time.
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ARTICLE 2
THE NOTES
SECTION 2.01 FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form included in Exhibit A hereto. The Subsidiary
Guarantees shall be substantially in the form of Exhibit A, the terms of which
are incorporated in and made part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes issued in global form shall be substantially in the form of Exhibit A
attached hereto (including the text referred to in footnotes 1 and 3 thereto).
Notes issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without including the text referred to in footnotes 1 and 3
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.
SECTION 2.02 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
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The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("Registrar") and an office or
agency where Notes may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of Holders
or the Trustee all money held by the Paying Agent for the payment of principal,
premium or Liquidated Damages, if any, or interest on the Notes, and will notify
the Trustee of any default by the Company or any Guarantor in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company or a
Guarantor, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA
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(S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to
the Trustee at least seven Business Days before each interest payment date and
at such other times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of the Holders of Notes and the Company and the Guarantors shall
otherwise comply with TIA (S) 312(a).
SECTION 2.06 TRANSFER AND EXCHANGE
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes are
presented by a Holder to the Registrar with a request
(x) to register the transfer of the Definitive Notes or
(y) to exchange such Definitive Notes for an equal principal amount of
Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder
or by his attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer Restricted
Security, such request shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is being delivered to
the Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification to that effect from such Holder (in
substantially the form of Exhibit B hereto); or
(B) if such Transfer Restricted Security is being transferred to
a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act
or pursuant to an exemption from registration in accordance with Rule
144 or Rule 904 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to
that effect from such Holder (in substantially the form of Exhibit B
hereto); or
(C) if such Transfer Restricted Security is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect from such Holder
(in substantially the form of Exhibit B hereto) and an Opinion of
Counsel from such Holder or the transferee reasonably
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acceptable to the Company and to the Registrar to the effect that such
transfer is in compliance with the Securities Act.
(b) Transfer of a Definitive Note for a Beneficial Interest in a Global
Note. A Definitive Note may not be exchanged for a beneficial interest in a
Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with
(i) if such Definitive Note is a Transfer Restricted Security, a
certification from the Holder thereof (in substantially the form of Exhibit B
hereto) to the effect that such Definitive Note is being transferred by such
Holder to a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act and
(ii) whether or not such Definitive Note is a Transfer Restricted
Security, written instructions from the Holder thereof directing the Trustee to
make, or to direct the Note Custodian to make, an endorsement on the Global Note
to reflect an increase in the aggregate principal amount of the Notes
represented by the Global Note,
the Trustee shall cancel such Definitive Note in accordance with Section 2.11
hereof and cause, or direct the Note Custodian to cause, in accordance with the
standing instructions and procedures existing between the Depositary and the
Note Custodian, the aggregate principal amount of Notes represented by the
Global Note to be increased accordingly. If no Global Notes are then
outstanding, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall authenticate a
new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a Definitive
Note.
(i) Any Person having a beneficial interest in a Global Note may upon
request exchange such beneficial interest for a Definitive Note. Upon receipt
by the Trustee of written instructions or such other form of instructions as is
customary for the Depositary, from the Depositary or its nominee on behalf of
any Person having a beneficial interest in a Global Note, and, in the case of a
Transfer Restricted Security, the following additional information and documents
(all of which may be submitted by facsimile)
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial owner, a
certification to that effect from such Person (in substantially the form of
Exhibit B hereto) or
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(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act
or pursuant to an exemption from registration in accordance with Rule
144 or Rule 904 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to
that effect from the transferor (in substantially the form of Exhibit
B hereto) or
(C) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification to that effect from the transferor (in
substantially the form of Exhibit B hereto) and an Opinion of Counsel
from the transferee or transferor reasonably acceptable to the Company
and to the Registrar to the effect that such transfer is in compliance
with the Securities Act,
the Trustee or the Note Custodian, at the direction of the Trustee, shall,
in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, cause the aggregate
principal amount of Global Notes to be reduced accordingly and, following
such reduction, the Company shall execute and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee
shall authenticate and deliver to the transferee, a Definitive Note in the
appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial interest in
a Global Note pursuant to this Section 2.06(d) shall be registered in such
names and in such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
any other provision of this Indenture (other than the provisions set forth in
subsection (f) of this Section 2.06), a Global Note may not be transferred as a
whole except by the Depositary to a nominee of the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.
(f) Authentication of Definitive Notes in Absence of Depositary. If at any
time
(i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global
Notes and a successor Depositary for the Global Notes is not appointed by
the Company within 90 days after delivery of such notice or
(ii) the Company, in its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Notes under this
Indenture,
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then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and (iii),
each Note certificate evidencing Global Notes and Definitive Notes (and all
Notes issued in "change therefor or substitution thereof) shall bear
legends in substantially the following form:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES
ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO
THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (1) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Note, the Registrar shall permit the Holder thereof to
exchange such Transfer
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Restricted Security for a Definitive Note that does not bear the
legend set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall not be
required to bear the legend set forth in (i) above, but shall continue
to be subject to the provisions of Section 2.06(c) hereof; provided,
however, that with respect to any request for an exchange of a
Transfer Restricted Security that is represented by a Global Note for
a Definitive Note that does not bear the legend set forth in (i)
above, which request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the Exchange
Offer, the Company shall issue and, upon receipt of an authentication order
in accordance with Section 2.02 hereof, the Trustee shall authenticate,
Series B Notes in exchange for Series A Notes accepted for exchange in the
Exchange Offer, which Series B Notes shall not bear the legend set forth in
(i) above, and the Registrar shall rescind any restriction on the transfer
of such Notes, in each case unless the Holder of such Series A Notes is
either (A) a broker-dealer, (B) a Person participating in the distribution
of the Series A Notes or (C) a Person who is an affiliate (as defined in
Rule 144A) of the Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in Global Notes have been exchanged for Definitive Notes,
redeemed, repurchased or canceled, all Global Notes shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for Definitive Notes, redeemed, repurchased or canceled, the
principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Notes Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive Notes and
Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any registration
of transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections
3.07, 4.10, 4.15 and 9.05 hereto).
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(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive Notes or Global Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Definitive
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange Notes
during a period beginning at the opening of business 15 days before
the day of any selection of Notes for redemption under Section 3.02
hereof and ending at the close of business on the day of selection; or
(B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between a
record date and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Note, and neither the Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
(vii) The Trustee shall authenticate Definitive Notes and Global Notes
in accordance with the provisions of Section 2.02 hereof.
SECTION 2.07 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee, upon the written order of
the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
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Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
SECTION 2.08 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section as
not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
SECTION 2.09 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Guarantor or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Trustee knows are so owned shall
be so disregarded.
SECTION 2.10 TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.
