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As filed with the Securities and Exchange Commission on August 18, 1997
REGISTRATION NO. 333 - 29141
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MMI PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3315 74-1622891
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification Code Number)
515 WEST GREENS ROAD, SUITE 710
HOUSTON, TEXAS 77067
(281) 876-0080
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JULIUS S. BURNS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MMI PRODUCTS, INC.
515 WEST GREENS ROAD, SUITE 710
HOUSTON, TEXAS 77067
(281) 876-0080
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
MICHAEL A. SASLAW
BAKER & BOTTS, L.L.P.
2001 ROSS AVENUE
DALLAS, TEXAS 75201
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS 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 AUGUST 18, 1997
PROSPECTUS
MMI PRODUCTS, INC.
OFFER TO EXCHANGE ITS SERIES B 11 1/4% SENIOR
SUBORDINATED NOTES DUE 2007 FOR ANY AND ALL OF ITS
OUTSTANDING SERIES A 11 1/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997,
UNLESS EXTENDED.
MMI Products, 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 Series B
11 1/4% Senior Subordinated Notes due 2007 (the "Exchange 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
Series A 11 1/4% Senior Subordinated Notes due 2007 (the "Old Notes"), of which
$120,000,000 principal amount is outstanding. The form and terms of the
Exchange Notes are the same as the form and term of the Old Notes (which they
replace) except that the Exchange 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 not be entitled to
registration rights or other rights under the Registration Rights Agreement (as
defined herein). See "The Exchange Offer." The Exchange Notes will 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 (the "Indenture") dated April 16,
1997 between the Company and U.S. Trust Company of Texas, N.A., as Trustee (the
"Trustee"), governing the Old Notes. See "The Exchange Offer" and "Description
of Exchange Notes."
Interest on the Exchange Notes will be payable semi-annually in arrears on
April 15 and October 15 of each year, commencing October 15, 1997. The Exchange
Notes will mature on April 15, 2007. The Exchange Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or after April
15, 2002 at the redemption prices set forth herein, plus accrued and unpaid
interest to the redemption date. Notwithstanding the foregoing, on or prior to
April 15, 2000, the Company may redeem at any time or from time to time up to
35% of the aggregate principal amount of the Exchange Notes originally issued
at a redemption price equal to 111.25% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages (as defined herein), if any,
thereon to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings (as defined herein); provided, however, that at least
$78.0 million aggregate principal amount of Exchange Notes remains outstanding
following each such redemption. Upon the occurrence of a Change of Control (as
defined herein), the Company will be required to make an offer to repurchase
all or any part of the Exchange Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase.
See "Description of Exchange Notes."
(Cover text continued on next page)
SEE "RISK FACTORS" ON PAGE 12 FOR A DESCRIPTION OF CERTAIN
RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR 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
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The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company, including all obligations of the Company
under the Credit Facility (as defined herein), and senior to or pari passu with
all existing and future subordinated indebtedness of the Company. At June 28,
1997, the Company had outstanding approximately $3.9 million of Senior
Indebtedness. The Exchange Notes, like the Old Notes, will not be guaranteed by
the Company's parent corporation or by any other person or entity. See
"Description of Exchange Notes -- Subordination." The Indenture pursuant to
which the Exchange Notes will be issued permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations.
See "Description of Exchange Notes -- Certain Covenants."
The Company will accept for exchange any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York 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 April 16, 1997 to the Initial Purchaser (as
defined herein) in a transaction not registered under the Securities Act in
reliance upon an exemption under the Securities Act. The Initial Purchaser
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 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 Exchange
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 of the Old Notes. 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 Exchange 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
Exchange 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 Exchange Notes. See "The Exchange Offer
- -- Purpose and Effect of the Exchange Offer" and "The Exchange Offer -- Resale
of the Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer")
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a 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 180 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
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 with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
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There has not previously been any public market for the Old Notes or the
Exchange Notes. Although the Initial Purchaser has informed the Company that it
currently intends to make a market in the Exchange Notes, it is not obligated
to do so, and any such market-making activities with respect to the Exchange
Notes may be discontinued at any time without notice. Accordingly, the Company
does not intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Risk Factors -- Exchange
Offer Procedures" and "Exchange Offer -- Consequences of Failure to Exchange."
The Exchange Notes will be available initially only in book-entry form.
The Company expects that the Exchange Notes issued pursuant to this Exchange
Offer will be issued in the form of one or more Global Notes (as defined
herein), which will be deposited with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in a Global Note representing the
Exchange Notes will be shown on, and transfers thereof will be effected
through, records maintained by the Depositary and its participants. After the
initial issuance of the Global Notes, Exchange Notes in certificated form will
be issued in exchange for a Global Note only on the terms set forth in the
Indenture. See "Description of Exchange Notes -- Book Entry, Delivery and
Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer- manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law.
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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 Exchange Notes being offered hereby. This Prospectus does not contain all
of 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 entirety 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. Additionally, the Commission maintains a web site
(http:www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission including the Company.
As a result of the filing of the Exchange Offer Registration Statement
with the Commission, the Company 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 to
file periodic reports and other information with the Commission will be
suspended if the Exchange Notes are held of record by fewer than 300 holders as
of the beginning of any fiscal year of the Company 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 Exchange Notes are listed on a national securities exchange.
Under the Indenture, the Company shall file with the Trustee annual, quarterly
and other reports within 15 days after it files such reports with the
Commission (or within 15 days after it would have been required to file such
reports with the Commission, in the event the Company is no longer subject to
the informational requirements of the Exchange Act). Annual reports delivered
to the Trustee and the holders of Exchange Notes will contain financial
information that has been examined and reported upon, with an opinion expressed
by an independent certified public accountant. The Company will also furnish
such other reports as may be required by law.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
"PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS,
INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS. SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT EXPRESSLY PROVIDE THAT THE SAFE HARBOR PROVIDED FOR THEREIN DOES
NOT APPLY TO STATEMENTS MADE IN CONNECTION WITH A COMPANY'S INITIAL PUBLIC
OFFERING.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the Company's financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, and except as used in "Description of Exchange Notes,"
references in this Prospectus to the "Company" include the Company and any
subsidiaries of the Company that may exist in the future. All references in
this Prospectus to "fiscal year" refer to the Company's fiscal year which ends
on the Saturday closest to December 31 of that calendar year. For example,
fiscal year 1996 refers to the fiscal year ended December 28, 1996.
THE COMPANY
The Company is a leading manufacturer and distributor of products used
in the residential, commercial and infrastructure construction industries. The
Company sells its products along three principal product lines: fence, wire
mesh and concrete accessories. The Company has established leading market
positions for each of these product lines by combining efficient manufacturing,
high quality products, broad product offerings and extensive distribution
capabilities. In addition, the Company benefits from substantial raw material
purchasing efficiencies because the products in each of its three principal
product lines are produced primarily from the same raw material, steel rod. In
fiscal year 1996, the Company generated net sales of $283.4 million.
Sales of fence, wire mesh and concrete accessories accounted for
approximately 58%, 29% and 13%, respectively, of the Company's net sales in
fiscal year 1996. The Company's fence product line includes chain link fence
fabric, fittings and other related products which are manufactured and
distributed by the Company, as well as wood, vinyl, aluminum and ornamental
iron fence products which are manufactured by third parties and distributed by
the Company. Based on the Company's knowledge and experience in the industry,
the Company believes that it is the largest manufacturer of chain link fence
products in the United States and the second largest distributor of fence
products in the United States. The Company's wire mesh product line includes
various classes of wire mesh, which serve as a structural reinforcing grid for
concrete construction, including concrete pipe, roads, bridges, runways and
sewage and drainage projects. Based on the Company's knowledge and experience
in the industry, the Company believes that it is the largest manufacturer and
distributor of wire mesh products in the United States, with a market share of
approximately 29% for fiscal year 1996. The Company's concrete accessories
product line consists of over 2,000 specialized accessories used in concrete
construction, including products used to position and install steel reinforcing
bar and wire mesh reinforcing grid. The Company believes that it is the second
largest manufacturer and distributor of concrete accessories in the United
States.
The Company has developed an extensive and well positioned
distribution network, consisting of 55 Company-operated distribution centers,
located in 28 states. The Company's distribution network services over 3,900
customers, including construction contractors, fence wholesalers, industrial
manufacturers, highway construction contractors and fabricators of concrete
reinforcing bar. The Company believes that its extensive distribution network
provides a competitive advantage by allowing it to better serve its customers
through increased responsiveness and reduced freight costs. In addition to
serving customers nationwide, the Company's distribution centers and production
facilities are well positioned to serve areas of high population and
construction growth. The Company currently has manufacturing or distribution
facilities in each of the ten states with the largest projected increases in
population from 1995 through 2025.
The Company has developed a reputation in its markets as a
service-oriented, cost-efficient manufacturer of high quality products. The
Company manufactures its products at 15 principal facilities, which are
strategically located throughout the United States. The Company achieves cost
efficiencies by combining state-of-the-art and traditional production methods
to suit specific product applications, hiring and training skilled employees,
reducing materials usage and implementing standard process controls and other
productivity improvements. In addition, while the Company's manufacturing
facilities are geared primarily toward high-volume, standardized production to
promote efficiencies, many of the Company's manufacturing facilities are
capable of producing customized products in response to specific customer
requirements or applications that are unique to particular geographic regions
of the United States.
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Demand for the Company's products is subject to trends in the
residential, commercial and infrastructure construction industries. The Company
is increasing its focus on products used in the commercial and infrastructure
construction industries, which historically have been less seasonal and less
cyclical than the residential construction industry. Although the Company
estimates that approximately 50% of its fence sales in fiscal year 1996 were
attributable to each of the commercial and residential construction industries,
the Company has implemented strategies designed to further increase the
percentage of its fence sales to the commercial construction industry.
Specifically, the Company is emphasizing its "authorized dealer program"
pursuant to which leading fence contractors throughout the country have agreed
to purchase at least half of their fence requirements from the Company. As a
result, the number of dealers participating in the Company's program has
increased from approximately 150 in fiscal year 1994 to approximately 300 in
fiscal year 1996. In addition, the Company's wire mesh and concrete accessories
product lines, which have been increasing as a percentage of the Company's
total net sales, are marketed primarily to the commercial and infrastructure
construction industries, rather than the residential construction industry. The
Company estimates that approximately 73% of its wire mesh sales in fiscal year
1996 were attributable to the commercial and infrastructure construction
industries (with sales to the infrastructure and commercial construction
industries representing approximately 66% and 7%, respectively). The Company
estimates that substantially all of its concrete accessories sales in fiscal
year 1996 were attributable to the commercial and infrastructure construction
industries (with sales to each of the commercial and infrastructure
construction industries representing approximately 50%). In addition, the
Company anticipates that demand for the products in its wire mesh and concrete
accessories product lines is likely to increase as the level of infrastructure
development activity increases. The Company expects spending for infrastructure
projects to continue to increase over the next decade, as major elements of the
nation's infrastructure require replacement or substantial improvement.
The Company, which was organized in 1953, was acquired by Citicorp
Venture Capital, Ltd. ("CVC") and members of the Company's management in 1986.
The Company manufactured and distributed only the fence product line until 1989
when the Company acquired the wire mesh and concrete accessories product lines.
The Company's principal executive offices are located at 515 West Greens Road,
Suite 710, Houston, Texas 77067, and its telephone number at that location is
(281) 876- 0080.
BUSINESS STRATEGY
The Company intends to enhance its position as a leading national
supplier of products used in the residential, commercial and infrastructure
construction industries by pursuing the following strategies:
INTRODUCE NEW PRODUCTS. The Company intends to further expand its product
offerings in each of its primary product lines to better serve its customers
and promote customer loyalty by providing "one-stop shopping." The Company
believes that its extensive distribution network provides a platform for
introducing new products manufactured by the Company or third parties as well
as for new products that the Company acquires through acquisitions. The Company
recently expanded its concrete accessories product line to include reinforcing
bar splicing products and welded dowel assemblies. The Company also expanded
its wire mesh product line to include galvanized strand wire as a result of its
purchase of certain assets from Atlantic Steel Industries, Inc. ("Atlantic
Steel") in July 1996. In addition, the Company expanded its fence product line
to include wood, vinyl, aluminum and ornamental iron fence, which products are
manufactured by third parties and distributed by the Company. Sales of
third-party products, which represented an estimated 42% of the Company's net
sales in fiscal year 1996, allow the Company to utilize its distribution
network to increase sales and cash flow without making significant capital
investments.
BROADEN DISTRIBUTION NETWORK. The Company intends to further expand its
extensive distribution network. Since 1989, the Company has opened or acquired
22 distribution centers for its fence product line and two distribution centers
for its concrete accessories product line. By continuing to expand its
distribution network, the Company expects to increase sales and cash flow by
accessing new regional customers and by further penetrating its existing
customer base.
CAPITALIZE ON RAW MATERIALS PURCHASING POWER. The Company benefits from
significant raw material purchasing economies since all of the products that it
manufactures are produced primarily from steel rod. The Company is able to buy
raw material in significantly larger quantities than would be the case if each
of the Company's product lines were part of
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separate stand-alone enterprises. Because of such large volume purchases, the
Company believes that it typically purchases steel rod at a cost of up to 5%
below industry standard. Since steel rod cost comprises a substantial portion
of the Company's cost of goods sold (approximately 32% in fiscal year 1996),
the Company believes that such cost savings provide a significant competitive
advantage. The Company intends to continue to capitalize on its purchasing
power to take advantage of raw material acquisition costs that it believes are
lower than industry standard.
EXPAND APPLICATIONS FOR EXISTING PRODUCTS. The Company actively develops and
markets new applications for its products. For example, the Company is actively
promoting structural wire mesh as a cost-effective alternative to steel
reinforcing bar for certain types of concrete construction, such as roads,
bridges and other heavy construction projects. Although structural mesh has a
higher initial cost to the customer than does steel reinforcing bar, the
Company believes that the overall construction cost generally is lower if
structural mesh is utilized. The Company believes that the market for
structural mesh, which offers the Company relatively high margins compared to
the Company's other wire mesh products, presents a significant growth
opportunity.
FOCUS ON INFRASTRUCTURE AND COMMERCIAL CONSTRUCTION INDUSTRIES. The Company has
positioned itself to take advantage of the anticipated increase in
infrastructure construction spending. Demand for the wire mesh and concrete
accessories product lines is dependent, to a significant extent, on
infrastructure development projects, including roads, bridges, runways and
sewage and drainage projects. Infrastructure construction spending is
anticipated to increase as major components of the nation's infrastructure are
replaced or substantially improved. In addition, the Company will continue to
focus on increasing its sales to the commercial and infrastructure construction
industries, which historically have been less seasonal and less cyclical than
the residential construction industry.
GROW THROUGH STRATEGIC ACQUISITIONS. In addition to internal growth, the
Company intends to continue to grow through strategic acquisitions. The markets
in which the Company competes have a large number of relatively small, regional
manufacturers and, consequently, offer consolidation opportunities. The Company
seeks acquisitions that broaden its distribution network, complement or extend
its existing product lines or increase its production capacity. The Company
believes that it has been able to achieve synergies in its acquisitions through
economies of scale in purchasing, manufacturing, marketing and distribution.
RECENT ACQUISITIONS
Since 1989, the Company has completed eight acquisitions, including
four since the beginning of fiscal year 1995, which have substantially
increased the Company's net sales and cash flow. Four of these acquisitions
(including 11 facilities) related to fence products, two of these acquisitions
(including four facilities) related to wire mesh and two of these acquisitions
(including two facilities) related to concrete accessories.
On March 31, 1995, the Company acquired eight distribution centers for
the fence product line from Semmerling Fence and Supply, Inc. and Pioneer Fence
& Pipe Supply, Inc. (the "Semmerling/Pioneer Acquisition"). The
Semmerling/Pioneer Acquisition strengthened the Company's market position by
adding additional distribution centers and expanding its fence product line
with the addition of a new line of vinyl coated pipe and tubing.
On July 31, 1996, the Company acquired three operating plants and
certain equipment from Atlantic Steel (the "Atlantic Steel Acquisition"). The
Atlantic Steel Acquisition broadened the Company's wire mesh distribution
network, increased the Company's wire mesh production capacity and expanded its
wire mesh product line through the addition of galvanized strand wire, which is
sold to a diversified group of manufacturers and processors of wire products.
In October 1996, the Company further broadened its distribution
network and increased its production capacity for certain wire mesh and
concrete accessories products through two acquisitions. On October 14, 1996,
the Company acquired a concrete accessories manufacturing and distribution
facility in Chicago, Illinois from Gateway Construction Company (the "Gateway
Acquisition"). The Gateway Acquisition increased the Company's production
capacity for steel reinforcing bar supports and strengthened the Company's
presence in the concrete accessories market in the Midwestern United States. In
addition, on October 31, 1996, the Company acquired a wire mesh production
facility in North Miami
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Beach, Florida from DSM Corporation (the "Florida Wire Acquisition"). The
Florida Wire Acquisition enhanced the Company's ability to capitalize on demand
for wire mesh created by the relatively high level of construction activity in
Florida and other areas of the Southeastern United States.
RECENT DEVELOPMENTS
On April 16, 1997, the Company issued $120,000,000 aggregate principal
amount of Old Notes (the "Old Notes Offering"). The net proceeds of the Old
Notes Offering were used by the Company to (i) repay the Company's indebtedness
under the term loan portion of its senior credit facility (the "Credit
Facility") of approximately $11.4 million, (ii) reduce the Company's borrowings
under the revolving loan portion of the Credit Facility by approximately $37.7
million, (iii) repay the $10.0 million principal amount of, plus accrued and
unpaid interest on, the Company's existing senior subordinated indebtedness
(the "Mannesmann Senior Subordinated Debt") outstanding to Mannesmann Pipe &
Steel Corporation ("Mannesmann"), and (iv) distribute approximately $57.0
million to the Company's parent corporation, Merchants Metals Holding Company
("Holding") for the redemption by Holding of certain of its equity interests.
THE OLD NOTES OFFERING
Old Notes . . . . . . . . . . . . . . . The Old Notes were sold by the
Company on April 16, 1997 to
Bear, Stearns & Co. Inc. (the
"Initial Purchaser") pursuant to
a Purchase Agreement dated April
11, 1997 (the "Purchase
Agreement"). The Initial
Purchaser 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 Agreement . . . . . Pursuant to the Purchase
Agreement, the Company and the
Initial Purchaser entered into a
Registration Rights Agreement
dated April 16, 1997 (the
"Registration Rights
Agreement"), which grants the
holders 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 . . . . . . . . . . $120,000,000 aggregate principal
amount of Series B 11 1/4%
Senior Subordinated Notes due
2007 (the "Exchange Notes").
4
<PAGE> 11
The Exchange Offer . . . . . . . . . . $1,000 principal amount of the
Exchange Notes in exchange for
each $1,000 principal amount of
Old Notes. As of the date
hereof, $120,000,000 aggregate
principal amount of Old Notes
are outstanding. The Company
will issue the Exchange 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 Exchange
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 Exchange
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 Exchange
Notes.
Each Participating Broker-Dealer
that receives Exchange Notes for
its own account pursuant to the
Exchange Offer must acknowledge
that it will deliver a
prospectus in connection with
any resale of such Exchange
Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering
a prospectus, a 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 in
connection with resales of
Exchange Notes received 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 (other than a resale
of an unsold allotment from the
original sale of Old Notes). The
Company has agreed that, for a
period of 180 days after the
Exchange Offer Registration
Statement is declared effective,
it will make this Prospectus
available to any Participating
Broker-Dealer for use in
connection with any such resale.
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 Exchange
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 in connection
with any resale transaction.
Failure to comply with such
requirements in such instance
may result in such holder
incurring liability under the
Securities Act for which the
holder is not indemnified by the
Company.
Expiration Date . . . . . . . . . . . . 5:00 p.m., New York 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.
5
<PAGE> 12
Accrued Interest on the Exchange Notes
and the Old Notes . . . . . . . . . . . Each Exchange Note will bear
interest from the most recent
date to which interest has been
paid or duly provided for on the
Old Note surrendered in exchange
for such Exchange Note or, if no
interest has been paid or duly
provided for on such Old Note,
from April 16, 1997. Interest
on the Exchange Notes is payable
semi-annually on each April 15
and October 15, commencing on
October 15, 1997.
Holders of Old Notes whose Old
Notes are accepted for exchange
will not receive accrued
interest on such Old Notes for
any period from and after the
last date to which interest has
been paid or duly provided for
on the Old Notes prior to the
original issue date of the
Exchange Notes or, if no such
interest has been paid or duly
provided for, will not receive
any accrued interest on such Old
Notes, and will be deemed to
have waived, the right to
receive any interest on such Old
Notes accrued from and after the
last date to which interest has
been paid or duly provided for
on the Old Notes or, if no such
interest has been paid or duly
provided for, from and after
April 16, 1997.
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 herein) at the address
set forth in the Letter of
Transmittal. By executing the
Letter of Transmittal, each
holder will represent to the
Company that, among other
things, the Exchange Notes
acquired pursuant to the
Exchange Offer are being
obtained in the ordinary course
of business of the person
receiving such Exchange 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 Exchange Notes and that
neither the holder nor any such
other person is an "affiliate,"
as defined under Rule 405 of the
Securities Act. See "The
Exchange Offer -- Purpose and
Effect of the Exchange Offer"
and "The Exchange Offer --
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.
6
<PAGE> 13
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, (iii) pursuant
to some other exemption under
the Securities Act (and based on
an opinion of counsel, if the
Company so requests), (iv)
outside the United States to a
foreign person pursuant to the
requirements of Rule 904 under
the Securities Act, or (v)
pursuant to an effective
registration statement under the
Securities Act. See "The
Exchange Offer -- Consequences
of Failure to Exchange."
Shelf Registration Statement . . . . . In the event that (i) the
Exchange Offer is not available
to any holder or may not be
consummated because, in either
case, it would violate
applicable securities laws or
because the applicable
interpretations of the staff of
the Commission would not permit
the Company to effect the
Exchange Offer, or (ii) for any
other reason the Exchange Offer
is not consummated within 165
days after the completion of the
Old Notes Offering, the Company
will use its reasonable best
efforts to cause to be filed
with the Commission, no later
than 195 days after the
completion of the Old Notes
Offering, a shelf registration
statement (the "Shelf
Registration Statement"). The
Company will use its reasonable
best efforts to cause the Shelf
Registration Statement to be
declared effective on or before
the 75th day after the required
filing date. The Company has
agreed to maintain the
effectiveness of the Shelf
Registration Statement, under
certain circumstances, for a
maximum of two years following
the date of the completion of
the Old Notes Offering.
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. If such beneficial
owner wishes to tender on such
owner's own 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. The Company
will keep the Exchange Offer
open for not less than twenty
days in order to provide for the
transfer of registered
ownership.
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 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 time, on the Expiration
Date.
7
<PAGE> 14
Acceptance of Notes and Delivery of
Exchange Notes . . . . . . . . . . . . The Company will accept for
exchange, subject to the
conditions described under "The
Exchange Offer -- Conditions,"
any and all Old Notes which are
properly tendered in the
Exchange Offer prior to 5:00
p.m., New York time, on the
Expiration Date. The Exchange
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 . . . . . . . . . . . . U.S. Trust Company of Texas,
N.A.
THE EXCHANGE NOTES
General . . . . . . . . . . . . . . . . The form and terms of the
Exchange Notes are the same as
the form and terms of the Old
Notes (which they replace)
except that (i) the Exchange
Notes bear a Series B
designation, (ii) the Exchange
Notes have been registered under
the Securities Act and,
therefore, will not bear legends
restricting the transfer
thereof, and (iii) the holders
of Exchange 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
Exchange Notes will evidence the
same debt as the Old Notes and
will be entitled to the benefits
of the Indenture. See
"Description of Exchange Notes."
The Old Notes and the Exchange
Notes are referred to herein
collectively as the "Notes."
Securities Offered . . . . . . . . . . $120,000,000 aggregate principal
amount of Series B 11 1/4% Notes
due 2007 of the Company.
Maturity Date . . . . . . . . . . . . . April 15, 2007.