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SECTION 2.11 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and
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appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03 NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed, by first class mail a notice of redemption to each Holder whose Notes
are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
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At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Notes called for redemption become irrevocably due and payable on the redemption
date at the redemption price. A notice of redemption may not be conditional.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
SECTION 3.06 NOTICES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
SECTION 3.07 OPTIONAL REDEMPTION.
(a) The Company shall not have the option to redeem the Notes pursuant to
this Section 3.07 prior to May 15, 2002. Thereafter, the Company shall have the
option to redeem the Notes, in whole or in part, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
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applicable redemption date, if redeemed during the 12 month period beginning on
May 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
--------------------- ----------
<S> <C>
2002................. 105.3125%
2003................. 103.5416%
2004................. 101.7708%
2005 and thereafter.. 100.0000%
</TABLE>
(b) Notwithstanding the foregoing, the Company may prior to May 15, 2002 on
any one or more occasions redeem up to an aggregate of 35% of the original
aggregate principal amount of Notes at a redemption price of 110.625% of the
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the redemption date, with the net cash proceeds
of an initial public offering of common stock of the Company; provided that at
least 65% of the aggregate principal amount of Notes originally issued remain
outstanding immediately after the occurrence of such redemption, and provided,
further, that such redemption shall occur within 60 days of the date of the
closing of such initial public offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08 MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders to purchase Notes (an "Asset Sale
Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is
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registered at the close of business on such record date, and no additional
interest shall be payable to Holders who tender Notes pursuant to the Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders. The notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be
made to all Holders. The notice, which shall govern the terms of the Asset Sale
Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section 3.09
and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any Asset
Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by Holders
exceeds the Offer Amount, the Company shall select the Notes to be purchased on
a pro rata basis (with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $1,000, or integral multiples
thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
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On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than five days after
the Purchase Date) mail or deliver to each tendering Holder an amount equal to
the purchase price of the Notes tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Note, and the
Trustee, upon written request from the Company shall authenticate and mail or
deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where
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notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
SECTION 4.03 REPORTS.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding and commencing with information relating to
the fiscal quarter ended June 30, 1997, the Company shall furnish to the Trustee
and to all Holders (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports, in each case, within the time periods specified in the SEC's
rules and regulations. In addition, commencing after the consummation of the
Exchange Offer, whether or not required by the rules and regulations of the SEC,
the Company shall file a copy of all such information and reports with the SEC
for public availability (unless the SEC will not accept such a filing) within
the time periods specified in the SEC's rule and regulations, and shall promptly
make such information available to securities analysts and prospective investors
upon their reasonable request. The Company and the Guarantors shall at all times
comply with TIA (S) 314(a).
(b) For so long as any Transfer Restricted Securities remain outstanding,
the Company and the Guarantors shall furnish to all Holders, securities analysts
and prospective purchasers of the Notes designated by the Holders of Transfer
Restricted Securities, promptly upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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SECTION 4.04 COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05 TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS.
The Company and each Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in
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force, that may affect the covenants or the performance of this Indenture; and
the Company and each Guarantor (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
SECTION 4.07 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Equity Interests of the Company or any
of its Subsidiaries (including, without limitation, any payment in connection
with any merger or consolidation involving the Company) or to the direct or
indirect holders of the Equity Interests of the Company or any of its
Subsidiaries in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any direct or indirect parent of the Company or
other Affiliate of the Company that is not a Subsidiary of the Company, (other
than any such Equity Interests owned by the Company or any Wholly Owned
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except a payment of interest or
principal at Stated Maturity or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 of this
Indenture; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after the
date of this Indenture (excluding Restricted Payments permitted by clauses (ii),
(iii), (iv) and (vi) of the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) commencing July 1, 1997 to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by the Company from the issue or
sale since the date of this Indenture of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or of debt securities of the
Company that have been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities)
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sold to a Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus (iii) to the
extent that any Restricted Investment that was made after the date of this
Indenture is sold for cash or otherwise liquidated or repaid for cash or is sold
for non-cash consideration and such non-cash consideration is subsequently sold
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment.
The foregoing provisions shall not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
any dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $250,000 in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vi)
payments by the Company or any Subsidiary of the Company, directly or
indirectly, to the Company's stockholder to satisfy tax obligations in
accordance with the Tax Allocation Agreement as in effect on the date hereof
("Tax Distributions"); and (vii) so long as no Default or Event of Default shall
have occurred and be continuing, other Restricted Payments in an aggregate
amount not to exceed $5.0 million since the date hereof.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors, whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $5.0 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this Section 4.07 were computed,
together with a copy of any fairness opinion or appraisal required hereby.
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SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not and shall not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to
(i)(a) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits or (b) pay any
indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) this Indenture
and the Notes, (b) applicable law, (c) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Subsidiaries or
any instrument governing Indebtedness secured by assets acquired by the Company
or any of its Subsidiaries, in each case, as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, or the property
or asset so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (d)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (e) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (f) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced or (g) customary non-assignment provisions in
documents entered into by a Subsidiary of the Company in connection with a
receivables or equipment financing that impose restrictions of the nature
described in clause (iii) above on the property securing such financings.
SECTION 4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company or any of the Guarantors may incur Indebtedness (including Acquired
Debt), the Company may issue shares of Disqualified Stock and the Company's
Subsidiaries may issue shares of preferred stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
Subsidiary preferred stock is issued would have been at least 2.0 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified
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Stock or Subsidiary preferred stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The foregoing provisions shall not apply to the following (which,
collectively, shall constitute "Permitted Debt"):
(i) the incurrence by the Company of Indebtedness under Credit
Facilities and the Guarantee thereof by the Guarantors; provided that the
aggregate principal amount of all Indebtedness (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability of
the Company and its Subsidiaries thereunder) outstanding under all Credit
Facilities after giving effect to such incurrence, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (i), does not exceed an amount
equal to the greater of (x) $200.0 million less the aggregate amount of all Net
Proceeds of Asset Sales that have been applied since the date of this Indenture
to repay Indebtedness pursuant to Section 4.10 hereof and (y) the Borrowing
Base;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Notes and the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the Company
or such Subsidiary, in an aggregate principal amount at any one time outstanding
under this clause (iv), including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant to
this clause (iv), not to exceed $5.0 million;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by this Indenture to be incurred;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes and (ii)(A)
any subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be, that was not permitted by this
clause (vi);
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(vii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of hedging interest rate risk with respect to
Indebtedness that is permitted by the terms of this Indenture to be incurred;
(viii) the Guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Subsidiary of the Company that was permitted to
be incurred by another provision of this covenant;
(ix) extensions, renewals or replacements of the Existing Guarantees
on terms that are no less favorable to the Holders of Notes than those existing
on the date of this Indenture;
(x) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding under this clause (x), including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (x), not to exceed $5.0 million;
(xi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness incurred in respect of performance, surety and similar bonds
provided by the Company or any of its Subsidiaries in the ordinary course of
business; and
(xii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of letters of credit relating to workers' compensation
claims and self-insurance or similar requirements in the ordinary course of
business.
For purposes of determining compliance with this Section 4.09, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xii) above or is
entitled to be incurred pursuant to the first paragraph of this Section 4.09,
the Company shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this Section 4.09, and at any
given time such item of Indebtedness shall be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph of this
Section 4.09. Accrual of interest, the accretion of accreted value and the
payment of interest in the form of additional Indebtedness shall not be deemed
to be an incurrence of Indebtedness for purposes of this Section 4.09. The
Company shall not be deemed to be in breach of this Section 4.09 solely as the
result of fluctuations in currency exchange rates.
SECTION 4.10 ASSET SALES.
(a) The Company shall not, and shall not permit any of its Subsidiaries
to, consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 80.0% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash; provided that the amount of
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(x) any liabilities (as shown on the Company's or such Subsidiary's most recent
balance sheet) of the Company or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or
any guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Subsidiary from such transferee
that are converted by the Company or such Subsidiary into cash (to the extent of
the cash received) within five business days of the receipt thereof, shall be
deemed to be cash for purposes of this provision.
(b) Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or its applicable Subsidiary may apply such Net Proceeds, at
such person's option, (i) to reduce Senior Debt, or (ii) to the acquisition of a
controlling interest in another business, the making of a capital expenditure or
the acquisition of other long-term assets, in each case, in the same or a
similar line of business as the Company and its Subsidiaries were engaged in on
the date hereof. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Debt or otherwise invest such Net Proceeds
in any manner that is not prohibited by this Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph and within the time period specified herein shall be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds has
exceeded $5.0 million, the Company shall. be required to make an Asset Sale
Offer to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to
100.0% of the principal amount thereof plus accrued and unpaid interest thereon
and Liquidated Damages, if any, to the date of purchase, in accordance with the
procedures set forth in this Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certify that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate
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Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national standing;
provided that the following shall not be deemed to be Affiliate Transactions:
(1) the Related Party Leases as in effect on the date hereof or as amended (as
long as an amended Related Party Lease is on terms no less favorable to the
Holders of the Notes than those existing on the date hereof) and any
transactions pursuant thereto, (2) the Employment Agreement as in effect on the
date hereof or as amended (as long as an amended Employment Agreement is on
terms no less favorable to the Holders of the Notes than those existing on the
date hereto and any transactions pursuant thereto, (3) any other employment
arrangement entered into by the Company or any of its Subsidiaries with anyone
other than the Company's President and Chief Executive Officer in the ordinary
course of business that provides for aggregate annual compensation in an amount
less than or equal to $250,000 and any transactions pursuant thereto, (4)
transactions between or among the Company and/or its Wholly-Owned Subsidiaries,
(5) Restricted Payments that are permitted by Section 4.07 hereof, (6) the
$10,000,000 distribution (the "Distribution") to the Company's sole stockholder
on the date hereof, (7) Permitted Real Estate Loans, (8) transfers of
receivables or equipment to a Subsidiary of the Company for the sole purpose of
effecting a receivables or equipment financing for the benefit of the Company
and (9) extensions, renewals or replacements of the Existing Guarantees on terms
that are no less favorable to the Holders of the Notes than those existing on
the date hereof. For purposes of determining whether any particular transaction
or series of related transactions with an Affiliate relating to purchases or
placements of insurance exceeds the $1.0 million or $5.0 million thresholds set
forth in the first sentence of this Section 4.11, the gross amounts paid to the
Affiliate shall be calculated net of any amounts paid by such Affiliate to third
parties (including claimants, legal and claims management services, insurers or
reinsurers) on behalf of the Company or one of its Subsidiaries.
SECTION 4.12 LIENS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.13 ADDITIONAL SUBSIDIARY GUARANTEES.
If the Company or any of its Subsidiaries shall acquire or create another
Subsidiary after the date hereof, then such newly acquired or created Subsidiary
shall execute a Subsidiary Guarantee and deliver an Opinion of Counsel, in
accordance with the terms hereof.
SECTION 4.14 CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Subsidiaries, in accordance with the respective organizational
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documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.15 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company shall mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by this
Indenture and described in such notice. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above shall be applicable
whether or not any other provisions of this Indenture are applicable. The
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with this requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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SECTION 4.16 LIMITATION ON LAYERING.
Notwithstanding the provisions of Section 4.09 hereof, (i) the Company
shall not incur create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Notes and (ii) no
Guarantor will incur, create, assume, guarantee or otherwise become liable for
any Indebtedness of such Guarantor that is subordinate or junior in right of
payment to any Indebtedness of such Guarantor and senior in right of payment to
the Guarantee of such Guarantor.
SECTION 4.17 SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company may
enter into a sale and leaseback transaction if (i) the Company could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof and (b) incurred a
Lien to secure such Indebtedness pursuant to Section 4.12, (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors or a
committee of the Board of Directors having at least one independent director and
set forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (iii) the
transfer of assets in such sale and leaseback transaction is permitted by, and
the Company applies the proceeds of such transaction in compliance with Section
4.10.
SECTION 4.18 LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly Owned Subsidiary
of the Company to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any Wholly Owned Subsidiary of the Company to any Person (other
than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with Section 4.10 and (ii) will not permit any Wholly Owned Subsidiary of the
Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Wholly Owned Subsidiary of the Company.
SECTION 4.19 BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any of its Subsidiaries to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Subsidiaries taken as a whole.
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SECTION 4.20 PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 5
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless (i) the Company is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with or
into a Wholly Owned Subsidiary of the Company, the Company or the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company in accordance with Section 5.01 hereof, the successor corporation formed
by such consolidation or into or with which
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the Company is merged or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made shall succeed to, and be substituted for
(so that from and after the date of such consolidation, merger, sale, lease,
conveyance or other disposition, the provisions of this Indenture referring to
the "Company" shall refer instead to the successor corporation and not to the
Company, other than for purposes of calculating Consolidated Net Income in
connection with Section 4.07), and may exercise every right and power of the
Company under this Indenture with the same effect as if such successor Person
had been named as the Company herein; provided, however, that the predecessor
Company shall not be relieved from the obligation to pay the principal of and
interest on the Notes except in the case of a sale of all of the Company's
assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of this Indenture);
(b) default in payment when due of the principal of or premium, if any, on
the Notes (whether or not prohibited by the subordination provisions of this
Indenture);
(c) failure by the Company to comply with the provisions described under
Sections 4.07, 4.09, 4.10, or 4.15 hereof;
(d) failure by the Company for 60 days after notice to comply with any of
its other agreements in this Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of this
Indenture, which default (i) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more;
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(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
any of its Subsidiaries and such judgment or judgments remain undischarged for a
period (during which execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such undischarged judgments exceeds $5
million;
(g) the Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary
pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due;
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or substantially all of the
property of the Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary,
or
(iii) orders the liquidation of the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary and the order or decree remains unstayed and
in effect for 60 consecutive days; or
(iv) the Subsidiary Guarantee of any Guarantor is held in judicial
proceedings to be unenforceable or invalid or ceases for any reason to be in
full force and effect (other than in accordance with the terms of this
Indenture) or any Guarantor or any Person acting on behalf of any Guarantor
denies or disaffirms such Guarantor's obligations under its Subsidiary Guarantee
(other than by reason of a release of such Guarantor from its Subsidiary
Guarantee in accordance with the terms of this Indenture).