Interest Payment Dates . . . . . . . . Interest on the Exchange Notes
will be payable semi-annually in
arrears on April 15 and October
15 of each year, commencing
October 15, 1997.
8
<PAGE> 15
Ranking . . . . . . . . . . . . . . . . The Exchange Notes will be
general unsecured obligations of
the Company, subordinated in
right of payment to all existing
and future Senior Indebtedness
of the Company, including
borrowings under the Credit
Facility. At June 28, 1997, (i)
the Company had outstanding
approximately $3.9 million of
Senior Indebtedness and (ii) the
Company could have incurred,
under the most restrictive
covenants contained in the
Indenture and the Credit
Facility, approximately $49.1
million of additional Senior
Indebtedness. The Exchange
Notes, like the Old Notes, will
not be guaranteed by Holding or
by any other person or entity.
The Indenture permits the
Company to incur additional
Indebtedness, including Senior
Indebtedness, subject to certain
limitations. See "Description
of Exchange Notes --
Subordination" and "Description
of Exchange Notes -- Certain
Covenants -- Limitation on
Incurrence of Indebtedness and
Issuance of Disqualified Stock."
Optional Redemption . . . . . . . . . . The Exchange Notes will be
redeemable at the option of the
Company, in whole or in part, at
any time on or after April 15,
2002, at the redemption prices
set forth herein, plus accrued
and unpaid interest to the
redemption date. See
"Description of Exchange Notes
-- Optional Redemption."
Notwithstanding the foregoing,
on or prior to April 15, 2000,
the Company may redeem at any
time or from time to time up to
35% of the aggregate principal
amount of the Exchange Notes at
a redemption price equal to
111.25% of the principal amount
thereof, plus accrued and unpaid
interest to the redemption date,
with the net cash proceeds of
one or more Public Equity
Offerings; provided, however,
that at least $78.0 million in
aggregate principal amount of
Exchange Notes remains
outstanding following each such
redemption.
Change of Control . . . . . . . . . . . Upon the occurrence of a Change
of Control, the Company will be
required to make an offer to
repurchase all or any part of
the Exchange Notes at a price
equal to 101% of the principal
amount thereof, plus accrued and
unpaid interest to the date of
repurchase. See "Description of
Exchange Notes -- Repurchase at
the Option of Holders -- Change
of Control."
Certain Covenants . . . . . . . . . . . The Indenture contains certain
covenants that, among other
things, limit the ability of the
Company and any future
Restricted Subsidiaries (as
defined herein) to incur
additional Indebtedness, pay
dividends or make other
distributions, repurchase any
capital stock or subordinated
Indebtedness (as defined
herein), make certain
investments, create certain
liens, enter into certain
transactions with affiliates,
sell assets, including capital
stock of Restricted
Subsidiaries, or enter into
certain mergers and
consolidations. See "Description
of Exchange Notes -- Certain
Covenants."
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
Holders of the Old Notes should carefully consider the specific
matters set forth under "Risk Factors" as well as this Prospectus prior to
tendering their Old Notes in the Exchange Offer.
9
<PAGE> 16
SUMMARY FINANCIAL DATA
The following table sets forth summary historical financial data for
the Company for each of the three fiscal years in the period ended December 28,
1996 and for the six month periods ended June 29, 1996 and June 28, 1997 and
summary pro forma financial data for the fiscal year ended December 28, 1996
and the six month period ended June 28, 1997. The summary historical financial
data for the three fiscal years in the period ended December 28, 1996 and the
balance sheet data as of December 28, 1996 were derived from the audited
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The summary historical financial information for the
six month periods ended June 29, 1996 and June 28, 1997 and the balance sheet
data as of June 28, 1997, have been derived from the unaudited interim
financial statements of the Company and include, in the opinion of the Company,
all adjustments (consisting only of normal recurring accruals) necessary to
fairly present the data for such periods. The summary pro forma financial data
below reflect adjustments to the historical financial statements of the Company
to give effect to the consummation of the Old Notes Offering and the
application of proceeds therefrom, as if each had occurred on December 31, 1995
(the beginning of fiscal year 1996). The summary pro forma financial data are
not necessarily indicative of either future results of operations or the
results that might have occurred had the transactions actually been consummated
as of December 31, 1995. This information should be read in conjunction with
the "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTH PERIODS ENDED
----------------------------------------- ---------------------------
1994 1995(1) 1996(2) JUNE 29, 1996 JUNE 28, 1997
--------- --------- --------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales .................................................. $ 197,617 $ 233,284 $ 283,402 $ 128,203 $ 168,631
Cost of sales .............................................. 163,473 196,123 238,439 107,559 144,204
--------- --------- --------- --------- ---------
Gross profit ............................................... 34,144 37,161 44,963 20,644 24,427
Selling, general and administrative expenses ............... 17,098 19,196 23,143 10,848 12,193
Nonrecurring expenses-- stock options(3) ................... -- -- 3,106 -- --
Other expenses (income), net ............................... 419 166 721 148 (162)
Interest expense ........................................... 6,237 7,395 7,429 3,511 4,954
--------- --------- --------- --------- ---------
Income before income taxes ................................. 10,390 10,404 10,564 6,137 7,442
Provision for income taxes ................................. 2,878 4,058 4,227 2,453 2,976
--------- --------- --------- --------- ---------
Net income ................................................. $ 7,512 $ 6,346 $ 6,337 $ 3,684 $ 4,466
========= ========= ========= ========= =========
Cash Flow Data:
Net cash provided by (used in ) operating activities ....... $ 11,516 $ 12,745 $ 15,491 $ (348) $ (2,381)
Net cash used in investing activities ...................... (2,452) (14,741) (24,314) (1,300) (2,147)
Net cash provided by (used in) financing activities ........ (8,891) 3,681 6,894 587 6,615
Other Financial Data:
Adjusted EBITDA(4) ......................................... $ 19,997 $ 21,613 $ 28,047 $ 11,552 $ 15,090
Depreciation and amortization .............................. 3,370 3,814 4,448 1,904 2,694
Capital expenditures ....................................... 2,470 2,246 3,545 1,335 2,187
Ratio of earnings to fixed charges(5) ...................... 2.5x 2.3x 2.3x 2.6x 2.4x
Pro Forma Financial Data:
Cash interest expense(6) ................................... -- -- $ 15,470 -- $ 7,442
Ratio of Adjusted EBITDA to cash interest expense .......... -- -- 1.8x -- 2.0x
Ratio of total long-term debt to Adjusted EBITDA ........... -- -- 4.4x -- 4.1x
Ratio of earnings to fixed charges(5) ...................... -- -- 1.1x -- 1.6x
</TABLE>
10
<PAGE> 17
<TABLE>
<CAPTION>
AT DECEMBER 28, 1996 AT JUNE 28, 1997(7)
-------------------- --------------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Working capital......................................... $ 33,149 $ 47,859
Total assets............................................ 135,263 159,833
Total long-term debt, including current maturities...... 55,278 123,857
Stockholder's equity (deficit).......................... 28,534 (23,856)
</TABLE>
- ----------
(1) Includes historical results of operations of the assets acquired in
March 1995 pursuant to the Semmerling/Pioneer Acquisition for the
period from April 1, 1995 through December 30, 1995.
(2) Includes historical results of operations of the net assets acquired
pursuant to the Atlantic Steel Acquisition for the period from August
1, 1996 through December 28, 1996.
(3) In fiscal year 1996, the Company recorded nonrecurring expenses
resulting from the modification of stock options granted in previous
years as part of the Recapitalization (as defined herein) of the
Company and Holding. See Note 2 to the audited financial statements
included elsewhere in this Prospectus.
(4) Adjusted EBITDA is defined as the sum of (i) income before interest,
income taxes, depreciation and amortization, and certain nonrecurring
expenses (see footnote (3) above) ("EBITDA") and (ii) for fiscal year
1996 the contribution to EBITDA of the net assets acquired pursuant to
the Atlantic Steel Acquisition effective July 31, 1996 on a pro forma
basis as if the Atlantic Steel Acquisition had occurred on December
31, 1995 (the beginning of fiscal year 1996). The pro forma
contribution to EBITDA for the Atlantic Steel Acquisition of $2.5
million is based on actual revenues, for the first six months of
fiscal year 1996, adjusted for the Company's costs of materials and
operating costs, which was consistent with actual results for the five
months of operations since August 1, 1996. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service and incur debt. EBITDA should not be considered in isolation
from or as a substitute for net income or cash flow measures prepared
in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases (estimated
to be representative of an interest factor), and amortization of
deferred financing costs.
(6) Pro forma cash interest expense represents pro forma total interest
expense less $579,000 and $258,000 of amortization of deferred
financing costs for the fiscal year ended December 28, 1996 and the
six month period ended June 28, 1997, respectively. Pro forma cash
interest expense has been calculated based on the 11.25% rate on the
Old Notes.
(7) The June 28, 1997 balance sheet data reflects the effect of the Old
Notes Offering and the application of the proceeds therefrom which
occurred in April, 1997. The reduction in retained earnings from
December 28, 1996 results from a distribution of approximately $57.0
million to Holding used to redeem certain of Holding's equity
interests.
11
<PAGE> 18
RISK FACTORS
Prospective investors should carefully review the information set
forth below, in addition to the other information contained in this Prospectus,
in evaluating an investment in the Exchange Notes offered hereby.
LEVERAGE
The Company is highly leveraged. At June 28, 1997, the Company had
outstanding long-term indebtedness (including current maturities) of
approximately $123.9 million and had an outstanding stockholder's deficit of
approximately $23.9 million. The degree to which the Company is leveraged could
have important consequences to holders of Exchange Notes, including: (i)
impairment of the Company's ability to obtain additional financing in the
future; (ii) reduction of funds available to the Company for its operations or
for capital expenditures as a result of the dedication of a substantial portion
of the Company's net cash flow from operations to the payment of principal of
and interest on the Company's indebtedness, including indebtedness under the
Exchange Notes; (iii) the possibility of an event of default under covenants
contained in the Company's debt instruments, including the Indenture and the
Credit Facility, which, if not cured or waived, could have a material adverse
effect on the Company; (iv) a relative competitive disadvantage if the Company
is substantially more leveraged than its competitors; and (v) an inability to
adjust to rapidly changing market conditions and consequent vulnerability in
the event of a downturn in general economic conditions or its business because
of the Company's reduced financial flexibility. The Company's ability to make
scheduled payments or to refinance its indebtedness depends on its financial
and operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
Although the Company's cash flow from operations has historically been
sufficient to meet its debt service obligations, there can be no assurance that
the Company's operating results will continue to be sufficient for payment of
the Company's indebtedness, including indebtedness under the Exchange Notes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, including borrowings under the Company's Credit
Facility. At June 28, 1997, the Company had outstanding Senior Indebtedness of
approximately $3.9 million and additional availability to incur Senior
Indebtedness under the Credit Facility. Subject to certain limitations, the
Indenture permits the Company to incur additional indebtedness, including
Senior Indebtedness. See "Description of Exchange Notes -- Certain Covenants --
Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock." In addition, the Exchange Notes will be effectively subordinated to
liabilities of the Company's subsidiaries, if any are created or acquired in
the future. As a result of the subordination provisions contained in the
Indenture, in the event of a liquidation or insolvency of the Company, the
assets of the Company will be available to pay obligations on the Exchange
Notes and any remaining Old Notes only after all Senior Indebtedness has been
paid in full, and therefore there may not be sufficient assets remaining to pay
amounts due on any or all of the Exchange Notes then outstanding. In addition,
substantially all of the assets of the Company are pledged to secure other
indebtedness of the Company. See "Description of Exchange Notes" and
"Description of Credit Facility."
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY
The Credit Facility requires the Company to maintain specified
financial ratios and to meet certain financial tests. In addition, the Credit
Facility restricts, among other things, the Company's ability to incur
additional indebtedness, make acquisitions or asset dispositions, create or
incur liens on any of the Company's assets, make certain payments and dividends
or merge or consolidate. A failure to comply with the restrictions contained in
the Credit Facility could lead to an event of default thereunder, which could
result in an acceleration of such indebtedness. Such acceleration would
constitute an Event of Default (as defined herein) under the Indenture. There
can be no assurance that the Company would have sufficient resources or have
access to sufficient resources to pay its obligations under the Credit Facility
or the Exchange Notes if such indebtedness is accelerated. See "Description of
Credit Facility" and "Description of Exchange Notes."
12
<PAGE> 19
REPURCHASE OF EXCHANGE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be
required to offer to repurchase all or any part of the Exchange Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. Certain events involving a Change of
Control may result in an event of default under the Credit Facility and other
indebtedness of the Company that may be incurred in the future. An event of
default under the Credit Facility or other future indebtedness could result in
an acceleration of such indebtedness, in which case the subordination
provisions of the Exchange Notes would require payment in full (or provision
therefor) of all Senior Indebtedness before the Company may repurchase or make
other payments in respect of the Exchange Notes. See "Description of Exchange
Notes -- Repurchase at the Option of Holders -- Change of Control,"
"Description of Exchange Notes -- Subordination" and "Description of Credit
Facility." There can be no assurance that the Company would have sufficient
resources to repurchase the Exchange Notes or pay its obligations if the
indebtedness under the Credit Facility or other future Senior Indebtedness were
accelerated upon the occurrence of a Change of Control. Further, the provisions
of the Indenture may not afford holders of Exchange Notes protection in the
event of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction involving the Company that may adversely affect holders
of Exchange Notes, if such transaction does not result in a Change of Control.
In addition, the Credit Facility prohibits the Company from repurchasing any
Exchange Notes at the time of a Change of Control. There can be no assurance
that the Company will be able to obtain the consent of the lenders under the
Credit Facility to enable it to repurchase the Exchange Notes. The inability to
repurchase all of the tendered Exchange Notes would constitute an Event of
Default under the Indenture. These provisions may be deemed to have
anti-takeover effects and may delay, defer or prevent a merger, tender offer or
other takeover attempt. No assurance can be given that the terms of any future
indebtedness will not contain cross default provisions based upon Change of
Control or other defaults under such debt instruments.
FRAUDULENT CONVEYANCE
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Old Notes, (a) incurred such indebtedness
with the intent to hinder, delay or defraud creditors, or (b)(i) received less
than reasonably equivalent value or fair consideration for the issuance of the
Old Notes and (ii)(A) was insolvent at the time of the incurrence, (B) was
rendered insolvent by reason of such incurrence (and the application of
proceeds therefrom, including the distribution of funds to Holding from such
proceeds), (c) was engaged or was about to engage in a business or transaction
for which the assets remaining with the Company constituted unreasonably small
capital to carry on its business, or (D) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they mature, then,
in each such case, a court of competent jurisdiction could avoid, in whole or
in part, the Old Notes or, in the alternative, subordinate the Old Notes to
existing and future indebtedness of the Company. The measure of insolvency for
purposes of the foregoing will vary depending upon the law applied in such
case. Generally, however, the Company would be considered insolvent if the sum
of its debts, including contingent liabilities, was greater than all of its
assets at fair valuation or if the present fair saleable value of its assets
was less than the amount that would be required to pay the probable liability
on its existing debts, including contingent liabilities, as they become
absolute and matured.
The Company believes that, for purposes of the United States
Bankruptcy Code and state fraudulent transfer or conveyance laws, the Old Notes
were issued without the intent to hinder, delay or defraud creditors and for
proper purposes and in good faith, and that the Company, after the issuance of
the Old Notes and the application of proceeds therefrom, is solvent, has
sufficient capital for carrying on its business and is able to pay its debts as
they mature. There can be no assurance, however, that a court passing on such
questions would agree with the Company's view.
13
<PAGE> 20
CYCLICALITY
Demand for the Company's fence product line is heavily dependent on
the level of residential and commercial construction activity in the United
States. Construction activity is cyclical and is affected by the strength of
the general economy, by the strength of the regional economies in areas the
Company serves and by other factors beyond the Company's control, including
governmental expenditures, changes in interest rates and changes in banking and
tax laws.
Demand for the Company's wire mesh product line is substantially
dependent on infrastructure projects, including roads, bridges, runways and
sewage and drainage projects. The Company estimates that approximately 66% of
its sales of wire mesh in fiscal year 1996 was attributable to the
infrastructure construction industry. Demand for the Company's concrete
accessories product line also is dependent to a significant extent on the
infrastructure construction industry. The Company estimates that approximately
50% of its sales of concrete accessories in fiscal year 1996 was attributable
to the infrastructure construction industry. The infrastructure construction
industry is largely dependent on levels of government spending for such
projects, which in turn is subject to a variety of factors, including factors
inherent in the political process and limitations imposed by budgetary
considerations.
Demand for the Company's concrete accessories product line also is
dependent to a significant extent on the commercial construction industry. The
Company estimates that approximately 50% of its sales of concrete accessories
in fiscal year 1996 was attributable to the commercial construction industry.
Although the Company believes that the commercial construction industry is
somewhat less cyclical than the residential construction industry, the
commercial construction industry has experienced periods of sharp decline, as
evidenced by the severe decline that confronted the entire construction
industry during the early 1990s.
SEASONALITY
Sales of the Company's fence products have historically reflected
significant seasonality, with a substantial portion of the fence product line's
sales occurring in the period from mid-February through July. The Company
believes that this seasonality is significantly more pronounced in the
residential fence market than in the commercial fence market. The Company
estimates that approximately 50% of its fence product sales in fiscal year 1996
was allocable to each of the commercial and residential construction
industries. With the exception of January and February, which typically have
represented "slow" months for the wire mesh and concrete accessories product
lines, the Company's sales of wire mesh and concrete accessories have tended to
be distributed fairly evenly throughout the year. Although the Company believes
that the wire mesh and concrete accessories product lines, which focus on the
commercial and infrastructure construction industries, are less seasonal than
the fence product line even in the country's coldest regions, the Company's
wire mesh and concrete accessories product lines may exhibit somewhat more
pronounced characteristics of seasonality as the Company expands its
distribution network, through acquisitions and openings, into areas of colder
climates.
AVAILABILITY AND PRICE OF STEEL ROD
The Company's principal raw material is steel rod. The Company
purchases over 350,000 tons of steel rod annually. More than 50% of the
Company's supply of steel rod is obtained from overseas. The Company's ability
to continue to acquire steel rod from overseas on favorable terms may be
adversely affected by fluctuations in currency exchange rates, foreign taxes,
duties, tariffs, trade embargoes and other import limitations. The Company
purchases all of the steel rod that it acquires from overseas through
Mannesmann. Although the Company believes that it would be able to effectively
replace Mannesmann as a source of supply if the need were to arise, there can
be no assurance that it would be able to do so. Because steel rod comprises a
substantial portion of the Company's cost of goods sold (32% in fiscal year
1996), any increase in steel rod cost could have a significant effect on the
Company's cost of goods sold. Although the Company has in the past been able to
pass along increases in steel rod prices to its customers, there can be no
assurance that it will be successful in doing so in the future.
COMPETITION
The industries in which the Company operates are highly competitive.
The Company competes against national and regional competitors, some of whom
have substantially greater financial resources than the Company. The uniformity
14
<PAGE> 21
of products among competitors results in substantial pressure on pricing and
profit margins. While the Company believes that its purchasing power, its
nationwide distribution network and marketing capabilities and its
manufacturing efficiency allow it to competitively price the Company's
products, there can be no assurance that the Company will be able to maintain
or increase its current market share for its products or compete successfully
in the future.
ACQUISITIONS AND INTEGRATION OF ADDITIONAL BUSINESSES
The Company's ability to increase revenues and operating cash flow
over time depends, in part, on its success in consummating future acquisitions
upon satisfactory terms and integrating the acquired companies or assets into
the Company's operations. Although the Company frequently engages in
discussions with various parties regarding possible acquisitions, there can be
no assurance that acquisition opportunities will continue to be available or
that, if available, such acquisitions can be financed or consummated on terms
acceptable to the Company. In addition, future acquisitions will place
increasing demands on the Company's management and operational resources. The
Company's future performance will depend, in part, on its ability to manage
expanding operations and to adapt its operational systems to such expansions.
There can be no assurance that the Company will succeed at effectively and
profitably managing the integration of any future acquisitions. See "Business
- -- Business Strategy -- Broaden Distribution Network" and "Business -- Business
Strategy -- Grow Through Strategic Acquisitions."
INFLUENCE BY PRINCIPAL STOCKHOLDERS IN MANAGEMENT DECISIONS
All of the outstanding capital stock of the Company is owned by
Holding. More than 98% of the capital stock of Holding is owned by MMI
Products, L.L.C. ("Parent"). CVC, together with certain of its employees and
certain other persons affiliated or otherwise associated with CVC
(collectively, the "Citicorp Holders"), own common units of Parent ("Parent
Common Units") representing approximately 49% of the total voting power of all
outstanding Parent Common Units. In addition, the Parent Common Units owned by
the Citicorp Holders are convertible, at the election of the Citicorp Holders,
into another class of Parent Common Units representing approximately 84% of the
total voting power of all outstanding Parent Common Units. See "Security
Ownership."
Pursuant to the limited liability company agreement of Parent (the
"Limited Liability Company Agreement"), the LLC must vote the shares of Holding
capital stock owned by the LLC in such manner as to ensure that one of the
three members of the Board of Directors of Holding is selected by CVC, one
member is the Chief Executive Officer of Holding and one member is selected
jointly by CVC and the members of Parent who are at such time executive
officers of Holding. In addition, the Limited Liability Company Agreement
provides that certain key actions on the part of Parent or any of its
subsidiaries (including the Company) require the prior consent of CVC.
As a result of such ownership in Parent and such provisions of the
Limited Liability Company Agreement, the Citicorp Holders, and CVC in
particular, exercise a significant amount of influence over the management of
the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in large part, on the efforts,
abilities and experience of its executive officers, including Julius S. Burns,
the Company's President and Chief Executive Officer, and other key employees of
the Company. The loss of the services of one or more of such individuals could
have a material adverse effect on the Company's business. The Company and Mr.
Burns have entered into the Amended and Restated Put Agreement (as defined
herein) pursuant to which Mr. Burns' estate will have, upon satisfaction of
certain conditions, the option during the 90 day period following his death to
cause Holding (or its designee) to repurchase such shares of Holding Common
Stock held by Mr. Burns at such time of his death as have a fair market value
of up to $2.0 million (the "Put Right"). The $2.0 million purchase price to be
paid by Holding upon exercise of the Put Right will be payable through the
application of proceeds payable under certain life insurance contracts
purchased by the Company. Mr. Burns' wife is the beneficiary under such life
insurance contracts. However, upon receipt of such proceeds, Mrs. Burns must
elect whether to return the $2.0 million in proceeds to the Company or retain
such proceeds and transfer to the Company the shares of Holding Common Stock
held by Mr. Burns at such time of his death as have a fair market value of $2.0
million. For a more complete description of the Amended and Restated Put
Agreement, see "Management -- Put Agreement."
15
<PAGE> 22
IMPACT OF ENVIRONMENTAL LAWS
The Company is subject to extensive and changing federal, state and
local environmental laws (including common law) and regulations ("Environmental
Laws") which govern among other things the discharge of pollutants into the air
and water as well as the handling and disposal of hazardous materials and could
impose liability for remediation costs or result in civil or criminal penalties
in cases of non-compliance. Compliance with Environmental Laws increases the
Company's costs of doing business. Additionally, Environmental Laws have been
subject to frequent change; therefore, the Company is unable to predict the
future costs or other future impact of Environmental Laws on its operations.
There can be no assurance that the Company will not incur material liability
related to the Company's operations and properties under Environmental Laws.
See "Business -- Regulation -- Environmental Regulation."
LACK OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for
the Old Notes. The Old Notes have not been registered under the Securities Act
and will be subject to restrictions on transferability to the extent that they
are not exchanged for Exchange Notes by holders who are entitled to participate
in the 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. The Exchange Notes
will constitute a new issue of securities with no established trading market.
The Exchange Notes will not be listed on any securities exchange and the
Company will not seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Company has
been advised by the Initial Purchaser that it intends to make a market in the
Exchange Notes; however, the Initial Purchaser is not obligated to do so, and
any such market making activities may be discontinued at any time without
notice. In addition, such market making activity may 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 Statement.