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SECTION 6.02 ACCELERATION.
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) of Section 6.01 hereof with respect to the Company, any Significant
Subsidiary or any group of Significant Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Upon any such
declaration, the Notes shall become due and payable immediately. Notwithstanding
the foregoing, if an Event of Default specified in clause (g) or (h) of Section
6.01 hereof occurs with respect to the Company, any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, all outstanding Notes shall be due and
payable immediately without further action or notice. The Holders of a majority
in aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of this Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to May
15, 2002, by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to May 15, 2002, upon the acceleration of the
Notes an additional premium shall also become and be immediately due and payable
in an amount, for each of the years beginning on May 15 of years set forth
below, as set forth below:
<TABLE>
<CAPTION>
Year Percentage
-------------------
<S> <C>
1997 110.6250%
1998 109.5625%
1999 108.5000%
2000 107.4375%
2001 106.3750%
</TABLE>
SECTION 6.03 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
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The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04 WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under this Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes (including
in connection with an offer to purchase); provided, however, that the Holders of
a majority in aggregate principal amount of the then outstanding Notes may
rescind an acceleration and its consequences, including any related payment
default that resulted from such acceleration. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.05 CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture that the Trustee determines may be unduly prejudicial
to the rights of other Holders of Notes or that may involve the Trustee in
personal liability.
SECTION 6.06 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in principal amount of the then outstanding
Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
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(e) during such 60-day period the Holders of a majority in principal amount
of the then outstanding Notes do not give the Trustee a direction inconsistent
with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company or any Guarantor for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder
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any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order (subject to the provisions of Article 10):
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any, and
interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction
shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to
Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount
of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in
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its exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision Of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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SECTION 7.02 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document reasonably believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel, and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company or Guarantor shall be sufficient
if signed by an Officer of the Company or such Guarantor.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee or resign. Any Agent may do the same with like rights and duties. The
Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement
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or recital herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.
SECTION 7.05 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA (S) 313(a) (but if no event described in TIA (S)
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with TIA (S) 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
SECTION 7.07 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend
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the claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
SECTION 7.08 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10,
such Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements of
TIA (S) 310(a)(1), (2) and (5). The Trustee is also subject to TIA (S) 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all of its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.
SECTION 8.03 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not " outstanding' for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes,
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the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium and Liquidated
Damages, if any, and interest on the outstanding Notes on the stated date
for payment thereof or on the applicable redemption date, as the case may
be;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times ac. would have been the case if such Covenant Defeasance
had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence
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of Indebtedness all or a portion of the proceeds of which will be used to
defease the Notes pursuant to this Article 8 concurrently with such
incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned,
at any time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that on the 91st day or on the day after the last day
of the applicable preference period under Bankruptcy Law following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
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Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06 REPAYMENT To COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Note and remaining unclaimed for two years after such principal,
and premium, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as a secured creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.07 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States dollars
or non-callable Government Securities in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors
and the Trustee may amend or supplement this Indenture, the Subsidiary
Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's or Guarantor's
obligations to the Holders of the Notes in the case of a merger or
consolidation in accordance with this Indenture;
(d) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture on the Issue Date;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Notes; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company and the Guarantors accompanied by a
resolution of their respective Boards of Directors authorizing the execution of
any such amended or supplemental Indenture, and upon receipt by the Trustee of
the documents described in Section 7.02 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into any such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company, the Guarantors
and the Trustee may amend or supplement this Indenture (including Section 3.09,
4. 10 and 4.15 hereof), the Notes and the Subsidiary Guarantees may be amended
or supplemented, and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
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payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture or the Notes may be waived, in
each case, with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, the Notes).
Upon the request of the Company and the Guarantors accompanied by a
resolution of their respective Boards of Directors authorizing the execution of
any such amended or supplemental Indenture, and upon the filing with the Trustee
of evidence satisfactory to the Trustee of the consent of the Holders of Notes
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors
in the execution of such amended or supplemental Indenture unless such amended
or supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of
the Notes (other than with respect to Sections 3.09, 4.10 and 4.15 hereof);
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the then outstanding Notes and a waiver of
the payment default that resulted from such acceleration);
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(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or Events of Default or interest on the
Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under Sections 4.10 and
4.15); or
(h) make any change in the foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 hereof
(which relate to subordination) or the related definitions will require the
consent of the Holders of at least 75% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
Holders of Notes.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Subsidiary
Guarantees or the Notes shall be set forth in an amended or supplemental
Indenture that complies with the TIA as then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
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SECTION 9.06 TRUSTEE TO SIGN AMENDMENT, ETC.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
and each Subsidiary Guarantor may not sign an amendment or supplemental
Indenture until their respective Boards of Directors approves it. In executing
any amended or supplemental indenture, the Trustee shall be entitled to receive
and (subject to Section 7.01) shall be fully protected in relying upon, an
Officer's Certificate and an Opinion of Counsel stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that the
Indebtedness evidenced by the Note is subordinated in right of payment, to the
extent and in the manner provided in this Article, to the prior payment in full
of all Senior Debt (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt.
SECTION 10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment in
full of all such Senior Debt (including interest after the commencement of
any such proceeding at the rate specified in the applicable Senior Debt)
before Holders of Notes shall be entitled to receive any payment with
respect to the Notes (except that Holders may receive (i) Permitted Junior
Securities and (ii) payments and other distributions made from any
defeasance trust created pursuant to Section 8.01 hereof); and
(2) until all Senior Debt (as provided in subsection (1) above) is
paid in full, any distribution to which Holders would be entitled but for
this Article shall be made to holders of Senior Debt (except that Holders
may receive (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance created pursuant to Section 8.01
hereof), as their interests may appear.