Therefore, there can be no assurance that an active market for the Exchange
Notes will develop or as to liquidity of a trading market for the Exchange
Notes.
Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the Company,
the Exchange Notes may trade at a discount from their principal amount.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange 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 Exchange 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 Exchange Offer, registration rights under the Registration
Rights Agreement generally 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 Exchange 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 Exchange
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 Exchange Notes. 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."
16
<PAGE> 23
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. The Exchange Offer is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement.
The net proceeds to the Company from the Old Notes Offering were
approximately $116.1 million, after deducting discounts and commissions to the
Initial Purchaser and estimated offering expenses. The Company used the net
proceeds to (i) repay the Company's existing indebtedness under the term loan
portion of the Credit Facility of approximately $11.4 million, (ii) reduce the
Company's borrowings under the revolving loan portion of the Credit Facility by
approximately $37.7 million, (iii) repay the $10.0 million principal amount of,
plus accrued and unpaid interest on, the Mannesmann Senior Subordinated Debt
and (iv) distribute approximately $57.0 million to Holding for the redemption
by Holding of certain of its equity interests.
Indebtedness under the Credit Facility currently bears interest at a
floating rate (which weighted average rate was 8.53% at March 29, 1997). Prior
to the Old Notes Offering, the final maturity date of the Credit Facility was
December 12, 1999. In connection with the Old Notes Offering, the final maturity
date of the Credit Facility's revolving loan facility was extended to December
12, 2001. See "Description of Credit Facility."
The Mannesmann Senior Subordinated Debt was terminated upon the
Company's payment thereof in full with proceeds from the Old Notes Offering.
The interest rate on the Mannesmann Senior Subordinated Debt was a floating
rate (which rate was 9.25% at March 29, 1997) and the Mannesmann Senior
Subordinated Debt was due and payable on December 13, 1999. The aggregate
principal amount of the Mannesmann Senior Subordinated Debt was increased from
$5.0 million to $10.0 million in December 1996. Proceeds from the additional
$5.0 million of Mannesmann Senior Subordinated Debt were used to repay
borrowings under the Credit Facility.
17
<PAGE> 24
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for
the Company for each of the three fiscal years in the period ended December 28,
1996 and for the six month periods ended June 29, 1996 and June 28, 1997 and
selected pro forma financial data for the fiscal year ended December 28, 1996
and the six month period ended June 28, 1997. The selected historical financial
data for the three fiscal years in the period ended December 28, 1996 and the
balance sheet data as of December 28, 1996 were derived from the audited
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The selected historical financial information for
the six month periods ended June 29, 1996 and June 28, 1997 and the balance
sheet data as of June 28, 1997, have been derived from the unaudited interim
financial statements of the Company and include, in the opinion of the Company,
all adjustments (consisting only of normal recurring accruals) necessary to
fairly present the data for such periods. The selected pro forma financial data
below reflect adjustments to the historical financial statements of the Company
to give effect to the consummation of the Old Notes Offering and the
application of proceeds therefrom, as if each had occurred on December 31, 1995
(the beginning of fiscal year 1996). The selected pro forma financial data are
not necessarily indicative of either future results of operations or the
results that might have occurred had the transactions actually been consummated
as of December 31, 1995. This information should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
FISCAL YEAR ----------------------
-------------------------------------------------------------- JUNE 29, JUNE 28,
1992 1993 1994 1995(1) 1996(2) 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales ................................ $152,435 $166,731 $197,617 $233,284 $283,402 $128,203 $168,631
Cost of sales ............................ 129,433 141,614 163,473 196,123 238,439 107,559 144,204
-------- -------- -------- -------- -------- -------- --------
Gross profit ............................. 23,002 25,117 34,144 37,161 44,963 20,644 24,427
Selling, general and administrative
expenses ............................... 16,168 16,397 17,098 19,196 23,143 10,848 12,193
Nonrecurring expenses(3) ................. -- 1,031 -- -- 3,106 -- --
Other expenses (income), net ............. 347 230 419 166 721 148 (162)
Interest expense ......................... 6,923 6,144 6,237 7,395 7,429 3,511 4,954
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes ........ (436) 1,315 10,390 10,404 10,564 6,137 7,442
Provision for income taxes ............... 120 499 2,878 4,058 4,227 2,453 2,976
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ........................ $ (556) $ 816 $ 7,512 $ 6,346 $ 6,337 $ 3,684 $ 4,466
======== ======== ======== ======== ======== ======== ========
Cash Flow Data:
Net cash provided by (used in) operating
activities ............................. $ 2,281 $ (145) $ 11,516 $ 12,745 $ 15,491 $ (348) $ (2,381)
Net cash used in investing activities .... (1,448) (1,049) (2,452) (14,741) (24,314) (1,300) (2,147)
Net cash provided by (used in) financing
activities ............................. (516) 665 (8,891) 3,681 6,894 587 6,615
Other Financial Data:
Adjusted EBITDA(4) ....................... $ 9,481 $ 11,531 $ 19,997 $ 21,613 $ 28,047 $ 11,552 $ 15,090
Depreciation and amortization ............ 2,994 3,041 3,370 3,814 4,448 1,904 2,694
Capital expenditures ..................... 1,464 1,100 2,470 2,246 3,545 1,335 2,187
Cash dividends(5) ........................ 176 -- 308 -- -- -- --
Ratio of earnings to fixed charges(6) .... -- 1.2x 2.5x 2.3x 2.3x 2.6x 2.4x
Pro Forma Financial Data:
Cash interest expense(7) ................. -- -- -- -- $ 15,470 -- $ 7,442
Ratio of Adjusted EBITDA to cash
interest expense ....................... -- -- -- -- 1.8x -- 2.0x
Ratio of long-term debt to Adjusted
EBITDA ................................. -- -- -- -- 4.4x -- 4.1x
Ratio of earnings to fixed charges(6) .... -- -- -- -- 1.1x -- 1.6x
</TABLE>
18
<PAGE> 25
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------- JUNE 28,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at period end):
Working capital ....................... $ 17,831 $ 24,982 $ 29,222 $ 36,563 $ 33,149 $ 47,859
Total assets .......................... 74,434 77,058 86,498 103,856 135,263 159,833
Total long-term debt, including current
maturities .......................... 50,907 51,935 44,454 49,485 55,278 123,857
Stockholder's equity .................. 1,240 2,056 9,260 15,606 28,534 (23,856)
</TABLE>
- --------------------
(1) Includes historical results of operations of the assets acquired in
March 1995 pursuant to the Semmerling/Pioneer Acquisition for the
period from April 1, 1995 through December 30, 1995.
(2) Includes historical results of operations of the net assets acquired
pursuant to the Atlantic Steel Acquisition for the period from August
1, 1996 through December 28, 1996.
(3) In fiscal year 1996, the Company recorded nonrecurring expenses
resulting from the modification of stock options granted in previous
years as part of the Recapitalization of the Company and Holding. See
Note 2 to the audited financial statements included elsewhere in this
Prospectus. In fiscal year 1993, the Company recorded nonrecurring
expense of $1.0 million relating to the write-down of certain
intangible assets.
(4) Adjusted EBITDA is defined as the sum of (i) income before interest,
income taxes, depreciation and amortization, and certain nonrecurring
expenses (see footnote (3) above) ("EBITDA") and (ii) for fiscal year
1996 the contribution to EBITDA of the net assets acquired in the
Atlantic Steel Acquisition effective July 31, 1996 on a pro forma
basis as if the Atlantic Steel Acquisition had occurred on December
31, 1995 (the beginning of fiscal year 1996). The pro forma
contribution to EBITDA for the Atlantic Steel Acquisition of $2.5
million is based on actual revenues, for the first six months of
fiscal year 1996, adjusted for the Company's costs of materials and
operating costs, which was consistent with actual results for the five
months of operations since August 1, 1996. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to
service and incur debt. EBITDA should not be considered in isolation
from or as a substitute for net income or cash flow measures prepared
in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(5) Cash dividends in fiscal years 1992 and 1994 represent amounts
required to redeem the equity interests in Holding held by former
stockholders which had received equity interests in Holding upon the
sale to the Company of certain assets acquired for the fence product
line.
(6) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases (estimated
to be representative of an interest factor), and amortization of
deferred financing costs. For fiscal year 1992, earnings were
insufficient to cover fixed charges by approximately $436,000.
(7) Pro forma cash interest expense represents pro forma total interest
expense less $579,000 and $258,000 of amortization of deferred
financing costs for the fiscal year ended December 28, 1996 and the
six month period ended June 28, 1997, respectively. Pro forma cash
interest expense has been based on the 11.25% rate on the Old Notes.
19
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with the
Company's financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
GENERAL
The Company is a leading manufacturer and distributor of products used
in the residential, commercial and infrastructure construction industries. The
Company sells its products along three principal product lines: fence, wire
mesh and concrete accessories.
Product Lines
The Company's fence product line includes chain link fence fabric,
fittings and other related products which are manufactured and distributed by
the Company, as well as wood, vinyl, aluminum and ornamental iron fence
products which are manufactured by third parties and distributed by the
Company.
The Company's wire mesh product line consists of various classes of
wire mesh, which serves as a structural reinforcing grid for concrete
construction, including concrete pipe, roads, bridges, runways and sewage and
drainage projects. As a result of the Atlantic Steel Acquisition, the Company
also produces galvanized strand wire.
The Company's concrete accessories product line consists of over 2,000
specialized accessories used in concrete construction, including products used
to position and install steel reinforcing bar and wire mesh reinforcing grid.
The following table sets forth net sales by product line for the
periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTH PERIODS ENDED
-------------------------------------------------------- ----------------------------------
JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- ---------------- --------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fence ............................ $ 117.2 59.3% $ 145.0 62.1% $ 165.0 58.2% $ 83.2 64.9% $ 88.1 52.2%
Wire mesh ........................ 55.9 28.3 58.0 24.9 82.9 29.3 27.8 21.7 61.0 36.2
Concrete accessories ............. 24.5 12.4 30.3 13.0 35.5 12.5 17.2 13.4 19.5 11.6
------- ------ ------- ------ ------- ------ ------- ------ ------ -----
Net sales ........................ $ 197.6 100.0% $ 233.3 100.0% $ 283.4 100.0% $ 128.2 100.0% $168.6 100.0%
</TABLE>
Cyclicality
The Company's products are used in the residential, commercial and
infrastructure construction industries. These industries are both cyclical and
seasonal, and changes in demand for construction services have a material
impact on the Company's sales and profitability. Except for infrastructure
construction, the entire construction industry suffered a decline from 1990
through 1991 due to the combined impact of a cyclical recession and other
factors. The Company's net sales decreased 11.4% from $154.4 million in fiscal
year 1989 to $136.8 million in fiscal year 1991 and operating income declined
12.0% from $7.0 million in fiscal year 1989 to $6.2 million in fiscal year
1991. The Company's decline in net sales and operating income during this
period was exacerbated by management changes and a reorganization of the
Company's operations. Despite this downturn, the Company continued its ongoing
strategy of acquiring smaller competitors who were unable to withstand the
downturn, especially in the fence business. In addition to these acquisitions,
the Company opened distribution centers in new geographic markets. In 1992, the
construction industry began to recover and the Company's financial performance
began to improve.
Although the Company believes that another cyclical downturn is
inevitable, the Company has implemented strategies which it believes will
mitigate the impact of any such downturn on its future operating results and
liquidity. First,
20
<PAGE> 27
the Company has increased its focus on products used in the commercial and
infrastructure construction industries, which historically have been less
cyclical than the residential construction industry. Second, the Company has
positioned its wire mesh and concrete accessories product lines to benefit from
anticipated increases in infrastructure spending. Third, the Company has
expanded its distribution network to serve diverse areas of high population and
construction growth, as well as to limit the effects of any regional economic
downturns.
Certain Acquisitions
On March 31, 1995, the Company strengthened its market position by
adding eight additional fence distribution centers and expanding its fence
product line with the addition of a new line of vinyl coated pipe and tubing
pursuant to the Semmerling/Pioneer Acquisition. The Semmerling/Pioneer
Acquisition contributed $21.3 million to the Company's net sales of fence
products for the nine month period ended December 30, 1995 and resulted in
increased sales to customers in locations served by pre-existing Company
distribution centers. In fiscal year 1996, the Company's fence sales benefited
from the inclusion of the Semmerling/Pioneer Acquisition for a full 12 months.
The Midwestern markets served by the distribution centers acquired in the
Semmerling/Pioneer Acquisition, together with the Company's existing
distribution centers in the Midwestern United States contributed $11.1 million
to the fence product line's $20.0 million increase in net sales in fiscal year
1996.
On July 31, 1996, the Company broadened its wire mesh distribution
network, increased its wire mesh production capacity and expanded its wire mesh
product line pursuant to the Atlantic Steel Acquisition, whereby the Company
acquired operating plants in Baltimore, Maryland, Tampa, Florida and Oregon,
Ohio, along with certain equipment. The Atlantic Steel Acquisition
significantly increased the Company's wire mesh production capacity and
expanded its wire mesh product line through the addition of galvanized strand
wire, which is sold to a diversified group of manufacturers and processors of
wire products. The Atlantic Steel Acquisition contributed $25.3 million of net
sales in fiscal year 1996.
The following table sets forth certain operating results as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTH PERIODS ENDED
-------------------------------- ----------------------------
1994 1995 1996 JUNE 29, 1996 JUNE 28, 1997
-------- -------- -------- ------------- -------------
(UNAUDITED)
(PERCENTAGE OF NET SALES)
<S> <C> <C> <C> <C> <C>
Net sales ............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ......................................... 82.7 84.1 84.1 83.9 85.5
-------- -------- -------- -------- --------
Gross profit .......................................... 17.3 15.9 15.9 16.1 14.5
Selling, general and administrative (SG&A) expenses ... 8.7 8.2 8.2 8.5 7.2
Nonrecurring expenses-- stock options ................. -- -- 1.1 -- --
Other expenses, net ................................... 0.2 0.1 0.3 0.1 (0.1)
-------- -------- -------- -------- --------
Income before interest expense and income taxes ....... 8.4 7.6 6.3 7.5 7.4
Interest expense ...................................... 3.1 3.2 2.6 2.7 2.9
-------- -------- -------- -------- --------
Income before income taxes ............................ 5.3 4.4 3.7 4.8 4.5
Provision for income taxes ............................ 1.5 1.7 1.5 1.9 1.8
-------- -------- -------- -------- --------
Net income ............................................ 3.8% 2.7% 2.2% 2.9% 2.7%
======== ======== ======== ======== ========
EBITDA margin(1) ...................................... 10.1% 9.3% 9.0%(2) 9.0%(2) 8.9%
</TABLE>
- ----------
(1) EBITDA is a widely accepted financial indicator of a company's ability
to service and incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income or cash flow measures
prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity. EBITDA
margin is defined as (i) the sum of income before interest, income
taxes, depreciation and amortization, and nonrecurring expenses,
divided by (ii) net sales.
(2) EBITDA margin for fiscal year 1996 and the six month period ended June
29, 1996 excludes the pro forma effect of the Atlantic Steel
Acquisition for months preceding the date of acquisition.
21
<PAGE> 28
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Net Sales. Net sales increased 32% or $40.4 million for the first six
months of fiscal year 1997 over the first six months of fiscal year 1996.
Approximately 85% of these 1997 sales increases are attributable to the
Atlantic Steel, Florida Wire and Gateway Acquisitions which occurred in the
second half of fiscal year 1996. The Company currently is not a party to any
agreement pertaining to any business acquisitions that would cause continued
high growth in net sales. It is an essential element of the Company's strategy,
however, to identify, and where justified by market and economic forces,
acquire businesses at a valued price. The remaining increases primarily
resulted from increased activity in wood and vinyl fence systems, truckload
sales of tubing, and the opening of a Philadelphia area fence product line
service center in January 1997.
Gross Profit. Gross profit for the first six months of fiscal year
1997 increased approximately $3.8 million, or 18%, over the first six months of
fiscal year 1996 due primarily to the increase in net sales. Gross margin
percentages declined by approximately 1.6 percentage points due primarily to
increased sales in lower margin mesh products as a result of the Atlantic Steel
and Florida Wire Acquisitions. Also contributing to the lower gross margin
percentages were start-up costs of a new concrete accessories product line
manufacturing facility placed into operation during the first quarter of fiscal
year 1997.
SG&A Expenses. Selling, general and administrative expenses increased
approximately $1.3 million, but declined as a percentage of net sales during
the first six months of fiscal year 1997 from 8.5% as compared to 7.2% in the
first six months of fiscal year 1996. The gross margin percentage decline due
to the Atlantic Steel and Florida Wire Acquisitions was offset by the
relatively low levels of selling expense required for these mesh and wire
products, which are generally sold in truckload quantities direct from the
manufacturing plant to the customer. No distribution center sales force is
required for mesh and wire products as is required in the fence and concrete
accessories product lines.
Interest Expense. Interest expense increased $1.4 million or 41%
during the first six months of fiscal year 1997 as compared to the same period
in fiscal year 1996. The increases are primarily due to the higher levels of
outstanding debt as a result of the issuance of the Old Notes in April 1997.
If the proceeds of the Old Notes Offering had been available at the beginning
of fiscal year 1997, pro forma interest expense would have been $7.7 million,
an increase of $2.7 million over the $5.0 million actually incurred. Pro forma
interest expense is based on the 11.25% rate on the Old Notes plus the
amortization of deferred financing costs over the life of the debt.
Net Income. Net income increased 21% in the first six months of fiscal
year 1997 to approximately $4.5 million, up $782,000 over the first six months
of fiscal year 1996. The improvement was due primarily to increased sales and
gross profits of mesh products, the introduction of galvanized wire and
steeltex mesh sales resulting from the Atlantic Steel Acquisition in fiscal
year 1996. If the proceeds of the Old Notes Offering had been available at the
beginning of fiscal year 1997, pro forma net income would have been $2.8
million, a decrease of almost $1.7 million from the $4.5 million net income
actually reported. The Company currently is not a party to any agreement
pertaining to any business acquisitions that would cause continued high growth
in net income.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
Net Sales. The Company's net sales increased to $283.4 million in
fiscal year 1996, an increase of $50.1 million, or 21.5%, over fiscal year
1995. The wire mesh product line, which contributed $24.9 million of the
increase, benefitted from the Atlantic Steel Acquisition, which added $25.3
million of net sales in fiscal year 1996, and new business. Partially
offsetting these increases was the mid-year loss of a customer due to price
competition. The fence product line, which contributed $20.0 million of the
total net sales increase, benefitted in fiscal year 1996 from the full twelve
month impact of the Semmerling/Pioneer Acquisition. The fence product line also
benefitted from the opening of a new fence distribution center in Raleigh,
North Carolina and Olympics-related construction activity in the Atlanta,
Georgia area. The concrete accessories product line, which contributed $5.2
million of the increase in net sales, benefitted primarily from continued
increases in sales of paving products and the opening of three new distribution
centers. The Company currently is not a party to any agreement pertaining to
any business acquisitions that would cause continued high growth in net sales.
It is an essential element of the Company's strategy, however, to identify, and
where justified by market and economic forces, acquire businesses at a valued
price.
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<PAGE> 29
Gross Profit. The Company's gross profit increased to $45.0 million in
fiscal year 1996, an increase of $7.8 million, or 21.0%, over fiscal year 1995.
Gross profit margin was 15.9% in both years. The increase in gross profit was
primarily related to higher sales volume. The Atlantic Steel Acquisition
contributed $2.9 million of the gross profit increase for the five months of
operations included in fiscal year 1996. The fence product line contributed
$2.7 million of the gross profit increase, $1.7 million of which was from
Midwestern distribution centers benefiting from a full 12 months impact of the
Semmerling/Pioneer Acquisition.
SG&A Expenses. The Company's SG&A expenses increased to $23.1 million
in fiscal year 1996, an increase of $3.9 million, or 20.6%, from fiscal year
1995. SG&A expense as a percentage of net sales did not change in fiscal year
1996 versus fiscal year 1995. Acquisitions and openings of new distribution
centers across all product lines contributed to the increase as well as higher
provisions for uncollectible accounts receivable and incentive compensation
expense as compared to fiscal year 1995.
Nonrecurring Expenses -- Stock Options. During fiscal year 1996, the
Company incurred certain nonrecurring expenses relating to Holding stock
options granted in previous years to employees and a supplier of the Company.
The aggregate effect of these expenses was $3.1 million (see Note 2 to the
financial statements included elsewhere in this Offering Memorandum).
Other Expenses, Net. Other expenses, net, increased $0.6 million in
fiscal year 1996 to $0.7 million as compared to fiscal year 1995. Approximately
$0.3 million of the increase was due to net gains of $0.1 million on disposals
of fixed assets in fiscal year 1995 compared to net losses on disposals of $0.2
million in fiscal year 1996. Charges relating to closure of a concrete
accessories manufacturing facility during fiscal year 1996 and tornado damage
at a wire mesh facility, contributed $0.2 million to the increase.
Interest Expense. Interest expense was $7.4 million in both fiscal
year 1996 and fiscal year 1995. In fiscal year 1996, the Company's interest
expense decreased due to the repayment of deferred interest on subordinated
debt obligations (the deferral of interest payments had previously resulted in
higher rates) and lower rates on the Company's revolving loan portion of its
Credit Facility. These reductions were offset by the Company's higher level of
debt which increased primarily to finance acquisitions.
Provision for Income Taxes. The Company's effective tax rate in fiscal
year 1996 of 40% was one percentage point higher than the rate for fiscal year
1995 as a result of the Company being subject to a higher statutory federal
income tax rate and the expansion of operations in states with higher effective
income tax rates.
Net Income. Net income was $6.3 million in both fiscal year 1996 and
fiscal year 1995. Higher income was offset primarily by the $3.1 million of
nonrecurring expenses ($1.9 million net of tax) relating to Holding stock
options.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
Net Sales. Net sales increased to $233.3 million in fiscal year 1995,
an increase of $35.7 million, or 18.0%, over fiscal year 1994. The fence
product line contributed $27.8 million to the increase. The eight fence
distribution centers acquired in the Semmerling/Pioneer Acquisition contributed
$21.3 million to this increase. The concrete accessories product line
contributed $5.8 million to the increase in net sales due primarily to
increased concrete construction activity, increased sales of concrete paving
products, and price increases. Net sales of wire mesh increased $2.1 million,
or 3.8%, in fiscal year 1995 compared to fiscal year 1994.
Gross Profit. The Company's gross profit increased to $37.2 million in
fiscal year 1995, an increase of $3.0 million or 8.8% over fiscal year 1994,
due to higher sales volumes and price increases from the concrete accessories
product line. Gross profit margin decreased to 15.9% in fiscal year 1995 from
17.3% in fiscal year 1994, due primarily to unusually low raw material costs in
fiscal year 1994 (steel rod acceptable for producing non-critical wire mesh
products was acquired at below market prices) and the addition in 1995 of fixed
costs for the fence distribution centers and vinyl coating operation acquired
pursuant to the Semmerling/Pioneer Acquisition, without an immediate
corresponding increase in net sales.
23
<PAGE> 30
SG&A Expenses. SG&A expenses increased to $19.2 million in fiscal year
1995, an increase of $2.1 million or 12.3% over fiscal year 1994, due primarily
to the increased sales force for the distribution centers acquired in the
Semmerling/Pioneer Acquisition, and the amortization of intangibles relating to
that acquisition. SG&A expense as a percentage of net sales decreased to 8.2%
in fiscal year 1995 from 8.7% in fiscal year 1994. A decrease in the provision
for incentive compensation coupled with consolidation efficiencies in financial
and administrative functions relating to the Semmerling/Pioneer Acquisition
accounted for the majority of the improvement. Minimal additional financial and
administrative expense was incurred in fiscal year 1995 despite revenue growth
of $35.7 million over fiscal year 1994.
Interest Expense. Interest expense increased from $6.2 million in
fiscal year 1994 to $7.4 million in fiscal year 1995 due primarily to the
financing of higher levels of raw material purchases, other working capital
needs and the Semmerling/Pioneer Acquisition.