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SECTION 10.03 DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the Trustee or any
Holder in respect of Obligations with respect to the Notes and may not acquire
from the Trustee or any Holder any Notes for cash or property (other than (i)
Permitted Junior Securities and (ii) payments and other distributions made from
any defeasance trust created pursuant to Section 8.01 hereof) until all Senior
Debt has been paid in full if:
(i) a default in the payment of any principal or other Obligations.
with respect to Designated Senior Debt occurs and is continuing beyond any
applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
(ii) a default, other than a payment default, on Designated Senior
Debt occurs and is continuing that would permit holders of the Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice of
the default (a "Payment Blockage Notice") from a Representative with
respect to such Designated Senior Debt. If the Trustee receives any such
Payment Blockage Notice, no subsequent Payment Blockage Notice shall be
effective for purposes of this Section unless and until (i) at least 360
days shall have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due have been
paid in full in cash. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall
be, or be made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions in respect
of the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived in writing by
the Representative with respect to the Designated Senior Debt, or
(2) in the case of a default referred to in Section 10.03(ii) hereof,
the passage of 179 days after the Payment Blockage Notice is received if
the maturity of such Designated Senior Debt has not been accelerated,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.04 ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration.
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SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee receives any payment of any Obligations with
respect to the Notes at a time when such payment is prohibited by Section 10.03
hereof, or in the event that any Holder receives any payment of any Obligations
with respect to the Notes at a time when such Holder has actual knowledge that
such payment is prohibited by Section 10.03 hereof, such payment shall be held
by the Trustee or such Holder in trust for the benefit of, and shall be paid
forthwith over and delivered, upon written request, to, the holders of Senior
Debt as their interests may appear or their Representative under the indenture
or other agreement (if any) pursuant to which Senior Debt may have been issued,
as their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06 NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Debt as provided
in this Article.
SECTION 10.07 SUBROGATION.
After all Senior Debt is paid in full and until the Notes are paid in full,
Holders shall be subrogated (equally and ratably with all other Indebtedness
pari passu with the Notes) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders have been applied to the payment of Senior
Debt. A distribution made under this Article to holders of Senior Debt that
otherwise would have been made to Holders is not, as between the Company and
Holders, a payment by the Company on the Notes.
SECTION 10.08 RELATIVE RIGHTS.
This Article defines the relative rights of Holders and holders of Senior
Debt. Nothing in this Indenture shall:
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(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the Company
other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any Holder or by the failure of the Company or any Holder
to comply with this Indenture.
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to or by holders of
Senior Debt, the distribution may be made and the notice given to or by their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment or distribution by
the Trustee, and the Trustee and the Paying Agent may continue to make payments
on the Notes, unless the Trustee shall have received at its Corporate Trust
Office at least two Business Days prior to the date of such payment written
notice of facts that would cause the payment of any Obligations with respect to
the Notes to violate this Article. Only the Company or a Representative may give
the notice. Nothing in this Article 10 shall impair the claims of, or payments
to, the Trustee under or pursuant to Section 7.07 hereof.
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The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not the Trustee. Any Agent may do
the same with like rights.
SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, the Representatives are hereby authorized to file an appropriate claim
for and on behalf of the Holders of the Notes. Any distribution paid to the
Trustee in respect of such proof of claim filed by the Trustee, to the extent
payable to Holders of Senior Debt pursuant to this Article 10 will be held in
trust by the Trustee and paid to holders of Senior Debt.
SECTION 10.13 AMENDMENTS.
The provisions of this Article 10 and related definitions shall not be
amended or modified without the written consent of the holders of all Senior
Debt.
ARTICLE 11
SUBSIDIARY GUARANTEES
SECTION 11.01 SUBSIDIARY GUARANTEES.
Each of the Guarantors hereby, jointly and severally, unconditionally
guaranties to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that: (a) the principal of and interest on the
Notes will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of
and interest on the Notes, if any, if lawful, and all other obligations of the
Company to the Holders or the Trustee hereunder or thereunder will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, that the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. Failing payment when
due of any amount so guaranteed or any performance so guaranteed for whatever
reason, the Guarantors will be jointly and severally obligated to pay the same
immediately. The Guarantors hereby agree that their obligations hereunder shall
be unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the
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recovery of any judgment against the Company, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency, or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenant that this Subsidiary Guarantee will not be discharged except by
complete performance of the obligations contained in the Notes and this
Indenture. If any Holder or the Trustee is required by any court or otherwise
to return to the Company or Guarantors, or any Custodian, Trustee, liquidator or
other similar official acting in relation to either the Company or Guarantors,
any amount paid by either to the Assignee or such Holder, this Subsidiary
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that they shall not be entitled to any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 for
the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction
or other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such obligations (whether or not due
and payable) shall forthwith become due and payable by the Guarantors for the
purpose of this Subsidiary Guarantee. The Guarantors shall have the right to
seek contribution from any non-paying Guarantor so long as the exercise of such
right does not impair the rights of the Holders under the Subsidiary Guarantees.
SECTION 11.02 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form included in Exhibit A shall be endorsed by an officer
of such Subsidiary Guarantor on each Note authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of such Guarantor by
its Chief Executive Officer, President or one of its Vice Presidents and
attested to by an Officer.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01, shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Subsidiary Guarantee.
If an officer or Officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
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In the event that the Company creates or acquires any new Subsidiaries
subsequent to the date hereof, if required by Section 4.13 hereof, the Company
shall cause such Subsidiaries to execute a supplemental indenture to this
Indenture and Notation of Security Relating to Subsidiary Guarantees in
accordance with Section 4.13 hereof and this Article 11, to the extent
applicable.
SECTION 11.03 GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Except as set forth in Articles 4 and 5, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Guarantor with or into the Company or shall prevent any sale or conveyance of
the property of a Guarantor as an entirety or substantially as an entirety, to
the Company.
(b) Except as set forth in Articles 4 and 5, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Guarantor with or into a corporation or corporations other than the Company
(whether or not affiliated with the Guarantor), or successive consolidations or
mergers in which a Guarantor or its successor or successors shall be a party or
parties, or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety, to a corporation other than the
Company (whether or not affiliated with the Guarantor) authorized to acquire and
operate the same; provided, however, that each Guarantor hereby covenants and
agrees that: (i) upon any such consolidation, merger, sale or conveyance, the
Subsidiary Guarantee endorsed on the Notes, and the due and punctual performance
and observance of all of the covenants and conditions of this Indenture to be
performed by such Guarantor, shall be expressly assumed (in the event that the
Guarantor is not the surviving corporation in the merger), by supplemental
indenture in form and substance reasonably satisfactory in form to the Trustee,
executed and delivered to the Trustee, by the corporation formed by such
consolidation, or into which the Guarantor shall have been merged, or by the
corporation which shall have acquired such property, (ii) except in the case of
a merger of a Guarantor with or into the Company or another Subsidiary of the
Company, immediately after giving effect to such transaction, no Default or
Event of Default exists, (iii) except in the case of a merger of a Guarantor
with or into the Company or another Subsidiary of the Company, such Guarantor,
or any Person formed by or surviving any such consolidation or merger, would
have Consolidated Net Worth (immediately after giving effect to such
transaction), equal to or greater than the Consolidated Net Worth of such
Guarantor immediately preceding the transaction and (iv) except in the case of a
merger of a Guarantor with or into the Company or another Subsidiary of the
Company, the Company would be permitted by virtue of the Company's pro forma
Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof. In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor corporation shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor corporation thereupon may cause to be
signed any or all of the Subsidiary Guarantees to be endorsed upon all of the
Notes issuable
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hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
SECTION 11.04 RELEASES FOLLOWING SALE OF ASSETS.