Provision for Income Taxes. Although income before income taxes in
both fiscal years 1995 and 1994 was $10.4 million, the provision for income
taxes increased to $4.1 million (an effective tax rate of 39.0%) in fiscal year
1995, an increase of $1.2 million over fiscal year 1994. The fiscal year 1994
provision of $2.9 million (an effective tax rate of 27.7%) benefited from the
carry forward of net operating losses from previous years. No further
significant carry forwards were available for the fiscal year 1995 provision.
Net Income. The Company's net income of $6.3 million in fiscal year
1995 decreased $1.2 million or 15.5% from $7.5 million for fiscal year 1994.
The decrease was primarily the result of unusually high fiscal year 1994 gross
profits, and net operating loss carry forwards no longer being available to
reduce the fiscal year 1995 income tax provision.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have historically been for operating
expenses, working capital, interest payments, capital expenditures for ongoing
operations and business acquisitions. In fiscal year 1996, the Company's
primary sources of capital to finance such needs included bank borrowings and
cash flow from operations. In addition, in fiscal year 1996, the Company repaid
$14.8 million of subordinated notes payable primarily to affiliates, plus
accrued interest. To finance the repayment (i) Holding made a capital
contribution to the Company of approximately $3.5 million in cash and loaned
the Company approximately $5.8 million and (ii) the Company borrowed an
additional $5.0 million of Mannesmann Senior Subordinated Debt and an
additional $1.0 million of bank debt.
On April 16, 1997, the Company issued the Old Notes. The net proceeds
to the Company from the Old Notes Offering of approximately $116.1 million,
after estimated fees and expenses, were used (i) to distribute approximately
$57 million to Holding for the redemption by Holding of certain of its equity
interests, (ii) to repay the $10 million principal amount of, plus accrued and
unpaid interest on, the Mannesman Senior Subordinated Debt, (iii) to repay the
Company's existing indebtedness under the term loan portion of the Credit
Facility of approximately $11.4 million and (iv) to reduce the Company's
borrowings under the revolving loan portion of the Credit Facility by
approximately $37.7 million.
During the first six months of fiscal year 1997, $2.4 million of cash
was used for operating expenses and working capital as compared to $348,000 in
the comparable period of 1996. The fiscal year 1997 increase in accounts
receivable decreased cash flow from operations by $5.0 million more than the
comparable period of 1996 due to higher sales levels primarily as a result of
the Atlantic Steel Acquisition. Additional cash of $2.1 million was also
utilized during the first six months of fiscal year 1997 to repay amounts due
to Holding. The Company utilized $5.9 million during the first six months
of fiscal year 1996 to pay deferred interest on subordinated notes to
affiliates which were repaid in full in December, 1996.
Capital expenditures were $2.2 million in the first six months of
fiscal year 1997, up 64% over the $1.3 million spent in the comparable 1996
period, due primarily to higher levels of machine and facility refurbishment in
the wire mesh product line.
Funds for operating and investing activities during the first six
months of fiscal year 1997 were provided through the Company's revolving credit
facility and the proceeds from the Old Notes Offering.
24
<PAGE> 31
Net cash provided by operating activities in fiscal year 1996 was
$15.5 million as compared to $12.7 million in fiscal year 1995. The increase of
$2.8 million was due primarily to increased fiscal year 1996 income after
excluding non-cash charges of $3.1 million ($1.9 million net of tax) relating
to stock options. Cash provided by operating activities increased from $11.5
million in fiscal year 1994 to $12.7 million in fiscal year 1995 due primarily
to working capital reductions in fiscal year 1995 compared to working capital
increases in fiscal year 1994.
Although EBITDA should not be considered in isolation from or as a
substitute for cash flow measures prepared in accordance with generally
accepted accounting principles or as a measure of a company's liquidity, it is
a widely accepted financial indicator of a Company's ability to incur and
service debt. EBITDA is defined as the sum of income before interest, income
taxes, depreciation and amortization, and non-recurring expenses. For the six
month periods ended June 28, 1997, and June 29, 1996, EBITDA was $15.1 million
and $11.6 million, respectively. The increase in EBITDA is primarily due to
higher income before interest and income taxes due to the changes in net sales,
gross profit, and selling, general and administrative expenses discussed above.
The Company's EBITDA of $25.5 million for fiscal year 1996 was $3.9 million or
18.2% higher than the $21.6 million of EBITDA for fiscal year 1995. EBITDA
contributed by the Atlantic Steel Acquisition in fiscal year 1996 was $2.5
million. The Company's EBITDA of $21.6 million for fiscal year 1995 increased
$1.6 million or 8.1% over the $20.0 million in EBITDA for fiscal year 1994 due
primarily to sales growth in the fence product line (mostly from the
Semmerling/Pioneer Acquisition) and price increases from the concrete
accessories product line.
The Company invested $2.5 million, $2.2 million and $3.5 million in
capital expenditures during fiscal years 1994, 1995, and 1996, respectively.
When the value of equipment acquired under capital lease obligations is
included, the total investment in each of the three fiscal years was $3.6
million, $3.5 million and $5.0 million, respectively. The Company's capital
expenditures generally relate to the replacement or refurbishment of machinery
and equipment. Approximately $4.0 million of fiscal year 1997 budgeted capital
expenditures of $5.4 million reflects replacement and refurbishment
expenditures. The remaining $1.4 million is primarily for the expansion of wire
mesh product line manufacturing capabilities.
The Company has pursued and intends to continue to pursue a strategy
of business acquisitions that will broaden its distribution network, complement
or extend its existing product lines or increase its production capacity. Such
acquisitions utilized cash of $20.9 million and $13.7 million in fiscal year
1996 and fiscal year 1995, respectively.
The Company expects that anticipated cash flows from operations (net
of increased interest costs) and the incurrence of additional lease obligations
will, absent acquisitions, result in minimal, if any, borrowings under the
Company's revolving loan portion of its Credit Facility for the foreseeable
future. The revolving loan portion of the Company's Credit Facility is also
expected to be available to finance future acquisitions. It is possible that,
depending upon the Company's future operating cash flows and the size of
potential acquisitions, the Company will seek additional sources of financing
subject to limitations set forth in the Indenture.
Although interest expense will be higher as a result of the Old Notes
Offering, the Company will no longer be required to fund Holding's dividend
obligations to holders of its preferred stock and preferred stock options,
which were redeemed with proceeds from the Old Notes Offering. The projected
cash outflow for the higher level of interest expense when mitigated by income
tax deductions will be less than the sum of previous interest expense and the
obligations to fund non-deductible preferred stock dividends to Holding.
EFFECT OF INFLATION
The impact of inflation on the Company's operations has not been
significant in recent years. There can be no assurance, however, that a high
rate of inflation in the future will not have an adverse effect on the
Company's operating results.
SEASONALITY
Sales of the Company's products in the fence product line have
historically reflected significant elements of seasonality with a substantial
portion of the Company's fence product line sales occurring in the period from
mid-February
25
<PAGE> 32
through July. Fence sales can remain strong into the early autumn if weather
conditions remain favorable. With the exception of January and February, which
typically have represented "slow" months for the wire mesh and concrete
accessories product lines, the Company's sales for wire mesh and concrete
accessories have tended to be distributed fairly evenly throughout the year.
Although the Company believes that the wire mesh and concrete accessories
businesses, which focus on the commercial and infrastructure construction
industries, are less seasonal than the fence business even in the country's
coldest regions, the Company's wire mesh and concrete accessories product lines
may exhibit somewhat more pronounced characteristics of seasonality as the
Company expands its distribution network, through acquisitions and openings
into areas of colder climates in an effort to further expand its distribution
network.
26
<PAGE> 33
BUSINESS
GENERAL
The Company is a leading manufacturer and distributor of products used
in the residential, commercial and infrastructure construction industries. The
Company sells its products along three principal product lines: fence, wire
mesh and concrete accessories. The Company has established leading market
positions for each of these product lines by combining efficient manufacturing,
high quality products, broad product offerings and extensive distribution
capabilities. In addition, the Company benefits from substantial raw material
purchasing efficiencies because the products in each of its three principal
product lines are produced primarily from the same raw material, steel rod. In
fiscal year 1996, the Company generated net sales of $283.4 million.
Sales of fence, wire mesh and concrete accessories accounted for
approximately 58%, 29% and 13%, respectively, of the Company's net sales in
fiscal year 1996. The Company's fence product line includes chain link fence
fabric, fittings and other related products which are manufactured and
distributed by the Company, as well as wood, vinyl, aluminum and ornamental
iron fence products which are manufactured by third parties and distributed by
the Company. Based on the Company's knowledge and experience in the industry,
the Company believes that it is the largest manufacturer of chain link fence
products in the United States and the second largest distributor of fence
products in the United States. The Company's wire mesh product line includes
various classes of wire mesh, which serve as a structural reinforcing grid for
concrete construction, including concrete pipe, roads, bridges, runways and
sewage and drainage projects. Based on the Company's knowledge and experience
in the industry, the Company believes that it is the largest manufacturer and
distributor of wire mesh products in the United States, with a market share of
approximately 29% for fiscal year 1996. The Company's concrete accessories
product line consists of over 2,000 specialized accessories used in concrete
construction, including products used to position and install steel reinforcing
bar and wire mesh reinforcing grid. The Company believes that it is the second
largest manufacturer and distributor of concrete accessories in the United
States.
The Company has developed an extensive and well positioned
distribution network, consisting of 55 Company-operated distribution centers,
located in 28 states. The Company's distribution network services over 3,900
customers, including construction contractors, fence wholesalers, industrial
manufacturers, highway construction contractors and fabricators of concrete
reinforcing bar. The Company believes that its extensive distribution network
provides a competitive advantage by allowing it to better serve its customers
through increased responsiveness and reduced freight costs. In addition to
serving customers nationwide, the Company's distribution centers and production
facilities are well positioned to serve areas of high population and
construction growth. The Company currently has manufacturing or distribution
facilities in each of the ten states with the largest projected increases in
population from 1995 through 2025.
The Company has developed a reputation in its markets as a
service-oriented, cost-efficient manufacturer of high quality products. The
Company manufactures its products at 15 principal facilities, which are
strategically located throughout the United States. The Company achieves cost
efficiencies by combining state-of-the-art and traditional production methods
to suit specific product applications, hiring and training skilled employees,
reducing materials usage and implementing standard process controls and other
productivity improvements. In addition, while the Company's manufacturing
facilities are geared primarily toward high-volume, standardized production to
promote efficiencies, many of the Company's manufacturing facilities are
capable of producing customized products in response to specific customer
requirements or applications that are unique to particular geographic regions
of the United States.
Demand for the Company's products is subject to trends in the
residential, commercial and infrastructure construction industries. The Company
is increasing its focus on products used in the commercial and infrastructure
construction industries, which historically have been less seasonal and less
cyclical than the residential construction industry. Although the Company
estimates that approximately 50% of its fence sales in fiscal year 1996 were
attributable to each of the commercial and residential construction industries,
the Company has implemented strategies designed to further increase the
percentage of its fence sales to the commercial construction industry.
Specifically, the Company is emphasizing its "authorized dealer program"
pursuant to which leading fence contractors throughout the country have agreed
to purchase at least half of their fence requirements from the Company. As a
result, the number of dealers participating in the Company's program has
increased from approximately 150 in fiscal year 1994 to approximately 300 in
fiscal year 1996. In addition, the Company's wire mesh and concrete accessories
product lines, which have been
27
<PAGE> 34
increasing as a percentage of the Company's total net sales, are marketed
primarily to the commercial and infrastructure construction industries, rather
than the residential construction industry. The Company estimates that
approximately 73% of its wire mesh sales in fiscal year 1996 was attributable
to the commercial and infrastructure construction industries (with sales to the
infrastructure and commercial construction industries representing
approximately 66% and 7%, respectively). The Company estimates that
substantially all of its concrete accessories sales in fiscal year 1996 were
attributable to the commercial and infrastructure construction industries (with
sales to each of the commercial and infrastructure construction industries
representing approximately 50%). In addition, the Company anticipates that
demand for the products in its wire mesh and concrete accessories product lines
is likely to increase as the level of infrastructure development activity
increases. The Company expects spending for infrastructure projects to continue
to increase over the next decade, as major elements of the nation's
infrastructure require replacement or substantial improvement.
BACKGROUND
The Company, which was organized in 1953, was acquired by CVC and
members of the Company's management in 1986. The Company's products consisted
solely of the fence product line until 1989 when the Company acquired the wire
mesh and concrete accessories lines. Since 1989, the Company has grown through
strategic acquisitions to become a leading national supplier of construction
related products.
BUSINESS STRATEGY
The Company intends to enhance its position as a leading national
supplier of products used in the residential, commercial and infrastructure
construction industries by pursuing the following strategies:
INTRODUCE NEW PRODUCTS. The Company intends to further expand its product
offerings in each of its primary product lines to better serve its customers
and promote customer loyalty by providing "one-stop shopping." The Company
believes that its extensive distribution network provides a platform for
introducing new products manufactured by the Company or third parties as well
as for new products that the Company acquires through acquisitions. The Company
recently expanded its concrete accessories product line to include reinforcing
bar splicing products and welded dowel assemblies. The Company also expanded
its wire mesh product line to include galvanized strand wire as a result of its
purchase of certain assets from Atlantic Steel in July 1996. In addition, the
Company expanded its fence product line to include wood, vinyl, aluminum and
ornamental iron fence, which products are manufactured by third parties and
distributed by the Company. Sales of third-party products, which represented an
estimated 42% of the Company's net sales in fiscal year 1996, allow the Company
to utilize its distribution network to increase sales and cash flow without
making significant capital investments.
BROADEN DISTRIBUTION NETWORK. The Company intends to further expand its
extensive distribution network. Since 1989, the Company has opened or acquired
22 distribution centers for its fence product line and two distribution centers
for its concrete accessories product line. By continuing to expand its
distribution network, the Company expects to increase sales and cash flow by
accessing new regional customers and by further penetrating its existing
customer base.
CAPITALIZE ON RAW MATERIALS PURCHASING POWER. The Company benefits from
significant raw material purchasing economies since all of the products that it
manufactures are produced primarily from steel rod. The Company is able to buy
raw material in significantly larger quantities than would be the case if each
of the Company's product lines were part of separate stand-alone enterprises.
Because of such large volume purchases, the Company believes that it typically
purchases steel rod at a cost of up to 5% below industry standard. Since steel
rod cost comprises a substantial portion of the Company's cost of goods sold
(approximately 32% in fiscal year 1996), the Company believes that such cost
savings provide a significant competitive advantage. The Company intends to
continue to capitalize on its purchasing power to take advantage of raw
material acquisition costs that it believes are lower than industry standard.
EXPAND APPLICATIONS FOR EXISTING PRODUCTS. The Company actively develops and
markets new applications for its products. For example, the Company is actively
promoting structural wire mesh as a cost-effective alternative to steel
reinforcing bar for certain types of concrete construction, such as roads,
bridges and other heavy construction projects. Although structural mesh has a
higher initial cost to the customer than does steel reinforcing bar, the
Company believes that the overall construction cost generally is lower if
structural mesh is utilized. The Company believes that the market for
structural mesh,
28
<PAGE> 35
which offers the Company relatively high margins compared to the Company's
other wire mesh products, presents a significant growth opportunity.
FOCUS ON INFRASTRUCTURE AND COMMERCIAL CONSTRUCTION INDUSTRIES. The Company has
positioned itself to take advantage of the anticipated increase in
infrastructure construction spending. Demand for the wire mesh and concrete
accessories product lines is dependent, to a significant extent, on
infrastructure development projects, including roads, bridges, runways and
sewage and drainage projects. Infrastructure construction spending is
anticipated to increase as major components of the nation's infrastructure are
replaced or substantially improved. In addition, the Company will continue to
focus on increasing its sales to the commercial and infrastructure construction
industries, which historically have been less seasonal and less cyclical than
the residential construction industry.
GROW THROUGH STRATEGIC ACQUISITIONS. In addition to internal growth, the
Company intends to continue to grow through strategic acquisitions. The markets
in which the Company competes have a large number of relatively small, regional
manufacturers and, consequently, offer consolidation opportunities. The Company
seeks acquisitions that broaden its distribution network, complement or extend
its existing product lines or increase its production capacity. The Company
believes that it has been able to achieve synergies in its acquisitions through
economies of scale in purchasing, manufacturing, marketing and distribution.
ACQUISITIONS
Since 1989, the Company has completed eight acquisitions, including
four since the beginning of fiscal year 1995, which have substantially
increased the Company's net sales and cash flow. Four of these acquisitions
(including 11 facilities) related to fence products, two of these acquisitions
(including four facilities) related to wire mesh and two of these acquisitions
(including two facilities) related to concrete accessories. The Company
frequently engages in discussions with various parties regarding possible
acquisitions.
On March 31, 1995, the Company strengthened its market position by
adding eight additional fence distribution centers and expanding its fence
product line with the addition of a new line of vinyl coated pipe and tubing
pursuant to the Semmerling/Pioneer Acquisition.
On July 31, 1996, the Company broadened its wire mesh distribution
network, increased its wire mesh production capacity and expanded its product
line through the Atlantic Steel Acquisition. Pursuant to the Atlantic Steel
Acquisition, the Company acquired operating plants in Baltimore, Maryland,
Tampa, Florida and Oregon, Ohio, along with certain equipment. The Atlantic
Steel Acquisition significantly increased the Company's wire mesh production
capacity and expanded its wire mesh product line through the addition of
galvanized strand wire, which is sold to a diversified group of manufacturers
and processors of wire products.
On October 14, 1996, the Company expanded its concrete accessories
distribution network and increased its production capacity for concrete
accessories pursuant to the Gateway Acquisition. The Gateway Acquisition
increased the Company's production capacity for steel reinforcing bar support
and strengthened the Company's presence in the Midwestern United States.
In addition, on October 31, 1996, the Company further broadened its
wire mesh distribution network and increased its wire mesh production capacity
with the Company's acquisition of a wire mesh production facility in North
Miami Beach, Florida pursuant to the Florida Wire Acquisition. The Florida Wire
Acquisition enhanced the Company's ability to capitalize on demand for wire
mesh created by the relatively high level of construction activity in Florida
and other areas of the Southeastern United States.
PRINCIPAL PRODUCTS
The Company manufactures and distributes its products along three
principal product lines: fence, wire mesh and concrete accessories. All of the
products manufactured by the Company are produced primarily from steel rod. The
Company has established leading market positions for each of its principal
product lines by, among other things, offering a wide variety of high quality
products that serve a broad range of functions for the residential, commercial
and
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<PAGE> 36
infrastructure construction industries. Sales of fence, wire mesh and concrete
accessories accounted for approximately 58%, 29% and 13%, respectively, of the
Company's $283.4 million of net sales during fiscal year 1996.
Fence
The Company manufactures and distributes a full line of high quality
fence products. Based on the Company's knowledge and experience in the
industry, the Company believes that it is the largest manufacturer of chain
link fence products in the United States and the second largest distributor of
fence products in the United States.
The Company manufactures fence products at six principal manufacturing
facilities. Such products include chain link fence fabric, a full line of
aluminum die cast and galvanized pressed steel fittings, PVC color coated wire
and vinyl coated colored pipe, tubing and fittings.
The Company also distributes a variety of fence products that it
purchases from third parties. Such products include pipe, tubing, wood, vinyl,
aluminum and ornamental iron fence products, gates, hardware and other related
products. In addition, the Company assembles wooden fence panels at several of
its facilities from wood materials purchased by the Company for use in the
installation of residential wood fences.
The Company's fence products are used in a variety of applications.
The Company's chain link fence products primarily serve as security fencing at
residential, commercial and governmental facilities, including manufacturing
and other industrial facilities, warehouses, schools, airports, correctional
institutions, military facilities, recreational facilities, swimming pools and
dog kennels. The Company's PVC color coated wire, together with vinyl coated
colored pipe, tubing and fittings, are used primarily for tennis courts and
other residential applications. The Company's other fence products are used
primarily in the construction of wood, vinyl, aluminum or ornamental iron fence
systems, and in the construction of all sizes and styles of fence gates for the
residential and commercial markets.
In fiscal year 1996, approximately 38% of the Company's sales of fence
products represented products manufactured by the Company. The remaining fence
products were purchased as finished goods from third parties for distribution
by the Company. The Company purchases the substantial majority of its finished
fence products from domestic manufacturers. The Company believes that its full
line of fence products provides a competitive advantage by enabling it to
provide "one-stop shopping" to its customers, thereby promoting customer
loyalty.
Wire Mesh
The Company manufactures and distributes one of the largest lines of
wire mesh in the United States. Based on the Company's knowledge and experience
in the industry, the Company believes that it is the largest manufacturer and
distributor of wire mesh products in the United States, with a market share of
approximately 29% for fiscal year 1996. The Company also manufactures
galvanized strand wire that is sold to other manufacturers of wire products.
The Company manufactures three principal classes of wire mesh,
consisting of commodity building mesh (Class B-2), pipe mesh (Class C) and
structural mesh (Class D). The Company's wire mesh is produced from wire that
ranges in size from 1/8-inch diameter to 3/4-inch diameter, in both smooth and
deformed patterns. The Company believes that it is the only company that
provides this broad range of wire diameters in its wire mesh products. In
addition, the Company recently acquired production capacity for a line of
galvanized strand wire pursuant to the Atlantic Steel Acquisition.
Class B-2 mesh is a commodity building mesh used in housing and light
commercial construction, including driveways, slab foundations and concrete
walls. Class B-2 mesh accounted for approximately 24% of the Company's wire
mesh product line sales in fiscal year 1996. Class C mesh is used to construct
reinforced concrete pipe for, among other things, drainage and sewage systems
and water treatment facilities. The Company has been producing pipe mesh for
over 40 years and has been a leader in this market since the early 1970's. This
class of mesh accounted for approximately 33% of the Company's wire mesh
product line sales in fiscal year 1996. Class D mesh is a structural wire mesh
that is designed as an alternative to steel reinforcing bar for certain types
of concrete construction, including roads, bridges and other heavy construction
projects. The Company markets its structural mesh as a cost-effective
alternative to steel reinforcing bar. Although structural mesh has a higher
initial cost to the customer than does steel reinforcing bar, the Company
believes that
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<PAGE> 37
the overall construction cost to the customer is generally lower if structural
mesh is utilized. This class of mesh accounted for approximately 31% of the
Company's wire mesh product line sales in fiscal year 1996. Galvanized strand
wire is used by manufacturers and processors of all types of wire products,
including shelving, household and automotive products. Galvanized strand wire
accounted for approximately 11% of the Company's wire mesh product line sales
in fiscal year 1996.
The Company believes that its wire mesh product line provides a number
of competitive advantages. The Company's broad range of wire diameters in its
wire mesh product line provides a competitive advantage by permitting the
Company to produce a wide range of custom wire mesh products in a cost
effective manner. In addition, the Company's many years of experience as a
producer of pipe mesh have permitted it to become an industry leader in
innovations such as deformed fabric (which provides stronger bonding of the
concrete to the wire) and higher tensile strength (which reduces the amount of
steel required to reinforce concrete pipe). The Company also believes that the
market for structural wire mesh, which offers the Company relatively high
margins compared to other classes of wire mesh, presents a significant growth
opportunity.
Concrete Accessories
The Company manufactures and distributes a full line of high quality
concrete accessories, consisting of over 2,000 individual products. The Company
believes that it is the second largest manufacturer and distributor of concrete
accessories in the United States.
The Company's concrete accessories include supports for steel
reinforcing bars and wire mesh, form ties and related products, basket
assemblies (including welded and loose dowel basket assemblies) and anchors and
inserts (including imbedded attachments and lifting devices, composite
structural wire members and prestress strand hold down anchors). Sales of
supports for steel reinforcing bars and wire mesh, form ties and related
products, basket assemblies, and anchors and inserts are estimated by the
Company to be approximately 45%, 20%, 20% and 8%, respectively, of the
Company's concrete accessories product line sales in fiscal year 1996. Although
the Company manufactures most of its concrete accessories products, certain
products, such as plastic supports for steel reinforcing bar and certain types
of form ties, are purchased from third parties for distribution by the Company.
The Company continually introduces new products to its concrete accessories
product line in its efforts to provide a full line of concrete accessories to
its customers.
The Company's concrete accessories are used in a variety of
applications. The Company's supports for steel reinforcing bars and wire mesh
are used to position and install steel reinforcing bars and wire mesh in the
construction of roads, bridges and other heavy construction projects. The
Company's welded and loose dowel basket assemblies are used to reinforce joints
between concrete pieces in the paving of roads, highways and runways. The
Company's anchors and inserts are used to fasten and lift precast panels and
floor panels in the construction of, among other things, commercial buildings.
In fiscal year 1996, the Company estimates that approximately 80% of
the Company's sales of concrete accessories represented products manufactured
by the Company. The remaining 20% of concrete accessories was purchased as
finished goods for resale by the Company through its 15 regional distribution
facilities. The Company generally purchases its finished concrete accessories
from domestic manufacturers.
PRODUCTION PROCESS
The Company manufactures its products at 15 principal facilities,
which are strategically located throughout the United States. Of the Company's
principal manufacturing facilities, six produce chain link fence fabric and
related products, six produce wire mesh and three produce concrete accessories.
The Company employs a combination of state-of-the-art and traditional
production methods to achieve cost efficiencies in its manufacturing processes.
In addition, while the Company's manufacturing facilities are geared primarily
toward high-volume, standardized production to promote efficiencies, many of
the Company's manufacturing facilities are capable of producing customized
products in response to specific customer requirements or applications that are
unique to particular geographic regions of the United States. Consequently,
each plant is configured to serve as both a high-volume producer of standard
products and a job lot producer of specialty products.
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<PAGE> 38
Fence
The Company manufacturers its fence products at six principal
manufacturing facilities, which generally operate 16 to 20 hours a day, five
days a week. In April, May and June, the busier months of the year, the
Company's manufacturing facilities often operate 24 hours a day, five to six
days a week.
The Company's chain link fence manufacturing process is virtually the
same at each of its fence manufacturing facilities. The dominant manufacturing
process, which is known as "GAW" or "galvanized after weaving," involves three
steps. The first step, wire drawing, transforms steel rod into steel wire,
primarily ranging in thickness from 12.5 gauge (.095 inches) to 6.0 gauge
(.0192 inches). In the second step, the wire is woven into chain link fabric by
automated fabric weaving machines pre-set to a specific width (which ranges
from three to 20 feet) of chain link fence fabric and to a specific "diamond"
size ranging from 3/8-inch to 2 3/8 inches. The third step consists of the
galvanizing process, which involves coating the surface of the steel wire with
zinc to provide, among other things, corrosion protection.
The Company also produces other types of coated wire fabric, including
polyvinyl chloride or "PVC" coated, aluminum coated and galvanized before
weaving ("GBW"). In addition, the Company manufactures a full line of aluminum
die cast and galvanized pressed steel fittings.
The Company's principal fence manufacturing facilities contain a total
of 16 wire drawing machines, 120 weaving machines, five hot-dipped galvanizing
lines, seven aluminum die cast machines, nine forming and stamping machines and
35 miscellaneous forming and coating machines.
Wire Mesh
The Company manufacturers its wire mesh products at six manufacturing
facilities, which generally operate 24 hours a day, five days a week.
The Company manufactures wire mesh with wire that ranges in size from
1/8-inch diameter to 3/4-inch diameter, in both smooth and deformed patterns.
The Company's wire mesh is manufactured from low-carbon steel rod, which is
cleaned by removing "mill scale" by passing the rod through a series of pulleys
that mechanically descales the rod. The rod is then pulled through a die that
reduces the area of the rod approximately 30 percent. This "cold working"
process produces wire that is clean, uniform in diameter and nearly 100 per
cent stronger than the original rod. The wire is then processed into the
finished product using automatic welding machines. This method of welding,
known as electrical resistance welding, produces a very strong welded joint
without weakening the steel as much as electrode welding.
Certain aspects of the production process vary depending on the class
of mesh being produced. Commodity building mesh generally is produced in roll
and sheet form and is made with small diameter wire. Pipe mesh generally is
custom-made to customer specifications. Additional steps in the process of
producing structural wire mesh often include bending the mesh to precise
shapes, cutting to exact sizes and preparing the surface to allow for the
application of special coatings.
The Company's principal wire mesh manufacturing facilities contain a
total of 65 wire drawing machines, 52 automatic mesh welders, one 35 strand
galvanizing line and 50 miscellaneous wire straightening and forming machines.
Concrete Accessories
The Company manufacturers its concrete accessories at three principal
manufacturing facilities, which generally operate 16 to 20 hours a day, five
days a week.
The Company's manufacturing process for concrete accessories consists
primarily of drawing steel rod into wire and then feeding coils of wire into
automatic forming and resistance welding machines which produce the finished
product. Additional manufacturing processes include various punch press
operations, threading, machining, painting and plastic and epoxy coating of
products, as well as numerous manually welded and assembled items. In addition
to steel rod, which is
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<PAGE> 39
the primary raw material for concrete accessories, the Company uses other raw
materials such as round bar stock, slit steel coils, reinforcing steel bars and
paints, plastisol and epoxy powder used for various coatings.
The Company's principal concrete accessories manufacturing facilities
contain a total of four wire drawing machines, 37 automatic bar support
machines and over 200 miscellaneous cutting, forming, threading, welding and
coating machines.
RAW MATERIALS
The products in each of the Company's principal product lines are
manufactured primarily from steel rod. Because each of the Company's principal
product lines require large quantities of the same raw material, the Company
purchases steel rod in significantly larger quantities than would be the case
if the Company's product lines were part of separate stand-alone enterprises.
Because of such large volume purchases, the Company believes that it typically
purchases steel rod at a cost of up to 5% below industry standard. Since steel
rod cost comprises a substantial portion of the Company's cost of goods sold
(approximately 32% in fiscal year 1996), the Company believes such cost savings
provide a significant competitive advantage.
In recent years, more than 50% of the steel rod purchased by the
Company has been produced overseas. The Company, however, also purchases a
substantial amount of domestically produced steel rod. All of the Company's
purchases of foreign steel rod are made through Mannesmann, which arranges the
importation of rod from various overseas sources. The Company's major suppliers
of steel rod in the United States include Ameristeel, North Star Steel,
Keystone Steel and Raritan.
In the case of both domestic and foreign steel rod, the Company
negotiates quantities and pricing on a quarterly basis. Because all agreements
for the purchase of steel rod, whether foreign or domestic, are denominated in
United States dollars, the Company is not exposed to significant risks of
fluctuations in exchange rates for foreign currency with respect to such
agreements.
SALES AND MARKETING; PRINCIPAL CUSTOMERS
The Company distributes its products to customers in the residential,
commercial and infrastructure construction industries through its 55
Company-operated distribution centers, its authorized dealers or shipments of
truckload quantities from the plant. The Company believes that its extensive
distribution network provides a competitive advantage by allowing it to better
serve its customers through increased responsiveness and reduced freight costs.
The Company has over 3,900 customers, none of whom individually accounted for
more than 10% of the Company's revenues in fiscal year 1996. The Company
employs approximately 75 salespeople who have primary responsibility for
contacting, taking orders from, and maintaining the Company's relationship with
its customers. In addition, members of senior management have frequent contact
with many of the Company's customers to ensure that it is meeting the
customer's needs. Each distribution center also has dedicated customer service
representatives who assist customers on a daily basis with any questions or
concerns regarding the Company's products or customer orders. The Company
believes that it differentiates itself from its competitors by providing a
superior level of service and overall customer satisfaction.
Fence
The Company sells fence products principally to fence wholesalers and
residential and commercial contractors. Although the Company also sells some
fence products through home centers, such sales are not a primary focus of the
Company's sales efforts.
The Company's dedicated sales force for its fence product line
consists of approximately 48 employees whose sales territories cover the 48
contiguous states. Members of the fence sales force are paid a base salary plus
a bonus, a portion of which bonus is based on the profitability of the members'
respective sales territories and a portion of which is based on the overall
profitability of the fence product line. Sales generally are made through the
Company's 40 regional fence distribution centers (six of which are located at
the Company's fence manufacturing facilities), which are located in 28 states.
Because fence customer orders typically require rapid turn-around time, the
Company's distribution centers are
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<PAGE> 40
strategically located near customers' facilities. The Company also distributes
its fence products through a network of approximately 300 authorized dealers
located throughout the country.
Wire Mesh
The Company sells wire mesh products principally to construction
products distributors, industrial manufacturers (such as pre-casters of
concrete products), lumber yards and manufacturers and processors of all types
of wire products, including shelving, household and automotive products.
The Company's specialized sales force for the wire mesh product line
consists of approximately 13 employees whose sales territories cover the 48
contiguous states. Members of the wire mesh sales force generally have
engineering backgrounds which permit them to consult with customers regarding
product specifications. Members of the wire mesh sales force are paid a base
salary plus a bonus, a portion of which bonus is based on the profitability of
the members' respective sales territories and a portion of which is based on
the overall profitability of the wire mesh product line. Because orders for
wire mesh products typically do not require the quick turn-around time that is
required for fence products and concrete accessories, the Company's wire mesh
products are shipped directly from one of the Company's six wire mesh
manufacturing facilities to the customer, generally in truckload quantities.
The Company produces most of its wire mesh in response to particular customer
orders. The Company's light wire mesh used for residential construction,
however, generally is produced in standard patterns in anticipation of customer
orders.
Concrete Accessories
The Company sells its concrete accessories principally to large
reinforcing bar fabricators, commercial building supply dealers and
construction contractors.
The Company has a dedicated sales force for its concrete accessories
product line consisting of approximately 16 employees whose sales territories
cover the 48 contiguous states. Members of the sales force generally are paid a
base salary plus a bonus, a portion of which bonus is based on the
profitability of the members' sales territories and a portion of which is based
on the overall profitability of the concrete accessories product line. The
Company's concrete accessories are distributed primarily through 15 regional
distribution centers (three of which are located at the Company's concrete
accessories manufacturing facilities). Because orders for concrete accessories
typically require rapid turn-around time, these distribution centers are
strategically located near customers' facilities.
COMPETITION
Fence
The Company's major national competitor for fence products is
Master-Halco, Inc., which has a more extensive local distribution network than
does the Company. The Company believes, however, that the Company's more
extensive fence manufacturing capabilities provide an advantage to major
accounts. The Company also competes with two strong regional competitors for
fence products, one of which operates primarily on the East Coast, with
particular emphasis on Florida, and one of which operates only manufacturing
facilities (with no internal distribution network) primarily east of the Rocky
Mountains. The Company's remaining competitors for fence products are smaller
regional manufacturers and wholesalers.
Although the ability to sell fence products at a competitive price is
an important competitive factor, the Company believes that other factors, such
as perceived quality of product and service and ability to deliver products to
customers quickly, are also important to its fence customers. The Company
believes that its reputation for quality and service and its ability to deliver
product quickly due to the locations of its 40 fence distribution centers,
enable the Company to obtain a slight premium in its sales price for fence
products, as compared to its principal competitors.
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<PAGE> 41
Wire Mesh
The Company's major competitor for wire mesh is Insteel Wire Products,
Inc. The Company faces strong regional competitors in the Midwestern,
Southeastern and Mid-Atlantic states. The Company also faces competition from
smaller regional manufacturers and wholesalers of wire mesh products.
The Company believes that its ability to produce a greater variety of
products in a wider geographical area provides an advantage to major accounts.
The Company believes that its willingness and ability to provide custom-made
products that fit its customers' individual needs provides the Company with a
significant competitive advantage. In addition, the Company believes that its
raw material costs (which the Company believes are lower than many of its
competitors) enhance the Company's ability to compete effectively with respect
to product price in the wire mesh market.
Concrete Accessories
The concrete accessories product line faces competition from several
significant competitors. Dayton-Superior Corporation is the leading full line
national participant in the concrete accessories market, with a market share
greater than that of the Company. The Company also faces strong full line
competition from a regional competitor and from two other significant
competitors, who offer a more limited number of products.
The Company believes that price, product selection and ability to
deliver product quickly are the principal competitive factors in the concrete
accessories market. The Company believes that its raw material costs (which the
Company believes are lower than many of its competitors) enhance the Company's
ability to compete effectively with respect to product price in the concrete
accessories market. The Company also believes that its extensive concrete
accessories product line enables it to compete effectively. In addition, the
Company believes that its ability to deliver its concrete accessories products
quickly as a result of the locations of its regional distribution facilities is
a competitive advantage for the Company.
REGULATION
Environmental Regulation
The Company is subject to extensive and changing federal, state and
local Environmental Laws including laws and regulations that relate to air and
water quality, impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. Stringent fines and penalties may be imposed for
non-compliance with these Environmental Laws. In addition, Environmental Laws
could impose liability for costs associated with investigating and remediating
contamination at the Company's facilities or at third-party facilities at which
the Company has arranged for the disposal treatment of hazardous materials.
Although no assurances can be given, the Company believes that the
Company and its operations are in compliance in all material respects with all
Environmental Laws and the Company is not aware of any non-compliance or
obligation to investigate or remediate contamination that could reasonably be
expected to result in material liability. This being said, Environmental Laws
continue to be amended and revised to impose stricter obligations. The Company
cannot predict the effect such future requirements, if enacted, would have on
the Company although the Company believes that such regulations would be
enacted over time and would affect the industry as a whole.
Health and Safety Matters
The Company's facilities and operations are governed by laws and
regulations, including the federal Occupational Safety and Health Act, relating
to worker health and workplace safety. The Company believes that appropriate
precautions are taken to protect employees and others from workplace injuries
and harmful exposure to materials handled and managed at its facilities. While
it is not anticipated that the Company will be required in the near future to
expend material amounts by reason of such health and safety laws and
regulations, the Company is unable to predict the ultimate cost of compliance
with these changing regulations.
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PROPERTIES
The following chart contains certain information regarding each of the
Company's manufacturing and distribution facilities as of June 28, 1997.
<TABLE>
<CAPTION>
SIZE
LOCATION USE LEASED/OWNED (SQ. FT.)(1)
-------- --- ------------ ------------
<S> <C> <C> <C>
Corporate Headquarters
Houston, Texas Administrative (Corporate Leased 10,689
Headquarters)
Fence Product Line
Whittier, California Distribution/Manufacturing Owned 28,910
Tacoma, Washington Distribution Leased 7,440
Riverside, California Distribution Leased 19,700
Murray, Utah (Salt Lake City)(2) Distribution Leased 11,282
Houston, Texas Distribution/Manufacturing Owned 140,190
Dallas, Texas Distribution Leased 10,000
Denver, Colorado Distribution Leased 9,600
Jacksonville, Florida(2) Distribution Leased 9,000
New Orleans, Louisiana Distribution Leased 15,860
Statesville, North Carolina Distribution/Manufacturing Owned 73,829
Forest Park, Georgia (Atlanta) Distribution Leased 3,675
Hyattsville, Maryland Distribution Leased 10,560
Charlotte, North Carolina(2) Distribution Leased 17,666
Nashville, Tennessee Distribution Leased 6,500
Birmingham, Alabama Distribution Leased 7,300
Richmond, Virginia Distribution Leased 2,000
Columbia, South Carolina Distribution Leased 11,200
Lawrenceville, Georgia (Atlanta) Distribution Leased 3,500
Raleigh, North Carolina Distribution Leased 6,834
Pennsauken, New Jersey Distribution Leased 3,834
New Paris, Indiana Distribution/Manufacturing Owned(3) 61,313
Berkeley, Missouri (St. Louis) Distribution Leased 7,500
Indianapolis, Indiana Distribution Leased 36,608
Westfield, Massachusetts Distribution Owned 50,000
Kansas City, Missouri Distribution Leased 35,000
Columbus, Ohio Distribution Leased 10,430
Louisville, Kentucky Distribution Leased 16,000
Davie, Florida(2) Distribution Leased 18,543
Strongsville, Ohio (Cleveland) Distribution Leased 10,943
Brighton, Michigan (Detroit) Distribution/Manufacturing Leased 65,890
Wheeling, Illinois (Chicago) Distribution Leased 35,713
Markham, Illinois (Chicago) Distribution Leased 12,524
Milwaukee, Wisconsin Distribution Leased 4,200
Brooklyn Park, Minnesota (Minneapolis) Distribution Leased 15,000
Johnston, Iowa (Des Moines) Distribution Leased 4,900
Tonawanda, New York (Buffalo) Distribution Leased 26,000
Pittsburgh, Pennsylvania Distribution Leased 5,500
Harrison, Arkansas Distribution/Manufacturing Owned 72,881
Tampa, Florida(2) Distribution Owned 70,142
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
SIZE
LOCATION USE LEASED/OWNED (SQ. FT.)(1)
-------- --- ------------ ------------
<S> <C> <C> <C>
Wire Mesh Product Line
Houston, Texas Manufacturing Owned (3) 130,922
Jacksonville, Florida Manufacturing Owned 145,846
Baltimore, Maryland Manufacturing Owned 235,000
Oregon, Ohio (Toledo) Manufacturing Leased 90,000
Tampa, Florida Manufacturing Owned (3) 21,450
North Miami Beach, Florida (Miami) Manufacturing Owned 43,500
Concrete Accessories Product Line
Houston, Texas Distribution Leased 14,560
New Orleans, Louisiana Distribution Leased 10,000
Hackensack, New Jersey Distribution Leased 15,000
Newington, Virginia Distribution Leased 21,645
Decatur, Georgia Distribution Leased 4,000
Anaheim, California Distribution Leased 19,000
Ft. Worth, Texas Distribution/Manufacturing Leased/Owned 161,520
Davie, Florida (4) Distribution Leased 18,543
Phoenix, Arizona Distribution Leased 8,871
Hazelton, Pennsylvania Distribution/Manufacturing Leased 76,800
Chicago, Illinois Distribution Leased 69,425
Tampa, Florida (4) Distribution/Manufacturing Owned 70,142
Jacksonville, Florida (4) Distribution Leased 9,000
Charlotte, North Carolina (4) Distribution Leased 17,666
Murray, Utah, (Salt Lake City) (4) Distribution Leased 11,282
</TABLE>
- --------------------
(1) Does not include square footage of outside storage and other outdoor
areas.
(2) This property also contains a distribution center and/or manufacturing
facility for concrete accessories.
(3) A portion of the property is also leased.
(4) This property also contains a distribution center for fence products.
The Company believes that its existing facilities provide adequate
manufacturing and distribution capacity for its needs. The Company also
believes that all of the leases were entered into on market terms.
The lenders under the Credit Facility have first mortgages on each of
the Company's owned manufacturing facilities and distribution centers.
LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to
its business. The Company does not believe that these claims and lawsuits in
the aggregate will have a material adverse affect on the Company's business,
financial condition and results of operations.
A former stockholder of Holding (the "Dissenting Stockholder") has
exercised its statutory appraisal rights pursuant to the Delaware General
Corporation Law (the "DGCL") with respect to the merger of a "shell"
corporation into Holding (the "Recapitalization Merger") which occurred as part
of a recapitalization of the Company and Holding that occurred on December 13,
1996. On February 4, 1997, the Dissenting Stockholder filed a petition with the
Delaware Court of Chancery requesting that such court determine the fair value
of the Dissenting Stockholder's shares of common stock of Holding ("Holding
Common Stock") as of the time of the Recapitalization Merger (the "Appraisal
Proceeding"). With respect to the Appraisal Proceeding, the Company has
recorded a liability to Holding in an amount equal to $3.7 million (which is
equal to the amount the Dissenting Stockholder would have received for its
Holding Common Stock if it had not exercised its
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statutory appraisal rights). Although management believes that the value that
the Recapitalization Merger provided to be paid to the holders of Holding
Common Stock was fair to such holders, there can be no assurance that the
Delaware Court of Chancery will agree.
EMPLOYEES
As of June 28, 1997, the Company had approximately 1,800 employees,
all of whom were full time employees. The Company is a party to seven
collective bargaining agreements with five unions, of which a total of
approximately 270 employees are members. Such collective bargaining agreements
cover employees of the Baltimore, Maryland, Tampa, Florida, Whittier,
California, Hackensack, New Jersey, Chicago, Illinois, and Oregon, Ohio
facilities. The Company considers its relations with its employees to be good.
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<PAGE> 45
MANAGEMENT
The following table sets forth certain information regarding the
Company's directors, and executive officers, including their respective ages.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Julius S. Burns.......................... 65 President and Chief Executive Officer; Director
Thomas F. McWilliams..................... 54 Director
Carl L. Blonkvist........................ 60 Director
Robert N. Tenczar........................ 47 Vice President, Chief Financial Officer and Secretary
James M. McCall.......................... 54 Vice President-- General Manager-- Mesh
Davy J. Wilkes........................... 59 Vice President-- General Manager-- Concrete Accessories
</TABLE>
Julius S. Burns has been President and Chief Executive Officer and a
director of the Company since February 1989. At the present time, Mr. Burns is
also acting general manager of the fence product line of the Company. Prior to
February 1989, Mr. Burns served as President and General Manager of Ivy Steel &
Wire Company, Inc., a predecessor to the Company, for 13 years. Mr. Burns has
31 years of related industry experience.
Thomas F. McWilliams has been a director of the Company since 1992.
Mr. McWilliams is Managing Director of CVC, a small business investment
company, and has been affiliated with CVC since 1983. Mr. McWilliams is a
member of CVC's three-person investment committee. Mr. McWilliams is a director
of Chase Brass Industries, Inc., a metals processing company, Ergo Science
Corporation, a pharmaceutical product development company and various other
private companies.
Carl L. Blonkvist has been a director of the Company since April 1997.
Mr. Blonkvist is Senior Vice President of Operations for the Brinkmann
Corporation, and has been affiliated with the Brinkmann Corporation since June
1996. Mr. Blonkvist was Senior Vice President of Coca-Cola Foods from January
1994 to April 1996, and was a Senior Partner of Computer Science Corporation, a
consulting firm, from 1991 to 1994. In 1984, Mr. Blonkvist formed Paragon
Consulting Group, a consulting firm specializing in operations strategy, which
was purchased by Computer Science Corporation in 1991. From 1965 to 1984, Mr.
Blonkvist served in various management positions of increasing responsibility
at Booz, Allen & Hamilton, a consulting firm.
Robert N. Tenczar has been Vice President, Chief Financial Officer and
Secretary of the Company since May 1993. From 1985 to 1993, Mr. Tenczar was
employed by Baker Hughes Incorporated, Houston, Texas, most recently as Vice
President -- Finance of its Envirotech Controls division.
James M. McCall has been employed with the Company and its
predecessors in various management positions of increasing responsibility since
1975, most recently as the Company's Vice President -- General Manager -- Mesh
since 1989.
Mr. McCall has 33 years of related industry experience.
Davy J. Wilkes has been employed by the Company and its predecessors
since 1974, most recently as the Company's Vice President -- General Manager --
Concrete Accessories. Mr. Wilkes has 37 years of related industry experience.
Each director holds office until the next annual meeting of
stockholders of the Company or until their successor is duly elected and
qualified. All officers are elected annually and serve at the direction of the
Board of Directors. The bylaws of the Company provide for a three member Board
of Directors. Directors of the Company are reimbursed for all expenses actually
incurred for each Board meeting which they attend. Directors do not receive a
fee for any meetings they attend. The executive officers of the Company are
elected by the Board of Directors to serve at the discretion of the Board.
39
<PAGE> 46
OTHER KEY EMPLOYEES
The Company believes that the following non-executive officers, who
are responsible for management of key regional divisions, are expected to make
significant contributions to the business of the Company.
Michael W. Babcock has been employed by the Company and its
predecessors since 1973, most recently as the Company's Vice President and/or
General Manager of the Fence Midwest region. Prior to that, Mr. Babcock was
Sales Manager of the Midwest region from 1977 to December 1984. Mr. Babcock is
51 years old.
Michael W. Weaver has been Vice President and General Manager of the
Fence Southwest region since January 1991. Mr. Weaver was Sales Manager of the
Fence Eastern region from 1983 to 1990. He has served the Company and
predecessor businesses since 1971. Mr. Weaver is 50 years old.