Concurrently with any sale of assets (including, if applicable, all of the
capital stock of any Guarantor), any Liens in favor of the Trustee in the assets
sold thereby shall be released; provided that in the event of an Asset Sale, the
Net Proceeds from such sale or other disposition are treated in accordance with
the provisions of Section 4.10 hereof. If the assets sold in such sale or other
disposition include all or substantially all of the assets of any Guarantor or
all of the capital stock of any Guarantor, then such Guarantor (in the event of
a sale or other disposition of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of a Guarantor) shall be
released and relieved of its obligations under its Subsidiary Guarantee or
Section 11.03, hereof, as the case may be; provided that in the event of an
Asset Sale, the Net Proceeds from such sale or other disposition are treated in
accordance with the provisions of Section 4.10 hereof. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture, including without limitation
Section 4.10 hereof, the Trustee shall execute any documents reasonably required
in order to evidence the release of any Guarantor from its obligations under its
Subsidiary Guarantee. Any Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Guarantor under this
Indenture as provided in this Article 11.
SECTION 11.05 "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 11, shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article 11, in place of the Trustee.
SECTION 11.06 SUBORDINATION OF SUBSIDIARY GUARANTEE.
The obligations of each Guarantor under its Subsidiary Guarantee pursuant
to this Article 11 shall be junior and subordinated to the Senior Debt of such
Guarantor on the same basis as the Notes are junior and subordinated to Senior
Debt. For the purposes of the foregoing sentence, the Trustee and the Holders
shall have the right to receive and/or retain payments by any of the Guarantors
only at such times as they may receive and/or retain payments in respect of the
Notes pursuant to this Indenture, including Article 10 hereof.
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ARTICLE 12
MISCELLANEOUS
SECTION 12.01 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
SECTION 12.02 NOTICES.
Any notice or communication by the Company, a Guarantor or the Trustee to
the others shall be duly given if in writing and delivered in Person or mailed
by first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or a Guarantor:
American Builders & Contractors Supply Co., Inc.
One ABC Parkway
Beloit, Wisconsin 35311
Telecopier No.: (608) 362-2717
Attention: Kendra Story
If to the Trustee:
Norwest Bank Minnesota, National Association
Corporate Trust Services
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Telecopier No.: (612) 667-9825
Attention: Curtis D. Schwegman
The Company, a Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its
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address shown on the register kept by the Registrar. Any notice or
communication shall also be so mailed to any Person described in TIA (S) 313(c),
to the extent required by the TIA. Failure to mail a notice or communication to
a Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Guarantors, the Trustee, the Registrar and anyone else shall have the
protection of TIA (S) 312(c).
SECTION 12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any Guarantor to
the Trustee to take any action under this Indenture, the Company and/or such
Guarantor, as the case may be, shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 12.05 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 12.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
SECTION 12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 14(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
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(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or shareholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Subsidiary Guarantees, this
indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
SECTION 12.08 GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.
SECTION 12.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture, the Notes or the Subsidiary Guarantees.
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SECTION 12.10 SUCCESSORS.
All agreements of the Company and the Guarantors in this Indenture,
the Subsidiary Guarantees and the Notes shall bind its successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 12.11 SEVERABILITY.
In case any provision in this Indenture, the Subsidiary Guarantees or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 12.12 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents and Headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part of this Indenture and shall in no way modify or restrict
any of the terms or provisions hereof.
Signatures on following page
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SIGNATURES
Dated as of May __, 1997
AMERICAN BUILDERS &
CONTRACTORS SUPPLY CO., INC.
By:
----------------------------------
Name: Kenneth A. Hendricks
Title: President and Chief Executive
Officer
Attest:
AMCRAFT BUILDING PRODUCTS CO.,
INC.
By:
----------------------------------
Name: Kenneth A. Hendricks
Title: President and CEO
Attest:
MULE-HIDE PRODUCTS CO., INC.
By:
----------------------------------
Name: Kenneth A. Hendricks
Title: President and CEO
Attest:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
----------------------------------
Name:
Title:
Attest:
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SIGNATURES
Dated as of May __, 1997
AMERICAN BUILDERS &
CONTRACTORS SUPPLY CO., INC.
By:
----------------------------------
Name: Kenneth A. Hendricks
Title: President and Chief Executive
Officer
Attest:
AMCRAFT BUILDING PRODUCTS CO.,
INC.
By:
----------------------------------
Name: Kenneth A. Hendricks
Title: President and CEO
Attest:
MULE-HIDE PRODUCTS CO., INC.
By:
----------------------------------
Name: Kenneth A. Hendricks
Title: President and CEO
Attest:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
----------------------------------
Name:
Title:
Attest:
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Exhibit A
(Face of Note)
10 5/8% [Series A] [Series B] Senior Subordinated Notes due 2007
No. $________
AMERICAN BUILDERS & CONTRACTORS SUPPLY CO., INC
promises to pay to
or registered assigns,
the principal sum of
Dollars on May 15, 2007,
Interest Payment Dates: May 15 and November 15
Record Dates: May 1 and November 1
Dated:
-----------------------------------------
American Builders & Contractors Supply Co., Inc.
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By:
-------------------------------------------------
Name: Kenneth A. Hendricks
Title: President and Chief Executive Officer
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
Norwest Bank Minnesota, National Association
as Trustee
By:
-------------------------------------------------
Name:
Title:
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(Back of Note)
10 5/8% [Series A] [Series B] Senior Subordinated Notes due 2007
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC") to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.]/1/
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXECUTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE
HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN OF RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXTENSION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE CONTANY SO
REQUESTS), (2) TO THE CONTANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
- ------------------------
/1/ This paragraph should be included only if the Note is issued in
global form.
-78-
<PAGE>
OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1)
ABOVE./2/
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. American Builders & Contractors Supply Co., Inc, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 10%% per annum from May 7, 1997 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on May 15 and November 15 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be November 15, 1997. The Company shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the May 1 or November 1 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium, interest and Liquidated Damages at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest and Liquidated Damages may be made by check mailed to the Holders at
their addresses set forth in the register of Holders, and provided that payment
by wire transfer of immediately available funds will be required with respect to
principal of and interest, premium and Liquidated Damages on, all Global Notes
and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
- -------------------------
/2/ This paragraph should be included only if the Note is a Transfer
Restricted Security.