John Amos has been Vice President and General Manager of the Fence
Western region since September 1988. Prior to that, Mr. Amos was Vice President
and Chief Operating Officer of the Anchor Post Products Division of PPA
Industries, a predecessor to the Company. Mr. Amos had been with the Anchor
Post Products division of PPA Industries and its predecessor companies in
various positions of increasing responsibility since 1946. Mr. Amos is 71 years
old.
William H. Stewart has been Vice President and/or General Manager of
the Fence Eastern region since August 1987. Prior to his promotion to General
Manager, Mr. Stewart served on various management positions of increasing
responsibility with the Company and its predecessors since 1969. Mr. Stewart
has 27 years of related industry experience. Mr. Stewart is 51 years old.
EXECUTIVE COMPENSATION
The following table sets forth the compensation for fiscal year 1996
awarded to or earned by the chief executive officer of the Company and the
three other most highly compensated executive officers of the Company whose
salary and bonus exceeded $100,000 for services rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- ------ ----- ------------
<S> <C> <C> <C>
Julius S. Burns $ 250,020 $ 400,000 $ 24,063(2)
President and Chief Executive Officer............................
James M. Mccall 139,860 99,495 9,217(3)
Vice President-- General Manager-- Mesh..........................
Robert N. Tenczar 114,600 83,700 4,861(4)
Vice President And Chief Financial Officer.......................
Davy J. Wilkes 111,600 53,100 11,700(5)
Vice President-- General Manager-- Concrete Accessories..........
</TABLE>
- ----------
(1) The named executive officers did not receive annual compensation not
properly categorized as salary or bonus, except for certain
perquisites and other personal benefits which are not shown because
the aggregate amount of such compensation for each of the named
executive officers during the fiscal year did not exceed the lesser of
$50,000 or 10% of total salary and bonus reported for such executive
officer.
(2) Represents a $1,344 annual contribution to the 401(k) plan (as defined
herein) and a $22,719 annual contribution to the Pension Plan (as
defined herein).
(3) Represents a $600 annual contribution to the 401(k) plan and a $8,617
annual contribution to the Pension Plan.
(4) Represents a $716 annual contribution to the 401(k) plan and a $4,145
annual contribution to the Pension Plan.
(5) Represents a $842 annual contribution to the 401(k) plan and a $10,858
annual contribution to the Pension Plan.
40
<PAGE> 47
None of the executive officers named in the Summary Compensation table
were granted options to purchase any capital stock of Holding during fiscal
year 1996.
The table below sets forth information concerning each exercise of
options for Series A Junior Preferred Stock, par value $.01 per share, of
Holding (the "Holding Series A Junior Preferred Stock"), during fiscal year
1996 by the executive officers named in the Summary Compensation Table, the
number of exercisable and unexercisable options for Holding Series A Junior
Preferred Stock held by them and the fiscal year-end value of such exercisable
and unexercisable options.
AGGREGATED HOLDING OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(1) AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ----------- -------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Julius S. Burns . . -- -- 8,900.10 -- $778,010 --
James M. McCall . . -- -- 2,205.16 -- 192,766 --
Davy J. Wilkes . . -- -- 1,350.91 -- 118,091 --
</TABLE>
- --------------------
(1) All outstanding options for Holding Series A Junior Preferred Stock
were terminated in April 1997 in connection with the consummation of
the Old Notes Offering. The number of shares of Holding Series A
Junior Preferred Stock for which such options were exercisable
increased from time to time as dividends accrued with respect to
shares of outstanding Holding Series A Junior Preferred Stock (whether
or not such dividends were paid).
MERCHANTS METALS HOLDING COMPANY 1988 STOCK OPTION PLAN
Certain eligible employees and non-employee directors of the Company
and Holding may be granted options to purchase up to an aggregate of 30,000
Holding Class A Common Stock (as defined herein) pursuant to the Merchant
Metals Holding Company 1988 Stock Option Plan (the "Holding Stock Option
Plan"). The Holding Stock Option Plan is administered by the Administration
Committee, the members of which are appointed by the Board of Directors of
Holding. Presently, the members of the Administration Committee consists of
the current members of the Board of Directors of Holding (which are the same
persons who constitute the Board of Directors of the Company).
The Administration Committee has the ability to determine, among other
things, which individuals will be granted options under the Holding Stock
Option Plan and such committee has the ability to determine the exercise price,
term (up to ten years) and vesting schedule of the options granted under the
Holding Stock Option Plan.
Any unexpired and unexercised options (or portion thereof) will be
forfeited if an employee ceases to be in the employ of the Company for any
reason other than disability, death or retirement. If an employee ceases to be
in the employ of the Company by reason of disability or upon retirement, any
unexercised options (or portions thereof) shall terminate on the date that is
three months from the date of such employee's termination by reason of
disability or retirement, as applicable (unless such option expires by its
terms on an earlier date).
In the event an employee dies while in the employ of the Company, any
option granted to such employee pursuant to the Holding Stock Option Plan will
be exercisable during the three month period commencing on the date following
the date of his death (unless it expires sooner under its terms). Such options
will terminate at the end of such three month period to the extent such options
were not exercised during such three month period.
As of August 15, 1997, there were outstanding options to purchase
18,890 shares of Holding Class A Common Stock at an exercise price of $1.00 per
share. Options for an additional 11,110 shares of Holding Class A Common Stock
are available for issuance under the Holding Stock Option Plan.
41
<PAGE> 48
401(k) PLAN
The Company maintains the MMI Products Inc. 401(k) Savings Plan (the
"401(k) Plan") under Section 401(k) of the Internal Revenue Code of 1986 (the
"Code"). All Company employees are eligible to participate in the 401(k) Plan
after one year of employment. Employees may elect to make pre-tax contributions
to the 401(k) Plan, subject to applicable statutory maximum limits. The Company
makes matching contributions (subject to statutory limits) in an amount equal
to 25% of the participant's contributions on the first 2% of compensation
contributed by an employee under the 401(k) Plan. In addition, the Company may
make additional contributions in such amounts as it may elect. Company
contributions vest 25% per year of the participant's service with the Company.
PENSION PLAN
The Company maintains the MMI Products, Inc. Pension Plan (the
"Pension Plan"), which is a money purchase defined contribution plan. The
Pension Plan, which is intended to be qualified under Section 401(a) of the
Code, is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA"). Employees of the Company (other than employees covered
by a collective bargaining agreement) generally are eligible to participate in
the Pension Plan after one year of employment. The Company makes annual
contributions to the Pension Plan for each eligible employee in accordance with
a formula that is based on the participant's age and level of compensation. The
Pension Plan provides for one time 100% vesting after five years of service.
EMPLOYMENT AGREEMENT
Julius S. Burns, the Company's President and Chief Executive Officer,
has entered into an employment agreement with the Company that will expire
(unless renewed) on December 31, 1999. The agreement provides for a base salary
of $250,000 per year, which may be increased annually in the discretion of the
Board of Directors, and a discretionary annual bonus based on performance
criteria established from time to time by the Board of Directors.
If Mr. Burns' employment is terminated as a result of his death or
total disability, then Mr. Burns (or his estate in the event of his death)
shall be entitled to receive Mr. Burns' base salary accrued through the date of
termination plus bonus payment prorated to the date of termination based on Mr.
Burns' bonus for the previous year.
If Mr. Burns' employment is terminated by the Company for Cause (as
defined therein), Mr. Burns will be entitled to receive only his base salary
accrued through the date of termination. If Mr. Burns' employment is terminated
by the Company other than for Cause, Mr. Burns will be entitled to receive, as
a lump sum payment, the amounts to which he (or his estate) would have been
entitled in the event of his death or total disability, plus monthly severance
equal to his base salary for the lesser of twelve months or the remaining term
of the employment agreement.
If Mr. Burns' employment is terminated by the Company within one year
following a "change in control," then, in addition to the compensation to which
Mr. Burns would be entitled in the event of termination other than for Cause
(and in lieu of any other bonus payment), Mr. Burns will be entitled to receive
a bonus payment prorated for the lesser of 12 months or the remaining term of
the Employment Agreement.
PUT AGREEMENT
Upon Julius S. Burns' death, any Parent Common Units that Mr. Burns
owns will automatically be exchanged for a like number of shares of Holding
Common Stock. Mr. Burns has entered into the Amended and Restated Put
Agreement (the "Burns Put Agreement") pursuant to which Mr. Burns' estate will
have, upon satisfaction of certain conditions, the option during the 90 day
period following his death to cause Holding (or its designee) to repurchase
Holding Common Stock held by Mr. Burns at such time of his death as have a fair
market value of up to $2.0 million (the "Put Right"). The Put Right may be
exercised only if at the time of Mr. Burns' death: (a) Mr. Burns was an
employee of Holding or any of its subsidiaries; (b) Mr. Burns had either (i)
retired at or after age 67, (ii) voluntarily terminated his employment with
Holding or any of its subsidiaries for Good Reason (as defined therein) within
six months following a Change in Control (as defined therein), (iii) been
terminated by Holding or any of its subsidiaries without Cause (as defined
therein) or (iv)
42
<PAGE> 49
otherwise retired with the consent of the Board of Directors of Holding; or (c)
Mr. Burns was no longer employed by Holding due to a disability recognized by
the Board of Directors of Holding.
The purchase price to be paid by Holding upon the exercise of the Put
Right shall be payable through the application of proceeds payable under
certain life insurance contracts purchased by the Company (with a maximum
aggregate premium of up to $100,000) to provide funds to pay the maximum
purchase price of $2,000,000. The Burns Put Agreement will terminate on
December 31, 2000, unless earlier terminated in accordance with its terms.
Holding, in its sole discretion, may elect to terminate the Burns Put
Agreement, at any time prior to Mr. Burns' death, if Mr. Burns is in material
default of his obligations under that certain Non-Competition Agreement dated
as of December 31, 1994, between Mr. Burns and the Company.
NON-COMPETITION AGREEMENT
Julius S. Burns has entered into a Non-Competition Agreement with the
Company under which he has agreed not to: (i) disclose, during or after the
term of his employment, any of the Confidential Information (as defined
therein) to any person or entity for any reason or purpose whatsoever, (ii)
solicit or induce for a period of two years following termination any person
employed by, or the agent of, the Company to terminate his contract of
employment or agency with the Company and (ii) compete with the Company in any
business in which the Company is engaged in at the date of termination in any
state in the United States of America in which the Company has made sales
during the 12 months immediately preceding termination for a period of two
years following termination. If Mr. Burns is terminated by the Board of
Directors of the Company by written or oral notice, Mr. Burns' non-competition
restriction will apply only for a period of one year, plus the number of months
the Company elects to pay monthly severance payments to Mr. Burns after the
expiration of such one year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company is responsible for determining
executive officer compensation. Julius S. Burns currently serves as both a
director and the President and Chief Executive Officer of the Company.
43
<PAGE> 50
SECURITY OWNERSHIP
The Company is a wholly owned subsidiary of Holding. More than 98% of
the capital stock of Holding is owned by Parent. No director or named
executive officer owns shares of Holding capital stock. The following table and
the accompanying footnotes set forth, as of August 15, 1997, the beneficial
ownership of Parent's equity interests by (i) each person who is known to the
Company to own beneficially more than 5% of either class of Parent's
outstanding Common Units, (ii) each director and named executive officer, and
(iii) all directors and officers as a group. On all matters submitted to a vote
of the members of Parent, holders of Parent Class A Common Units and Parent
Class B Common Units (as defined herein) are entitled to cast, in the
aggregate, (i) 50.5% of the total number of votes and (ii) 49.5% of the total
number of votes, respectively, entitled to be cast by holders of all of the
Parent Common Units then outstanding.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF CLASS
COMMON UNITS OF COMMON UNITS
----------------------------------------------------------- PERCENT OF TOTAL
NAME AND ADDRESS CLASS A CLASS B(1) CLASS A CLASS B VOTING POWER (2)
- -------------------------- ---------- ----------- ---------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
Julius S. Burns . . . . . . . . . . 58,902 -- 52.2% -- 26.3%
c/o MMI Products, Inc.
515 West Greens Rd., Ste. 710
Houston, Texas 77067
Thomas F. McWilliams . . . . . . . -- 17,014(3) -- 2.6% 1.3%
c/o Citicorp Venture Capital Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Robert N. Tenczar . . . . . . . . . 7,500 -- 6.6% -- 3.4%
c/o MMI Products, Inc.
515 West Greens Rd., Ste. 710
Houston, Texas 77067
James M. McCall . . . . . . . . . . 13,850 -- 12.3% -- 6.2%
c/o MMI Products, Inc.
515 West Greens Rd., Ste. 710
Houston, Texas 77067
Davy J. Wilkes . . . . . . . . . . 10,450 -- 9.3% -- 4.7%
c/o Meadow Steel Products
5110 Santa Fe Road
Tampa, Florida 33619
Citicorp Venture Capital Ltd . . . -- 497,473(4) -- 76.3% 37.8%
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
CCT Partners III . . . . . . . . . -- 87,789(5) -- 13.5% 6.7%
c/o Citicorp Venture Capital Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
William T. Comfort . . . . . . . . -- 34,154 -- 5.2% 2.6%
c/o Citicorp Venture Capital Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Michael W. Babcock . . . . . . . . 7,520 -- 6.7% -- 3.4%
c/o Merchants Metals
71347 CR 23
New Paris, Indiana 46553
Michael Weaver . . . . . . . . . . 9,160 -- 8.1% -- 4.1%
4901 Langley Road
Houston, Texas
All Directors and Executive 90,702 17,014 80.3% 2.6% 41.8%
Officers as a Group . . . . . . .
</TABLE>
44
<PAGE> 51
- --------------------
* Less than one percent (1%).
(1) Each Parent Class B Common Unit is convertible at any time, at the
option of the holder, into one Parent Class A Common Unit.
(2) Represents the total voting power represented by the Parent Class A
Common Units or Parent Class B Common Units held by each of the
indicated persons.
(3) Includes 4,006 Parent Class B Common Units owned of record by Alchemy,
L.P., an affiliate of Mr. McWilliams.
(4) Does not include 87,789 Parent Class B Common Units held by CCT
Partners III, an affiliate of CVC, as to which CVC disclaims
beneficial ownership.
(5) Does not include 497,473 Parent Class B Common Units held by CVC, an
affiliate of CCT Partners III, as to which CCT Partners III disclaims
beneficial ownership.
INDEMNIFICATION OF DIRECTORS
The Company has entered into Indemnification Agreements with certain
of its directors and executive officers pursuant to which it will indemnify
such persons against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement incurred as a result of the fact that such person,
in his or her capacity as a director or officer, is made or threatened to be
made a party to any suit or proceeding. Such persons will be indemnified to the
fullest extent now or hereafter permitted by the DGCL. The Indemnification
Agreements also provide for the advancement of certain expenses to such
directors and officers in connection with any such suit or proceeding.
45
<PAGE> 52
CERTAIN TRANSACTIONS
REDEMPTION OF HOLDING PREFERRED STOCK AND REPURCHASE OF STOCK OPTIONS
A portion of the proceeds of the Old Notes Offering was used to
distribute to Holding sufficient funds to permit Holding to redeem all of the
outstanding Holding Series A Junior Preferred Stock and the Series B Senior
Preferred Stock, par value $.01 per share, of Holding (the Holding Series B
Senior Preferred Stock," and together with the Holding Series A Junior
Preferred Stock, the "Holding Preferred Stock"), and to repurchase certain
options held by Mannesmann and members of the Company's management that were
exercisable for shares of Holding Series A Junior Preferred Stock. The number
of shares of Holding Series A Junior Preferred Stock for which such options
were exercisable increased automatically as dividends accrued with respect to
shares of outstanding Holding Series A Junior Preferred Stock. Upon completion
of the Old Notes Offering, Thomas F. McWilliams, Julius S. Burns, James M.
McCall, Davy J. Wilkes, CVC, CCT Partners III, William T. Comfort, Michael W.
Babcock, and Michael Weaver received in the aggregate approximately $1,170,000,
$2,281,000, $539,000, $411,000, $40,545,000, $7,155,000, $1,287,000, $288,000
and $143,000, respectively, for their shares of Holding Preferred Stock and
their options.
THE RECAPITALIZATION
On December 13, 1996, the Company and Holding effected a
recapitalization transaction (the "Recapitalization") pursuant to which the
indebtedness of the Company and the equity of Holding were significantly
restructured. Pursuant to the Recapitalization, the Company repaid (i)
approximately $192,000 of the Company's subordinated indebtedness (plus accrued
but unpaid interest) held by Thomas F. McWilliams, a director of the Company,
and (ii) approximately $14,250,000 of the Company's subordinated indebtedness
(plus accrued but unpaid interest) held by CVC and an affiliate of CVC.
Also pursuant to the Recapitalization, as a result of the
Recapitalization Merger, the capital stock of Holding outstanding prior to the
Recapitalization Merger was converted into the right to receive cash. As a
result, (i) CVC became entitled to receive approximately $37,355,000, (ii)
Thomas F. McWilliams became entitled to receive approximately $822,000, (iii)
Julius S. Burns, the Company's President and Chief Executive Officer and a
director of the Company, became entitled to receive approximately $1,749,000,
(iv) James M. McCall and Davy J. Wilkes, who are executive officers of the
Company, became entitled to receive approximately $485,000 and $373,000,
respectively, and (v) Michael W. Babcock and Michael Weaver, each of whom owns
in excess of 5% of the Holding Class A Common Stock, became entitled to receive
approximately $182,000 and $63,000, respectively.
Immediately following the Recapitalization Merger, pursuant to the
Recapitalization, (i) CVC and an affiliate of CVC purchased shares of Holding
Common Stock and Holding Preferred Stock for an aggregate of approximately
$46,709,000 and (ii) Messrs. McWilliams (together with an affiliated limited
partnership), Burns, Tenczar, McCall, Wilkes, Babcock, Weaver and Comfort
purchased shares of Holding Common Stock and Holding Preferred Stock for
aggregate purchase prices of approximately $1,149,000, $1,487,000, $8,000,
$342,000, $289,000, $150,000, $72,000 and $1,279,000, respectively.
CONTRIBUTION OF HOLDING COMMON STOCK TO PARENT
On June 12, 1997, in connection with the formation of Parent, holders
of Holding Common Stock representing more than 98% of the voting power of
Holding contributed (the "Contribution") all of their respective shares of
Holding Common Stock to Parent in exchange for the same number of Parent Common
Units. As a result of the Contribution, Parent owns more than 98% of Holding
Common Stock (representing more than 98% of the voting power of Holding).
46
<PAGE> 53
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on April 16, 1997 to
the Initial Purchaser pursuant to the Purchase Agreement. The Initial
Purchaser 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 completion of the Old
Notes Offering, the Company entered into the Registration Rights Agreement with
the Initial Purchaser pursuant to which the Company agreed to use its best
efforts to cause to be filed with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to an offer to exchange the Old Notes for Exchange Notes. The Exchange
Notes will be substantially identical to the Old Notes, except that the
Exchange Notes will bear a Series B designation and will have been registered
under the Securities Act and, therefore will not contain terms with respect to
transfer restrictions (other than those that might be imposed by state
securities laws) and will not be entitled to registration rights or other
rights under the Registration Rights Agreement. In the event that (i) the
Exchange Offer is not available to any holder or may not be consummated
because, in either case, it would violate applicable securities laws or because
the applicable interpretations of the staff of the Commission would not permit
the Company to effect the Exchange Offer, or (ii) for any other reason the
Exchange Offer is not consummated within 165 days of the Closing Date, the
Company will use its reasonable best efforts to cause to be filed with the
Commission, no later than 195 days after the completion of the Old Notes
Offering, the Shelf Registration Statement. The Company will use its best
efforts to cause the Shelf Registration Statement to be declared effective on
or before the 75th day after the required filing date.
Under existing interpretations of the staff of the Commission, the
Exchange Notes would, in general, be freely transferable 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 intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) will not be able to rely on the interpretations 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 who wishes to exchange such Old Notes for Exchange Notes
in the Exchange Offer will be required to make certain representations,
including representations that (i) it is not an affiliate of the Company, (ii)
it is not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of the
Exchange Notes and (iii) it is acquiring the Exchange Notes in its ordinary
course of business. In addition, broker-dealers receiving Exchange Notes in
the Exchange Offer will have a prospectus delivery requirement with respect to
resales of Exchange Notes. The Commission has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of Old Notes) with the prospectus contained in the Exchange Offer
Registration Statement. Under the Registration Rights Agreement, the Company
is required to allow such broker-dealers to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes for a period of 180 days after the Exchange Offer Registration
Statement is declared effective.
The Registration Rights Agreement provides that, to the extent not
prohibited by any applicable law or Commission policy, (i) the Company will
cause to be filed with the Commission an Exchange Offer Registration Statement
on or prior to 60 days after the completion of the Old Notes Offering, (ii) the
Company will use its best efforts to have such Exchange Offer Registration
Statement declared effective under the Securities Act by the Commission on or
prior to 135 days after the completion of the Old Notes Offering, (iii) the
Company shall have commenced the Exchange Offer and shall use its best efforts
to cause the Exchange Offer to be consummated on or prior to 165 days after the
completion of the Old Notes Offering, and (iv) the Company, if it is obligated
to cause the Shelf Registration Statement to be filed with the Commission, will
cause to be filed with the Commission the Shelf Registration Statement, no
later than 195 days after the completion of the Old Notes Offering, and use
its reasonable best efforts to cause the Shelf Registration Statement to be
declared effective by the Commission. The Company shall use its best efforts
to keep such Shelf Registration Statement continuously effective, supplemented
and amended until the second anniversary of the completion of the Old Notes
Offering or such
47
<PAGE> 54
shorter period that will terminate when all the securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement.
If (i) the Company fails to file any of the registration statements
required by the Registration Rights Agreement on or prior to the date specified
for such filing, (ii) any of such registration statements are not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Company fails to
consummate the Exchange Offer on or prior to 30 days after the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement (if the
Company is required by the Registration Rights Agreement to complete the
Exchange Offer), or (iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company will be required to pay Liquidated
Damages to each holder affected by such Registration Default on each interest
payment date. Liquidated Damages shall accrue from and after the date of each
Registration Default, and shall continue to accrue thereafter until such
Registration Default has been cured or waived as set forth in the Registration
Rights Agreement, at a rate equal to 0.25% per annum of the principal amount of
Old Notes during the first 90-day period immediately following the occurrence
of such Registration Default, which rate shall increase by an additional 0.25%
per annum on the first day of each subsequent 90-day period up to a maximum
rate equal to 1.0% per annum.
The summary herein 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 filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
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
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange 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.
The form and terms of the Exchange Notes are the same as the form and
terms of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
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 generally will terminate when the Exchange
Offer is terminated. The Exchange Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered. As of the date of this Prospectus, $120,000,000
aggregate principal amount of Old Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters rights
under the General Corporation Law of Delaware 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 Exchange Notes from the Company.
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<PAGE> 55
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 the Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York 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
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, 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 EXCHANGE NOTES
The Exchange Note will bear interest from the most recent date to
which interest has been paid or duly provided for on the Old Note surrendered
in exchange for such Exchange Note or, if no interest has been paid or duly
provided for on such Old Note, from April 16, 1997. Interest on the Exchange
Notes is payable semi-annually on each April 15 and October 15, commencing on
October 15, 1997.
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive accrued interest on such Old Notes for any period from and after
the last date to which interest has been paid or duly provided for on the Old
Notes prior to the original issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for will not receive any accrued
interest on such Old Notes, and will be deemed to have waived, the right to
receive any interest on such Old Notes accrued from and after the last date to
which interest has been paid or duly provided for on the Old Notes or, if no
such interest has been paid or duly provided for, from and after April 16,
1997.
PROCEDURES FOR TENDERING
For a holder of Old Notes to tender Old Notes validly 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 in lieu of the Letter of
Transmittal, and any other required documents, must be received by the Exchange
Agent at the address set forth in the Letter of Transmittal prior to 5:00 p.m.,
New York time, on the Expiration Date. In addition, prior to 5:00 p.m., New
York time, on the Expiration Date, either (a) certificates for tendered Old
Notes must be received by the Exchange Agent at such address or (b) such Old
Notes must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered a
Letter of Transmittal).
The term "Agent's Message" means a message transmitted by the
Depository, received by the Exchange Agent and forming part of the confirmation
of a book-entry transfer, which states that the Depository has received an
express acknowledgment from the participant in the Depository tendering Old
Notes which are the subject of such book-entry confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and that
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<PAGE> 56
the Company may enforce such agreement against such participant. In the case
of an Agent's Message relating to guaranteed delivery, the term means a message
transmitted by the Depository and received by the Exchange Agent, which states
that the Depository has received an express acknowledgment from the participant
in the Depository tendering Old Notes that such participant has received and
agrees to be bound by the Notice of Guaranteed Delivery.
By tendering Old Notes pursuant to the procedures set forth above,
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 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").
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 ("DTC" or 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
Agent's 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 Agent's
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee, or, in the case of a book-entry transfer, an Agent's Message in lieu
of the Letter of Transmittal 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 in the Letter of Transmittal 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.
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<PAGE> 57
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange Offer
by causing DTC to transfer Old Notes to the Exchange Agent in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message 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 (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 Agent's 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 certificates
representing all tendered Old Notes in proper form for transfer (or a
confirmation of book- entry transfer of such Old Notes into the
Exchange Agent's 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 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 in the Letter of Transmittal
prior to 5:00 p.m., New York time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having
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<PAGE> 58
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 Exchange 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 Exchange Notes for,
any Old Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, 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 Company's reasonable discretion,
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 Company's reasonable discretion, 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
(c) any governmental approval has not been obtained,
which approval the Company shall, in the Company's reasonable
discretion, deem necessary for the consummation of the Exchange Offer
as contemplated hereby; or
(d) there shall have occurred (1) any general suspension
of, or limitation on prices for, trading in securities in the United
States securities or financial markets, (2) any significant adverse
change in the price of the Old Notes or in the United States
securities or financial markets, (3) a material impairment in the
trading market for debt securities, (4) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (5) any limitation (whether
or not mandatory) by a government authority, or other event that, in
the reasonable judgment of the Company, might affect the extension of
credit by banks or other lending institutions in the United States; or
(e) a commencement of war, armed hostilities or other
national or international crisis directly or indirectly involving the
United States.
If the Company determines in its reasonable 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.
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<PAGE> 59
EXCHANGE AGENT
United States Trust Company of Texas, N.A. (the "Exchange Agent") 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 at the address indicated in the Letter
of Transmittal. Delivery to an address other than as set forth in the Letter
of Transmittal 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 Exchange 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 Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange 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 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, (iii) pursuant to
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel, if the Company so requests), (iv) outside the
United States to a foreign person in a transaction meeting the requirements of
Rule 904 under the Securities Act, or (v) 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 EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties (for example, the letters of the commission to (i) Exxon Capital
Holdings Corporation, available May 13, 1988, (ii) Morgan Stanley & Co., Inc.
available June 5, 1991 and (iii) Shearson & Sterling, available July 2, 1993),
the Company believes that a holder or other person (other than a person that is
an affiliate of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange 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 Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action
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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 Exchange 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 Exchange Notes.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes and (iii) it is acquiring
the Exchange Notes in its ordinary course of business. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for its own account as the result of
market-making activities or other trading activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division
of Corporation Finance of the Commission in the interpretive letters referred
to above, the Company believes that Participating Broker-Dealers who acquired
Old Notes for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements
with respect to the Exchange Notes received upon exchange of such Old Notes
(other than Old Notes which represent an unsold allotment from the original
sale of the Old Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer for its own account as a result of
market-making or such other trading activities. Subject to certain provisions
set forth in the Registration Rights Agreement, the Company has agreed that
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 such
Exchange Notes for a period ending 180 days after the date on which the
Exchange Offer Registration Statement is declared effective. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Exchange Notes received in exchange for Old Notes pursuant
to the Exchange Offer must notify the Company, or cause the Company to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one
of the addresses set forth in the Letter of Transmittal. See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of the
Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Old Notes were issued and the Exchange Notes will be issued
pursuant to the Indenture dated April 16, 1997 (the "Indenture") between the
Company and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"). The
terms of the Exchange 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 Exchange Notes are subject to all such
terms, and holders of Exchange Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. Although the following summary
contains all of the material terms and provisions of the Exchange Notes and the
Indenture, it does not purport to be complete and is qualified in its entirety
by reference to the Exchange Notes and the Indenture, including the definitions
therein of certain terms used below. Copies of the Indenture will be made
available to prospective purchasers of Exchange Notes as set forth below under
" -- Additional Information." The definitions of certain terms used in the
following summary are set forth below under " -- Certain Definitions."
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in the Indenture.
The Old Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company, limited to $200.0 million aggregate principal
amount outstanding at any given time of which $120.0 million aggregate
principal amount was issued in the Old Notes Offering. Additional amounts may
be issued in one or more series from time to time subject to the limitations
set forth under " -- Certain Covenants -- Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and restrictions contained in
the Credit Facility. The Exchange Notes will rank pari passu with any Old Notes
that remain outstanding following the Exchange Offer. The Notes will be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of the Company and senior or pari passu in right of payment to all
existing and future subordinated Indebtedness of the Company, in each case,
whether outstanding on the date of the Indenture or incurred thereafter. See "
- -- Subordination." The Exchange Notes, like the Old Notes, will not be
guaranteed by Holding or by any other person or entity. The Exchange Notes
will be issued only in fully registered form, without coupons, in denominations
of $1,000 and any integral multiple thereof. No service charge will be made
for any registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Initially, the Trustee will act as
paying agent and registrar for the Exchange Notes. The form and terms of the
Exchange Notes are the same as the form and terms of the Old Notes except that
(i) the Exchange Notes bear a Series B designation, (ii) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the holders of the Exchange
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.
The Company does not currently have any Subsidiaries. If, in the
future, the Company creates or acquires any Subsidiaries, it will be permitted
to designate Subsidiaries as either "Restricted Subsidiaries," which will be
subject to all the provisions of the Indenture, or as "Unrestricted
Subsidiaries," which generally will not be subject to the provisions of the
Indenture (other than certain provisions, such as those establishing the
requirements that must be met in order for a Subsidiary to be treated as an
Unrestricted Subsidiary and the provisions described under the "Limitation on
Restricted Payments" and "Transactions with Affiliates" covenants and the
related definitions, which will limit the Company's ability to make investments
in, or otherwise engage in transactions with, Unrestricted Subsidiaries). The
following Description of Exchange Notes has been prepared as though the Company
currently has Subsidiaries that have been designated as Restricted
Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will mature on April 15, 2007. Interest on the
Exchange Notes will accrue at the rate of 11.25% per annum and will be payable
semi-annually in arrears on April 15 and October 15 of each year, commencing on
October 15, 1997, to holders of record on the immediately preceding April 1 and
October 1. Interest on the Exchange Notes will accrue from the most recent date
to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such Exchange Note or, if no interest has been paid
or duly provided for on such Old Note, from April 16, 1997. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
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The Exchange Notes will be payable as to principal, premium, if any,
interest and Liquidated Damages, if any, thereon 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, if
any, thereon may be made by check mailed to the holders of the Exchange Notes
at their respective addresses set forth in the register of holders of the
Notes; provided that all payments with respect to Global Notes will be 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 will be the office of the Trustee
maintained for such purpose.
The Trustee is Paying Agent and Registrar under the Indenture. The
Company may act as Paying Agent or Registrar under the Indenture, and the
Company may change the Paying Agent or Registrar without notice to the holders
of the Exchange Notes.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to
April 15, 2002. Thereafter, the Notes will be subject to redemption 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 and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on April 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 105.625%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 103.750%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 101.875%
2005 and thereafter . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, on or prior to April 15, 2000, the
Company may, at its option, redeem at any time or from time to time up to 35%
of the aggregate original principal amount of the Notes (including, for this
purpose, one or more series of notes issued under the Indenture after the
Closing Date) issued at a redemption price equal to 111.25% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings; provided, however, that at least $78.0 million in
aggregate principal amount of Notes remains outstanding following each such
redemption; provided, further, that notice of such redemption shall be given
not later than 30 days, and such redemption shall occur not later than 60 days,
after the date of the closing of any such Public Equity 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 other method as the Trustee shall deem fair and
appropriate, unless otherwise provided in the Indenture, provided that no Notes
of $1,000 principal amount or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail to each holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Note. On and after the
redemption date (unless the Company shall default in the payment of the
redemption price, together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date), interest will cease to accrue
on Notes or portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under " -- Repurchase at the Option of
Holders," the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Exchange Notes.
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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 a repurchase price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment Date"). Notice of a Change of
Control Offer shall be prepared by the Company and shall be mailed by the
Company with a copy to the Trustee or, at the option of the Company and at the
expense of the Company, by the Trustee within 30 days following a Change of
Control to each holder of the Notes and such Change of Control Offer must
remain open for at least 30 and not more than 40 days (unless otherwise
required by applicable law). In addition, the Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws, rules and regulations thereunder to the extent such laws, rules and
regulations are applicable in connection with the repurchase of the Notes in
connection with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) 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 (iii) 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 accepted for payment by the
Company. The Paying Agent will promptly mail to each holder of Notes so
accepted 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.
With respect to the sale of assets referred to in the definition of
"Change of Control," the phrase "all or substantially all" as used in the
Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which
governs the Indenture) and is subject to judicial interpretation. Accordingly,
in certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of a person and therefore it may be unclear
whether a Change of Control has occurred and whether the Notes are subject to a
Change of Control Offer.
The Credit Facility prohibits the Company from purchasing any Notes at
the time of a Change of Control. In addition, the Credit Facility provides that
certain Change of Control events (among other things) with respect to the
Company will constitute a default thereunder. An event of default under the
Credit Facility could result in an acceleration of the indebtedness thereunder,
in which case the subordination provisions of the Notes would require payment
in full (or provision therefor) of such Senior Indebtedness of the Company
before repurchase or other payments in respect of the Notes. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited 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 each
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 Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. None of the provisions relating to a repurchase upon a Change of
Control are waivable by the Board of Directors of the Company or the Trustee.
The foregoing provisions will not prevent the Company from entering
into transactions of the types described above with management or their
affiliates. In addition, such provisions may not necessarily afford the
holders of the Exchange Notes protection in the event of a highly leveraged
transaction, including a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders because
such transactions may not involve a shift in voting power or beneficial
ownership, or even if they do, may not involve a shift of the magnitude
required
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under the definition of Change of Control to trigger the provisions.
Nonetheless, such provisions may have the effect of deterring certain mergers,
tender offers, takeover attempts or similar transactions by increasing the cost
of such a transaction and may limit the Company's ability to obtain additional
equity financing in the future.
Asset Sales
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in any Asset Sale, unless: (i)
the Company or such Restricted 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 sold or otherwise
disposed of; and (ii) except in the case of Permitted Asset Swaps, at least 75%
of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash or Cash Equivalents; provided, however, that
the amount of (a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or such Restricted Subsidiary (other than liabilities that are by their terms
subordinated in right of payment to the Notes) that are assumed by the
transferee of any such assets, and (b) any notes or other obligations received
by the Company or such Restricted Subsidiary from such transferee that are
immediately converted by the Company or such Restricted Subsidiary into cash
(to the extent of the cash so received), shall be deemed to be cash for
purposes of this provision.
Within 360 days after the receipt of the Net Proceeds from an Asset
Sale, the Company shall apply the Net Proceeds from such Asset Sale to: (i)
permanently reduce Senior Indebtedness; (ii) permanently reduce Indebtedness of
the Restricted Subsidiary that sold properties or assets in the Asset Sale; or
(iii) acquire properties and assets to replace the properties and assets that
were the subject of the Asset Sale or properties and assets that will be used
in the same or a similar line of business as the Company was engaged in on the
date of the Indenture or reasonable extensions, developments or expansions
thereof or activities ancillary thereto. Pending the final application of any
such Net Proceeds, the Company may invest such Net Proceeds in any manner that
is not prohibited by the Indenture. Any Net Proceeds from the Asset Sale that
are not applied as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate cumulative amount of
Excess Proceeds exceeds $5.0 million, the Company shall 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% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon 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 such
deficiency for general corporate purposes in any manner provided by the
Indenture. 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 offer to
purchase, the amount of Excess Proceeds shall be reset at zero. The Asset Sale
Offer must be commenced within 30 days following the first date on which the
Company has cumulative Excess Proceeds of at least $5.0 million and remain open
for at least 30 and not more than 40 days (unless otherwise required by
applicable law). The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws, rules and regulations
thereunder to the extent such laws, rules and regulations are applicable in
connection with the repurchase of Notes pursuant to Asset Sale Offer. The
agreements governing certain outstanding Senior Indebtedness of the Company
will require that the Company and its Subsidiaries apply all proceeds from
asset sales to repay in full outstanding obligations under such Senior
Indebtedness prior to the application of such proceeds to repurchase
outstanding Notes.
SUBORDINATION
The payment of principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior
Indebtedness, 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 marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness of the Company will
be entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Indebtedness of the Company
(including interest after the commencement of any such proceeding
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<PAGE> 65
at the rate specified in the applicable Senior Indebtedness instrument of the
Company) before the holders of Notes will be entitled to receive any payment of
principal of, premium, if any, interest and Liquidated Damages, if any, on the
Notes, and until all Obligations with respect to Senior Indebtedness of the
Company are paid in full in cash or Cash Equivalents, any distribution to which
the holders of Notes would be entitled shall be made to the holders of Senior
Indebtedness of the Company; provided that notwithstanding the foregoing,
holders of Notes may receive: (i) Capital Stock (other than Disqualified
Stock); (ii) securities that are subordinated at least to the same extent as
the Notes to Senior Indebtedness of the Company and to any securities issued in
exchange for Senior Indebtedness of the Company; and (iii) payments made from
the trust described under " -- Legal Defeasance and Covenant Defeasance."
The Company also may not make any payment of principal of, premium, if
any, interest and Liquidated Damages, if any, on the Notes (except in such
subordinated securities or from such trust) if: (i) a default in the payment of
the principal of, premium, if any, and interest on Designated Senior
Indebtedness of the Company occurs and is continuing beyond any applicable
period of grace; or (ii) any other default occurs and is continuing with
respect to Designated Senior Indebtedness of the Company that permits holders
of the Designated Senior Indebtedness of the Company as to which such default
relates to accelerate its maturity and the Trustee receives a written notice of
such default ("Payment Blockage Notice") from the holders of such Designated
Senior Indebtedness of the Company. Payments on the Notes may and shall be
resumed (i) in the case of a payment default, upon the date on which such
default is cured or waived or otherwise has ceased to exist and (ii) in case of
any other default, the earlier of the date on which such other default is cured
or waived or otherwise has ceased to exist or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless, in the case of
either clause (i) or (ii), the maturity of any Designated Senior Indebtedness
of the Company has been accelerated, and such acceleration remains in full
force and effect. No new period of payment blockage may be commenced within 360
days after the receipt by the Trustee of any prior Payment Blockage Notice. No
non- payment 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. Following the expiration of any period
during which the Company is prohibited from making payments on the Notes
pursuant to a Payment Blockage Notice, the Company will be obligated to resume
making any and all required payments in respect of the Notes, including,
without limitation, any missed payments, unless the maturity of any Designated
Senior Indebtedness has been accelerated, and such acceleration remains in full
force and effect.
The Indenture requires that the Company promptly notify holders of
Senior Indebtedness in accordance with the notice provisions of the applicable
agreements of the Company if payment 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 Indebtedness.
At June 28, 1997, (i) the Company had outstanding approximately $3.9 million of
Senior Indebtedness and (ii) the Company could have incurred, under the most
restrictive covenants contained in the Indenture and the Credit Facility,
approximately $49.1 million of additional Senior Indebtedness. The Indenture
limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Indebtedness, that the Company and its
Restricted Subsidiaries can incur. See " -- Certain Covenants -- Limitation on
the Incurrence of Indebtedness and Issuance of Disqualified Stock."
CERTAIN COVENANTS
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any distribution on account of Equity Interests, other
than (x) dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or (y) dividends or distributions payable to
the Company or a Wholly Owned Subsidiary of the Company that is a Restricted
Subsidiary; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Affiliate of the Company (other than any
such Equity Interests owned by the Company or a Wholly Owned Subsidiary of the
Company that is a Restricted Subsidiary); (iii) purchase, redeem, repay,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated in right of payment to the Exchange Notes; (iv) make any
Investment (other than a Permitted Investment); or (v) make any payment of any
amount currently recorded by the Company as payable to Holding in respect of
the undistributed merger consideration relating to the Recapitalization (all
such payments and other actions
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set forth in clauses (i) through (v) 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 below
under the caption " -- Limitation on the Incurrence of Indebtedness
and Issuance of Disqualified Stock;" and
(c) such Restricted Payment (the amount of any such
payment, if other than cash, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and
evidenced by a resolution in an Officers' Certificate delivered to the
Trustee), together with the aggregate of all other Restricted Payments
made by the Company and its Restricted Subsidiaries after the date of
the Indenture (including Restricted Payments permitted by the next
succeeding paragraph other than pursuant to clause (iii) and clause
(vii) thereof), shall not exceed the sum of (w) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) commencing on the first day of the Company's second
fiscal quarter in fiscal year 1997 and ending on the last day 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, 100% of such deficit as a negative number), plus (x) 100% of
the aggregate net cash proceeds received by the Company from the
issuance or sale since the date of initial issuance of the Notes of
Equity Interests of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (y) the aggregate cash
received by the Company as capital contributions to the Company after
the date of initial issuance of the Notes (other than from a
Subsidiary), plus (z) any cash received by the Company after the date
of initial issuance of the Notes as a dividend or distribution from
any of its Unrestricted Subsidiaries or from the sale of any of its
Unrestricted Subsidiaries less the cost of disposition and taxes, if
any (but in each case excluding any such amounts included in
Consolidated Net Income).
The foregoing provisions will 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 or other acquisition of
any Equity Interests of the Company, or the defeasance, redemption or
repurchase of subordinated Indebtedness in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of Equity Interests of the Company (other than any Disqualified Stock)
or out of the net proceeds of a substantially concurrent cash capital
contribution received by the Company; provided that the amount of any such
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (x) of the
preceding paragraph; (iii) the repayment, defeasance, redemption or repurchase
of subordinated Indebtedness with the net proceeds from an incurrence of
Refinancing Indebtedness in a Permitted Refinancing; (iv) the purchase,
redemption or retirement by the Company of shares of its common stock held by
an employee or former employee of the Company or any of its Restricted
Subsidiaries issued under the Management Plans pursuant to the terms of such
Management Plans; provided that (a) the purchase, redemption or retirement
results from the retirement, termination of employment, death or disability (as
defined in the relevant Management Plan) of the employee or former employee and
(b) the amount of any such payments does not exceed $2.0 million in the
aggregate; (v) the payment of dividends to Holding in an amount equal to the
amount required by Holding to pay federal, state and local income taxes to the
extent such income taxes are attributable to the income of the Company; (vi)
distributions of up to $500,000 annually to Holding to pay its bona fide
operating expenses; (vii) distributions to Holding from the proceeds of the Old
Notes Offering in an amount sufficient to permit Holding to consummate the
transactions described under "Use of Proceeds" in the Offering Memorandum;
(viii) payments to purchase a life insurance policy, and the use of the
proceeds therefrom, to fund the Company's obligations pursuant to the Burns Put
Agreement; (ix) distributions to Holding of an amount equal to such amounts as
may be necessary to fund a final judgment, final arbitration or mediation award
or final settlement of pending litigation of Holding related to the
Recapitalization (and to pay reasonable expenses, including legal
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fees, in connection therewith); (x) any Investment made with the proceeds of a
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Capital Stock of the Company (other than Disqualified Stock);
provided, however, the proceeds of such sale shall not be (and have not been)
included in clause (c) of the immediately preceding paragraph; (xi) the
repayment in full of all Obligations in respect of the Mannesmann Senior
Subordinated Debt outstanding as of the date of the Indenture; or (xii) other
restricted payments of up to $1.0 million; provided, further, however, that at
the time of, and after giving effect to, any Restricted Payment permitted under
clauses (i), (ii), (iii) and (iv) no Default or Event of Default shall have
occurred and be continuing; provided, further, that the Restricted Payments
described in clauses (vii), (viii), (ix) and (xi) shall not be counted in
computing the aggregate amount of all Restricted Payments made pursuant to the
Indenture.
For purposes of the foregoing calculations, the amount of any
Investment that constitutes a Restricted Payment shall be equal to the greater
of (i) the net book value of such Investment and (ii) the fair market value of
such Investment (in each case as certified by a resolution of the independent
directors of the Company if the book value or fair market value of such
investment exceeds $1.0 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 "Limitation on Restricted Payments" were
computed, which calculations may be based upon the Company's latest available
financial statements.
Limitation on the Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" and, correlatively, "incurred" and
"incurrence") any Indebtedness (including, without limitation, Acquired Debt)
and that the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness 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, determined on a pro
forma basis in accordance with Article 1 of Regulation S-X under the Securities
Act, or any successor provision, as if the additional Indebtedness had been
incurred at the beginning of such four-quarter period, would have been greater
than 2.00 to 1.00.
The foregoing limitations will not apply to:
(i) Indebtedness incurred by the Company under the Credit
Facility in an aggregate principal amount not to exceed the Borrowing
Base Amount;
(ii) additional Indebtedness incurred by the Company in
respect of Capital Lease Obligations or Purchase Money Obligations in
an aggregate principal amount not to exceed $10.0 million at any time
outstanding;
(iii) Existing Indebtedness outstanding on the date of the
Indenture;
(iv) Indebtedness represented by the Notes and the
Indenture;
(v) Hedging Obligations; provided that the notional
principal amount of any Interest Rate Agreement does not exceed the
principal amount of the Indebtedness to which such agreement relates;
provided, further, that any Currency Agreement does not increase the
outstanding loss potential or liabilities other than as a result of
fluctuations in foreign currency exchange rates;
(vi) Indebtedness of the Company to any of its Wholly
Owned Subsidiaries that is a Restricted Subsidiary, and Indebtedness
of any Wholly Owned Subsidiary of the Company that is a Restricted
Subsidiary to the Company or any of its Wholly Owned Subsidiaries that
is a Restricted Subsidiary (the Indebtedness incurred pursuant to this
clause (vi) being hereinafter referred to as "Intercompany
Indebtedness"); provided that in the case
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of Indebtedness of the Company such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to
the Notes; provided, further, that an incurrence of Indebtedness shall
be deemed to have occurred upon (a) any sale or other disposition of
Intercompany Indebtedness to a Person other than the Company or any of
its Restricted Subsidiaries, (b) any sale or other disposition of
Equity Interests of any Restricted Subsidiary of the Company which
holds Intercompany Indebtedness such that such Restricted Subsidiary
ceases to be a Restricted Subsidiary after such sale or other
disposition or (c) designation of a Restricted Subsidiary as an
Unrestricted Subsidiary;
(vii) in addition to Indebtedness specified in clauses (i)
through (vi) above and clause (viii) below, additional Indebtedness in
an aggregate principal amount not to exceed $15.0 million at any time
outstanding; and
(viii) the incurrence by the Company of Indebtedness issued
in exchange for, or the proceeds of which are used to extend,
refinance, renew, replace, defease or refund Indebtedness incurred
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of this covenant or pursuant to clauses (iii) or (iv)
of this covenant in whole or in part (the "Refinancing Indebtedness");
provided, however, that (A) the aggregate principal amount of such
Refinancing Indebtedness shall not exceed the aggregate principal
amount of Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded; (B) the Refinancing Indebtedness shall have 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; (c) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is pari passu with or subordinated in right of payment to
the Notes, the Refinancing Indebtedness shall be pari passu with or
subordinated, as the case may be, 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 (any such
extension, refinancing, renewal, replacement, defeasance or refunding
being referred to as a "Permitted Refinancing").