-79-
<PAGE>
3. PAYING AGENT AND REGISTRAR. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in any
such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of May 7, 1997 ("Indenture") among the Company, the Guarantors and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are unsecured obligations of the Company limited to $150
million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
The Company shall not have the option to redeem the Notes prior to May 15,
2002. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the
applicable redemption date, if redeemed during the twelvemonth period beginning
on May 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
2002................... 105.3125%
2003................... 103.5416%
2004................... 101.7708%
2005 and thereafter.... 100.0000%
</TABLE>
Notwithstanding the foregoing, the Company may, prior to May 15, 2000,
on any one or more occasions redeem up to an aggregate of 35% of the original
aggregate principal amount of Notes at a redemption price of 110.625% of the
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the redemption date, with the net cash proceeds
of an initial public offering of common stock of the Company; provided that at
least 65% of the aggregate principal amount of Notes originally issued remain
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption shall occur within 60 days of the date of the
closing of such initial public offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
-80-
<PAGE>
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (in either case, a "Change of
Control Payment"). Within 10 days following any Change of Control, the Company
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Company shall commence an offer to all Holders of Notes (an
"Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon and Liquidated Damages,
if any, to the date fixed for the closing of such offer, in accordance with the
procedures set forth herein. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company (or such Subsidiary) may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
-81-
<PAGE>
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's, or any Guarantor's obligations to
Holders of the Notes in case of a merger or consolidation, to provide for the
issuance of Additional Notes in accordance with the limitations set forth
herein, to make any change that would provide any additional rights or benefits
to the Holders of the Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with the requirements of
the SEC in order to effect or maintain the qualification of the Indenture under
the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (a) default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (b) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (c) failure by the Company to comply with the
provisions described under Sections 4.07, 4.09, 4.10, or 4.15; (d) failure by
the Company for 60 days after notice to comply with any of its other agreements
in the Indenture or the Notes; (e) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or Subsidiary Guarantee now exists, or
is created after the date of the Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (f) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (g) certain events of bankruptcy or insolvency with respect
to the Company or any of its Subsidiaries; (h) the Subsidiary Guarantee of any
Guarantor is held in judicial proceedings to be unenforceable or invalid or
ceases for any reason to be in full force and effect (other than in accordance
with the terms of the Indenture) or any Guarantor or any Person acting on behalf
of any Guarantor denies or disaffirms such Guarantor's obligations under its
Subsidiary Guarantee (other than by reason of a release of such Guarantor from
its Subsidiary Guarantee in accordance with the terms of the Indenture). If any
Event of Default (other than an Event of Default specified in clause (g) above
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then
-82-
<PAGE>
outstanding Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default specified in
clause (g) of this Section all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided herein. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any tug or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Company is required to deliver
to the Trustee annually a statement regarding compliance with the Indenture, and
the Company is required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. SUBORDINATION. This Note is subordinated in right of payment, to
the extent and in the manner provided in Article 10 of the Indenture, to the
prior payment in full of all Senior Debt (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
15 NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
16. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (=Custodian), and U/GWA (= Uniform Gifts to
Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES.
In addition to the rights provided to Holders of Notes under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth in
the Registration Rights Agreement dated as of May 7, 1997, between the Company
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
-83-
<PAGE>
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
American Builders & Contractors Supply Co., Inc.
One ABC Parkway
Beloit, Wisconsin 35311
Attention: Kendra Story
-84-
<PAGE>
FORM OF NOTATION OF NOTE
RELATING TO SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture, (a) the due and punctual payment of the principal
of, premium, Liquidated Damages, if any, and interest on the Notes, whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on overdue principal and premium, and, to the extent permitted by law, interest,
and the due and punctual performance of all other obligations of the Company to
the Holder's or the Trustee all in accordance with the terms of the Indenture
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, that the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. The obligations of
the Guarantors to the Holders of Notes and to the Trustee pursuant to the
Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of
the Indenture and reference is hereby made to the Indenture for the precise
terms of the Subsidiary Guarantee. The Indebtedness evidenced by this
Subsidiary Guarantee is, to the extent and in the manner provided in the
Indenture, subordinate and subject in right of payment to the prior payment in
full of all Senior Debt of each respective Guarantor as defined in the
Indenture, and this Subsidiary Guarantee is issued subject to such provisions.
Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee, on behalf of such
Holder, to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose; provided, however, that the
Indebtedness evidenced by this Subsidiary Guarantee shall cease to be so
subordinated and subject in right of payment upon any defeasance of this Note in
accordance with the provisions of the Indenture.
-85-
<PAGE>
Guarantors:
AMCRAFT BUILDING PRODUCTS CO.,
INC.
By:
----------------------------
Name:
Title:
Attest:
MULE-HIDE PRODUCTS CO., INC.
By:
------------------------------
Name:
Title:
Attest:
-86-
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:_________________
Your Signature:_________________________________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee
-87-
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$_________________________
Date:_______________________ Your Signature:__________________________________
(Sign exactly as your name appears
on the Note)
Tax Identification No.:__________________________
Signature Guarantee
-88-
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE/3/
The following exchanges of a part of this Global Note for Definitive Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount of
this Global Note Signature of
Amount of decrease Amount of increase following such authorized officer of
in Principal Amount in Principal Amount decrease (or Trustee or Note
Date of Exchange of this Global Note of this Global Note increase) Custodian
- ---------------- ------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ---------------------------
/3/ This should be included only if the Note is issued in global form.
-89-
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 10 5/8% Senior Subordinated Notes due 2007 of American Builders &
Contractors Supply Co., Inc.
This Certificate relates to $_____principal amount of Notes held in *______
book-entry or *______definitive form by________(the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary a Note or
Notes in definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global Note (or the
portion thereof indicated above); or
[ ] has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Notes and, as provided in Section 2.06
of such Indenture, the transfer of this Note does not require registration under
the Securities Act (as defined below) because:*
[ ] Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
[ ] Such Note is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A (in satisfaction of Section
2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i)(B) of the Indenture) or
pursuant to an exemption from registration in accordance with Rule 904 under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture.)
[ ] Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
[ ] Such Note is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Securities Act, other
than Rule 144A, Rule 144 or Rule 904 under the Securities Act. An Opinion of
Counsel to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate (in satisfaction of Section
2.06(a)(ii)(C) or Section 2.06(d)(i)(C) of the Indenture).
-90-
<PAGE>
- ---------------------
*Check applicable box.
-------------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------------------
Date:
--------------------------------------
-91-
<PAGE>
EXHIBIT C
LETTER AGREEMENT REGARDING RELATED PARTY LEASES
-92-
<PAGE>
EXHIBIT C
KENNETH A. HENDRICKS and DIANE M. HENRICKS
d/b/a HENDRICKS COMMERCIAL PROPERTIES
One ABC Parkway
Beloit, Wisconsin 53511
May 7, 1997
American Builders & Contractors Supply Co., Inc.
One ABC Parkway
Beloitt, Wisconsin 53511
Re: Leases
------
Ladies and Gentlemen:
The undersigned (collectively, the "Landlord") hereby agree to enter into a
series of leases relating to properties currently leased by the Landlord to the
Company on or prior to May 31, 1997, which leases will be in the form attached
hereto as Annex A and will have a lease term no shorter than ten years nad no
longer than fifteen years. Annual payments due under such leases will be based
on the prevailing market rates in the areas in which such properties are
located and will be adjusted annually to reflect changes in the consumer price
index. Such leases will, in the aggregate, provide for annual rental payments
to the Landlord no greater than 110% of the aggregate annual rental payments due
to the Landlord under the leawes currently in effect between the Company and the
Landlord relating to the affected properties.
Very truly yours,
Kenneth A. Hendricks
Diane M. Hendricks
AGREED TO AND APPROVED:
American Builders & Contractors Supply Co., Inc.
By:
----------------------------------------
Kenneth A. Hendricks
Its: President and Chief Executive Officer
Attest:
----------------------------------------
Diane M. Hendricks
Its: Executive Vice President and Secretary
-93-
<PAGE>
INDUSTRIAL BUILDING LEASE
LANDLORD: Kenneth A. Hendricks and Diane M. Hendricks
d/b/a Hendricks Commercial Properties
One ABC Parkway
Beloit, Wisconsin 53511
TENANT: American Builders & Contractors Supply Co., Inc.
One ABC Parkway
Beloit, Wisconsin 53511
LEASED PREMISES:
-94-
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
July 24, 1997
American Builders & Contractors Supply Co., Inc.
One ABC Parkway
Beloit, Wisconsin 53511
Re: American Builders & Contractors Supply Co., Inc.
Amcraft Building Products Co., Inc. and
Mule-Hide Products Co., Inc.
Registration Statement on Form S-4
Registration No. 33-26991
--------------------------------------
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal counsel
to American Builders & Contractors Supply Co., Inc., a Delaware corporation (the
"Issuer"), Amcraft Building Products Co., Inc., a Delaware corporation
("Amcraft") and Mule-Hide Products Co., Inc., a Texas corporation ("Mule-Hide,"
and together with Amcraft, the "Guarantors," and together with the Issuer and
Amcraft, the "Registrants"), in connection with the proposed registration by the
Issuers of up to $100,000,000 in aggregate principal amount of the Issuer's
10 5/8% Series B Senior Subordinated Notes due 2007 (the "Exchange Notes"),
pursuant to a Registration Statement on Form S-4 (Registration No. 33-26991)
filed with the Securities and Exchange Commission on May 13, 1997 under the
Securities Act of 1933, as amended (the "Act") (such Registration Statement, as
amended or supplemented, is hereinafter referred to as the "Registration
Statement"). The obligations of the Issuer under the Exchange Notes will be
guaranteed by the Guarantors (the "Guarantee"). The Exchange Notes and the
Guarantee are to be issued pursuant to the Indenture (the "Indenture"), dated as
of May 7, 1997, among the Issuers, the Guarantors and Norwest Bank Minnesota,
National Association, as Trustee, in exchange for and in replacement of the
Issuer's outstanding 10 5/8% Senior Subordinated Notes due 2007 (the "Notes"),
of which $100,000,000 in aggregate principal amount is outstanding.
[LETTERHEAD OF KIRKLAND & ELLIS]
<PAGE>
KIRKLAND & ELLIS
American Builders & Contractors Supply Co., Inc.
July 24, 1997
Page 2
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Certificate of Incorporation, as amended, or the
Articles of Incorporation, as amended, as the case may be, of the Registrants,
(ii) the By-Laws of the Registrants, (iii) minutes and records of the corporate
proceedings of the Registrants with respect to the issuance of the Exchange
Notes and the Guarantee, respectively, (iv) the Registration Statement, and (v)
the Registration Rights Agreement, dated May 7, 1997, among the Issuer and the
Guarantors, and NationsBanc Capital Markets, Inc. and First Chicago Capital
Markets, Inc.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Registrants. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Issuer and others.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
Based upon and subject to the assumptions, qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as
<PAGE>
KIRKLAND & ELLIS
American Builders & Contractors Supply Co., Inc.
July 24, 1997
Page 3
amended and (iii) the Exchange Notes and the Guarantee have been duly executed
and authenticated in accordance with the provisions of the Indenture and duly
delivered to the purchasers thereof in exchange for the Notes, the Exchange
Notes and the Guarantee will be validly issued obligations of the Registrants.
We hereby consent to the filing of this opinion with the commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or Delaware or the federal law of the United
States be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Sincerely,
\s\ Kirkland & Ellis
Kirkland & Ellis
<PAGE>
Exhibit 12.1
American Builders & Contractors Supply Co., Inc.
Computation of Ratio of Earnings to Fixed Charges
Dollars in Thousands
<TABLE>
<CAPTION>
Year Ended December 31 Three Months Ended March 31
Pro Forma Pro Forma
1992 1993 1994 1995 1996 1996 1996 1997 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before provision for
income taxes 6,075 6,457 6,806 7,367 10,703 6,678 (6,430) (6,972) (8,003)
Fixed charges 6,135 6,995 8,808 13,024 15,343 18,740 3,477 3,983 4,858
------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings 12,210 13,452 15,614 20,391 26,046 25,418 (2,953) (2,989) (3,145)
====== ====== ====== ====== ====== ====== ====== ====== ======
Fixed Charges:
Interest expense 3,872 4,522 6,020 9,745 11,146 14,543 2,572 2,898 3,773
Estimated interest portion of
rent expense 2,263 2,473 2,788 3,279 4,197 4,197 905 1,085 1,085
------ ------ ------ ------ ------ ------ ------ ------ ------
Total fixed charges 6,135 6,995 8,808 13,024 15,343 18,740 3,477 3,983 4,858
====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.99 1.92 1.77 1.57 1.70 1.36 (0.85) (0.75) (0.65)
==== ==== ==== ==== ==== ==== ===== ===== =====
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Summary Combined
Historical Financial Data," "Selected Combined Historical Financial Data," and
"Experts," and to the use of our reports dated March 21, 1997, except as to Note
12 the date of which is May 7, 1997, in the Registration Statement (Form S-4)
and related Prospectus of American Builders & Contractors Supply Co., Inc. for
the registration of $100,000,000 principal amount of 10-5/8% Senior Subordinated
Notes due 2007.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
July 16, 1997