Limitation on Liens
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
or on any income or profits therefrom or assign or convey any right to receive
income therefrom, except Permitted Liens.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to: (i)
pay dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (a) on its Capital Stock or (b) with respect to any
other interest or participation in, or measured by, its profits; (ii) pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries; (iii)
make loans or advances to the Company or any of its Restricted Subsidiaries; or
(iv) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries 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, so acquired,
(e) customary nonassignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (f) Purchase Money
Obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iv) above on the
property so acquired, or (g) Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive with respect to the provisions set forth
in clauses (i), (ii), (iii) and (iv) above than those contained in the
agreements governing the Indebtedness being refinanced.
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Limitation on 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 Person or entity unless: (i) the Company is the
surviving corporation 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 Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the 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 the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately before or
immediately after giving effect to such transaction no Default or Event of
Default shall have occurred and be continuing; and (iv) the Company or any
Person formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made 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 covenant entitled "Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock."
Limitation on Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, sell, lease,
license, transfer or otherwise dispose of any of its properties or assets to,
or purchase any property or assets from, or enter into any 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 Restricted Subsidiary than those that would have been obtained in
a comparable arms' length transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction involving aggregate
payments 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 such Affiliate Transaction is approved by a
majority of the disinterested members, if any, of the Board of Directors and
(b) with respect to any Affiliate Transaction involving aggregate payments in
excess of $5.0 million, an opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view issued by a nationally
recognized independent financial advisor; provided, however, that (i) any
reasonable fees and compensation provided to, and indemnity provided on behalf
of, officers, directors and employees of the Company and its Restricted
Subsidiaries as determined in good faith by the Board of Directors of the
Company, (ii) transactions between or among the Company and its Wholly Owned
Subsidiaries that are Restricted Subsidiaries, (iii) Restricted Payments
permitted by the covenant entitled "Limitation on Restricted Payments," (iv)
loans in aggregate amount not to exceed $1,000,000 at any time outstanding to
employees of the Company and its Restricted Subsidiaries in the ordinary course
of business which are approved by the Board of Directors of the Company, and
(v) the consummation of the transactions described under the caption "Use of
Proceeds" in the Offering Memorandum, in each case, shall not be deemed to be
Affiliate Transactions.
Limitation on Guarantees by Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
assume, guarantee or in any other manner become liable with respect to any
Indebtedness of any Person other than Indebtedness under the Credit Facility or
Indebtedness incurred pursuant to Hedging Obligations incurred pursuant to the
"Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock"
covenant unless: (i) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture, providing a guarantee of
payment of the Securities by such Restricted Subsidiary in the form required by
the Indenture (the "Guarantee"); and (ii) (a) if any such assumption, guarantee
or other liability of such Restricted Subsidiary is provided in respect of
Senior Indebtedness, the guarantee or other instrument provided by such
Restricted Subsidiary in respect of such Senior Indebtedness may be superior to
the Guarantee pursuant to subordination provisions no less favorable to the
holders of the Notes than those contained in the Indenture, and (b) if such
assumption, guarantee or other liability of such Subsidiary is provided in
respect of Indebtedness that is expressly subordinated to the Notes, the
guarantee or other
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instrument provided by such Restricted Subsidiary in respect of such
subordinated Indebtedness shall be subordinated to the Guarantee pursuant to
subordination provisions not less favorable to the holders of the Notes than
those contained in the Indenture.
Notwithstanding the foregoing, any such Guarantee of the Notes by a
Restricted Subsidiary shall provide by its terms that it shall be automatically
and unconditionally released and discharged, without any further action
required on the part of the Trustee or any holder, upon: (i) the unconditional
release of such Restricted Subsidiary from its liability in respect of the
Indebtedness in connection with which such Guarantee was executed and delivered
pursuant to the preceding paragraph; or (ii) any sale or other disposition (by
merger or otherwise) to any Person which is not a Restricted Subsidiary of the
Company, of all of the Company's Capital Stock in, or all or substantially all
of the assets of, such Restricted Subsidiary; provided that (a) such sale of
disposition of such Capital Stock or assets is otherwise in compliance with the
terms of the Indenture and (b) such assumption, guarantee or other liability of
such Subsidiary has been released by the holders of the other Indebtedness of
the Company or its Restricted Subsidiaries so guaranteed.
Limitation on Layering Debt
The Indenture provides that 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 Indebtedness of the
Company and senior in any respect in right of payment to the Notes.
Limitation on Issuance and Sale of Stock of Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries, to (a) transfer, convey, sell or otherwise
dispose of any shares of Capital Stock of any Restricted Subsidiary of the
Company (other than to the Company or a Wholly Owned Subsidiary that is a
Restricted Subsidiary of the Company), except that the Company and its
Restricted Subsidiaries may, in any single transaction, sell all, but not less
than all, of the issued and outstanding Capital Stock of a Restricted
Subsidiary to any Person, subject to complying with the provisions of the
Indenture described under "Repurchase at Option of Holders -- Asset Sales"
above and (b) issue shares of Capital Stock of a Restricted Subsidiary (other
than directors' qualifying shares), or securities convertible into, or
warrants, rights or options to subscribe for or purchase shares of, Capital
Stock of a Restricted Subsidiary of the Company to any Person other than to the
Company or a Wholly Owned Subsidiary that is a Restricted Subsidiary of the
Company.
Reports
The Indenture provides that whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, 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" that describes the financial condition and results
of operations of the Company and its Subsidiaries and, with respect to the
annual information only, a report thereon by the Company's independent auditor
and (ii) all reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports, all such reports to
be delivered to the holders and the Trustee not more than 15 days after the
date on which the related Form would be required to be filed with the
Commission. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information with
the Commission for public availability (unless the Commission will not accept
such a filing) and make such information available to investors or prospective
investors who request it in writing. In addition, the Company has agreed that,
for as long as any Old Notes remain outstanding, the Company will furnish to
the holders or beneficial holders of Old Notes and prospective purchasers of
Old Notes designated by the holders of Old Notes, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Payments for Consent
The Indenture prohibits the Company and each of its Subsidiaries from,
directly or indirectly, paying or causing to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of any Notes for or as an
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inducement to any consent, waiver or amendment of any terms or provisions of
the Notes unless such consideration is offered to be paid or agreed to be paid
to all holders of the Notes which so consent, waive or agree to amend in the
time frame set forth in solicitation documents relating to such consent, waiver
or agreement.
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, if any, with respect to, any of the Notes, whether or not
prohibited by the subordination provisions of the Indenture; (ii) default in
payment when due (whether at maturity, upon redemption or repurchase, or
otherwise) of the principal of or premium, if any, on any of 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
covenants "Change of Control," "Asset Sales" and "Merger, Consolidation or Sale
of Assets;" (iv) failure by the Company or any Restricted Subsidiary for 30
days after notice to comply with any of its covenants or agreements in the
Indenture or the Notes other than those referred to in clauses (i), (ii) and
(iii) above; (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 Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted 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 such Indebtedness when due and prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case described in clauses (a) and (b) of this
subsection (v), 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 Restricted
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
after their entry; and (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all of the principal amount of the Notes, accrued and unpaid interest
thereon and all other Obligations thereunder to be due and payable immediately;
provided, however, that such declaration of acceleration may be rescinded under
certain circumstances specified in the Indenture. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or its Restricted
Subsidiaries, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in 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, premium, interest or Liquidated Damages, if any) if the Trustee
determines that withholding such notice is in their interest.
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
April 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 such date, 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 principal, premium, interest or Liquidated Damages,
if any, on the Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon its
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 past, present or future director, officer, employee, agent 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 Notes 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, interest and
Liquidated Damages, if any, on such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and
the maintenance of an office or agency for 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 nonpayment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
certified 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; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel from nationally recognized tax counsel 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 shall have delivered to the Trustee an opinion of
counsel from nationally recognized tax counsel 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 shall have occurred and be continuing on the date of 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 shall 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
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company shall 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 shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company; and (viii) the
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Company shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that the Company has complied with all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance.
TRANSFER AND EXCHANGE
A holder may transfer or exchange 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 is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not 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 will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs and in the
Indenture, 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 consents obtained in connection with a 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 then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting holder of Notes):
(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 covenant
described above under "Asset Sales") or reduce the prices at which the Company
shall offer to purchase such Notes (pursuant to the covenants described under
"Repurchase at the Option of Holders"); (iii) reduce the rate of 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, interest or
Liquidated Damages, if any, 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 the rights of holders of Notes to receive payments
of principal of or premium, if any, interest or Liquidated Damages, if any, on
the Notes; (vii) waive a redemption payment with respect to any Note; (viii)
make any change to the subordination provisions of the Indenture that adversely
affects holders of Notes; or (ix) make any change in the foregoing amendment
and waiver provisions.
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 the 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 the 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.
THE TRUSTEE
The Trustee under the Indenture has been appointed by the Company as
Registrar and Paying Agent with respect to the Notes and as Exchange Agent with
respect to the Exchange Offer.
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
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security or otherwise. The Trustee will be 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 will 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 a Default or an Event
of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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 merged
with or into or became a Restricted 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
Restricted 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, however,
that beneficial ownership of 10% or more of the voting securities (or the
equivalents) of a Person shall be deemed to be control.
"Asset Sale" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or sale-and-leaseback transaction)
of (i) shares of Capital Stock of a Subsidiary of the Company (other than
directors' qualifying shares), or (ii) property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; provided, however, that an Asset Sale shall not include (a) any sale,
transfer or other disposition of shares of Capital Stock, property or assets by
a Restricted Subsidiary of the Company to the Company or to any Restricted
Subsidiary that is a Wholly Owned Subsidiary of the Company, (b) any sale,
transfer or other disposition of defaulted receivables for collection or any
sale, transfer or other disposition of property of assets in the ordinary
course of business, (c) any isolated sale, transfer or other disposition that
does not involve aggregate consideration in excess of $500,000 individually,
(d) the grant in the ordinary course of business of any non-exclusive license
of patents, trademarks, registrations therefor and other similar intellectual
property, (e) any Lien (or foreclosure thereon) securing Indebtedness to the
extent that such Lien is granted in compliance with the covenant set forth
under " -- Limitation on Liens" above, (f) any Restricted Payment permitted by
the covenant set forth under " -- Limitation on Restricted Payments" above, (g)
any disposition of assets or property in the ordinary course of business to the
extent such assets are obsolete, worn-out or no longer useful in the Company's
or any Restricted Subsidiaries' business, (h) the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company as
permitted by the covenant set forth under " -- Limitation on Merger,
Consolidation or Sale of Assets" above; provided, that the assets not so sold,
leased, conveyed, disposed of or otherwise transferred shall be deemed an Asset
Disposition or (i) any disposition that constitutes a Change of Control.
"Borrowing Base Amount" means, as to the Company, the sum of (x) 50%
of Finished Goods Inventory plus (y) 65% of Raw Materials Inventory plus (z)
85% of Receivables, determined on a consolidated basis in accordance with GAAP.
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"Burns Put Agreement" means that certain Amended and Restated Put
Agreement dated as of December 13, 1996, by and between Julius S. Burns and
Holding, as in effect on the date of the Indenture.
"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 so required to be capitalized on the balance
sheet in accordance with GAAP.
"Capital Stock" means (i) any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock, (ii) in the case of a partnership, partnership interests (whether
general or limited) and (iii) 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 million, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (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 and (vi) shares of any
money market mutual fund, or similar fund, in each case having assets in excess
of $500 million, which invests solely in investments of the types described in
clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following
(whether or not otherwise permitted by the Indenture): (i) the sale, lease,
transfer, conveyance or other disposition, in one transaction or a series of
related transactions, directly or indirectly, of all or substantially all of
the assets of the Company and its Restricted Subsidiaries to any Person or
group (as such term is used in Sections 13(d) and 14(d) of the Exchange Act or
any successor provisions thereto) (a "Group"); (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company; (iii) any Person or
Group, other than Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock of the Company (or of the Company's successor in the event of a
merger or consolidation); or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Restricted Subsidiaries designed to protect the Company or any of
its Restricted Subsidiaries against fluctuations in the price of commodities
actually used in the ordinary course of business of the Company and its
Restricted Subsidiaries.
"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, non-recurring or unusual loss plus any net
loss realized in connection with an Asset Sale, to the extent such losses were
deducted or otherwise excluded in computing Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent such provision for taxes
was deducted or otherwise excluded in computing Consolidated Net Income, plus
(iii) Consolidated Interest Expense of such Person less consolidated interest
income for such period, to the extent such amount was deducted or otherwise
excluded in computing Consolidated Net Income, plus (iv) depreciation and
amortization (including amortization of goodwill, amortization of deferred debt
expense and other intangibles and amortization of deferred compensation in
respect of non-cash compensation but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges of such
Person and its Restricted Subsidiaries for such period, to the extent such
depreciation and amortization were deducted or otherwise excluded in computing
Consolidated Net Income, plus (v) an amount equal to all premiums on
prepayments of debt, in each case, for such period without duplication on a
consolidated basis and determined in accordance with GAAP.
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Notwithstanding the foregoing, the provision for taxes, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute Consolidated
Cash Flow only to the extent (and in the same proportion) the Net Income of
such Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be distributed by dividend to such Person by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statues, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the aggregate consolidated interest, whether expensed or
capitalized, paid, accrued or scheduled to be paid or accrued, of such Person
and its Restricted Subsidiaries for such period (including (i) amortization of
original issue discount and deferred financing costs and non-cash interest
payments and accruals, (ii) the interest portion of all deferred payment
obligations, calculated in accordance with the effective interest method, and
(iii) the interest component of any payments associated with Capital Lease
Obligations and net payments (if any) pursuant to Hedging Obligations, in each
case, to the extent attributable to such period, but excluding (x) commissions,
discounts and other fees and charges incurred with respect to letters of credit
and bankers' acceptances financing and (y) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or secured by a Lien on
assets of such Person) determined in accordance with GAAP. Consolidated
Interest Expense of the Company shall not include any prepayment premiums or
amortization of original issue discount or deferred financing costs, to the
extent such amounts are incurred as a result of the prepayment on the date of
the Indenture of any Indebtedness of the Company with the proceeds of the
Notes.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, adjusted to exclude (only to the extent included and without
duplication): (i) all gains which are extraordinary, unusual or are
non-recurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of capital
stock); (ii) all gains resulting from currency or hedging transactions; (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition; (iv) depreciation,
amortization or other expenses recorded as a result of the application of
purchase accounting in accordance with Accounting Principles Board Opinion Nos.
16 and 17; and (v) the cumulative effect of a change in accounting principles;
provided that (a) the Net Income 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 cash dividends or cash distributions actually paid
to the referent Person or a Wholly Owned Subsidiary thereof that is a
Restricted Subsidiary and (b) the Net Income of any Person that is an
Unrestricted Subsidiary shall be included only to the extent of the amount of
cash dividends or cash distributions paid to the referent Person or a
Restricted Subsidiary thereof.
"Continuing Director" 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, (ii) was nominated for
election or elected to such Board of Directors with the affirmative vote of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election, or (iii) is a designee of CVC or its Related
Persons or Affiliates.
"Credit Facility" means the Amended and Restated Loan and Security
Agreement, dated as of December 13, 1996, by and among the Company, Fleet
Capital Corporation, as a lender and collateral agent, and Transamerica
Business Credit Corporation, 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.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
the Company or any of its Restricted Subsidiaries in the ordinary course of
business against fluctuation in the values of the currencies of the countries
(other than the United States) in which the Company or its Restricted
Subsidiaries conduct business.
"Default" means any event or condition that is, or with the passage of
time or the giving of notice, or both, would be, an Event of Default.
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"Designated Senior Indebtedness" means (i) the Obligations of the
Company with respect to the Credit Facility and (ii) any other Senior
Indebtedness of the Company permitted under the Indenture the principal amount
of which at original issuance is $5.0 million or more (other than Senior
Indebtedness that is comprised of Hedging Obligations owing to a Person that is
not a party to the Credit Facility).
"Disqualified Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable or is convertible or exchangeable for Indebtedness at the option of
the holder thereof, in whole or in part, on or prior to April 15, 2007;
provided that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the Exchange Notes shall not constitute Disqualified Stock if (i) the "asset
sale" or "change of control" provisions applicable to such Capital Stock are no
more favorable to the holders of such Capital Stock than the provisions in
favor of holders of Notes set forth under the "Asset Sale" and "Change of
Control" covenants, as the case may be, (ii) such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock pursuant
to such provision prior to the Company's repurchase of such Exchange Notes as
are required to be repurchased pursuant to the "Asset Sale" and "Change of
Control" covenants and (iii) such Capital Stock is redeemable within 90 days of
the "asset sale" or "change of control" events applicable to such Capital
Stock.
"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 Indebtedness of the Company and its
Subsidiaries (other than the Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided that the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of the
Company, acting in good faith and by unanimous resolution, and which
determination shall be evidenced by an Officers' Certificate delivered to the
Trustee.
"Finished Goods Inventory" means, with respect to the Company, the
consolidated finished goods inventory of the Company, net of reserves,
determined in accordance with GAAP.
"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 Restricted Subsidiaries incurs, assumes, guarantees
or redeems any Indebtedness (other than revolving credit borrowings) or if the
Company issues or redeems any preferred stock, in each case subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date of the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the "Transaction 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 reference period. For purposes of making the
computation referred to above, acquisitions (including all mergers and
consolidations), dispositions and discontinuances of operations that have been
made by the Company or any of its Restricted Subsidiaries during the reference
period or subsequent to such reference period and on or prior to the
Transaction Date shall be calculated on a pro forma basis assuming that all
such acquisitions, dispositions and discontinuances of operations had occurred
on the first day of the reference period; provided, however, that Fixed Charges
shall be reduced by amounts attributable to operations that are so disposed of
or discontinued only to the extent that the obligations giving rise to such
Fixed Charges would no longer be obligations contributing to the Company's
Fixed Charges subsequent to the Transaction Date. Calculations of pro forma
amounts in accordance with this definition shall be done in accordance with
Article 11 of Regulation S-X under the Securities Act or any successor
provision.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) Consolidated Interest Expense, (ii)
commissions, discounts and other fees and charges incurred with respect to
letters of
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credit and bankers' acceptances financing, (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or secured by
a Lien on assets of such Person and (iv) the product of (a) all cash or
non-cash dividend payments on any series of preferred stock of any Restricted
Subsidiary of such Person (other than preferred stock of such Person) 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, determined, 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 in the United States on the date of the
Indenture.
"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, letters of credit and
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 Agreements, (ii) Currency
Agreements and (iii) Commodity Agreements.
"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 bankers' 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 of any Indebtedness of such Person or any
other Person.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement entered into by the Company or any of its Restricted
Subsidiaries designed to protect the Company or any of its Restricted
Subsidiaries in the ordinary course of business against fluctuations in
interest rates.
"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), 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 and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"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.)
"Liquidated Damages" means all liquidated damages then owing pursuant
to the Registration Rights Agreement.
"Management Holders" means any current or past full-time members of
senior management of the Company who acquire stock of the Company through
management stock purchase or option plans.
"Management Plans" means the Merchant Metals Holding Company 1988
Stock Option Plan, as such plan may be amended from time to time, or such other
similar compensation plans which may be adopted by the Company or Holding.
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"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 sale of assets (including, without
limitation, dispositions pursuant to sale/leaseback transactions) or (b) the
disposition of any securities or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries, and (ii) any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"Net Proceeds" means the aggregate amount of consideration received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
in the form of cash or Cash Equivalents (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),
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets (including Equity Interests) the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, premium, interest (including
post-petition interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by (i) the Chief Executive Officer or President and (ii) the
Chief Financial Officer or chief accounting officer of such Person.
"Permitted Asset Swap" means any one or more transactions in which the
Company or any of its Restricted Subsidiaries exchanges assets for
consideration consisting of cash and/or assets used or useful in the business
of the Company and conducted on the date of the Indenture or reasonable
extensions, developments or expansions thereof or activities ancillary thereto
or other assets in an amount less than 15% of the fair market value of such
transaction or transactions.
"Permitted Holders" means CVC and its Related Persons and Affiliates
and the Management Holders and their Related Persons and Affiliates.
"Permitted Investments" means (i) any Investment in the Company or in
a Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary; (ii)
any Investment in Cash Equivalents; (iii) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (a) such Person becomes a Wholly Owned Subsidiary of the Company
that is a Restricted Subsidiary or (b) 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 Wholly Owned Subsidiary of
the Company that is a Restricted Subsidiary; (iv) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was
made in compliance with the covenant set forth under " -- Repurchase at the
Option of Holders -- Asset Sales".
"Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens
securing Senior Indebtedness of the Company that was permitted to be incurred
pursuant to the Indenture; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company, provided that such Liens were not created
in contemplation of such merger or consolidation and do not extend to any
assets other than
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those of the Person merged into or consolidated with the Company or such
Restricted Subsidiary; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company;
provided that such Liens were not created in 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 existing on the date of the Indenture;
(vii) 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, if any, as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens imposed by
law, such as mechanics', carriers', warehousemen's, materialmen's and vendors'
Liens, incurred in good faith in the ordinary course of business with respect
to amounts not yet delinquent or being contested in good faith by appropriate
proceedings if a reserve or other appropriate provisions, if any, shall be
required by GAAP shall have been made therefor; (ix) zoning restrictions,
easements, licenses, covenants, reservations, restrictions on the use of real
property or minor irregularities of title incident thereto that do not, in the
aggregate, materially detract from the value of the property or the assets of
the Company or impair the use of such property in the operation of the
Company's business; (x) judgment Liens to the extent that such judgments do not
cause or constitute a Default or an Event of Default; (xi) Liens to secure the
payment of all or a part of the purchase price of property or assets acquired
or constructed in the ordinary course of business on or after the date of the
Indenture, provided that (a) such property or assets are used in the same or a
similar line of business as the Company was engaged in on the date of the
Indenture, (b) at the time of incurrence of any such Lien, the aggregate
principal amount of the obligations secured by such Lien shall not exceed the
cost of the assets or property (or portions thereof) so acquired or
constructed, (c) each such Lien shall encumber only the assets or property (or
portions thereof) so acquired or constructed and shall attach to such property
within 120 days of the purchase or construction thereof and (d) any
Indebtedness secured by such Lien shall have been permitted to be incurred
under the "Limitation on the Incurrence of Indebtedness and Issuance of
Disqualified Stock" covenant; and (xii) precautionary filings of any financial
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction made in connection with Capital Lease Obligations permitted to be
incurred under the "Limitation on the Incurrence of Indebtedness and Issuance
of Disqualified Stock" covenant, provided that such Lien does not violate
clauses (a), (b) and (c) of clause (xi) hereof; and (xiii) Liens incurred in
the ordinary course of business securing assets having a fair market value not
in excess of $500,000 in the aggregate.
"Person" means an individual, limited or general partnership,
corporation, limited liability company, association, unincorporated
organization, trust, joint stock company or joint venture, or a government or
any agency or political subdivision thereof.
"Public Equity Offering" means a bona fide underwritten sale to the
public of Common Stock of the Company pursuant to a registration statement
(other than on Form S-8 or any other form relating to securities issuable under
any benefit plan of the Company) that is declared effective by the Commission.
"Purchase Money Obligations" of any Person means any obligations of
such Person or any of its Restricted Subsidiaries to any seller or any other
Person incurred or assumed in connection with the purchase of real or personal
property to be used in the business of such Person or any of its subsidiaries
within 180 days of such incurrence or assumption.
"Raw Materials Inventory" means, with respect to the Company, the
consolidated, raw materials and work-in-process inventory of the Company, net
of reserves, determined in accordance with GAAP.
"Recapitalization" means that certain recapitalization transaction
relating to Holding and the Company consummated on December 13, 1996.
"Receivables" means the consolidated trade receivables of the Company,
net of the allowance for doubtful accounts, as determined in accordance with
GAAP.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of the Indenture, between the Company and the
Initial Purchaser.
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"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the
equity interests in such Person) or (b) 5% or more of the combined voting power
of the Voting Stock of such Person.
"Restricted Subsidiary" means (i) any Subsidiary of the Company (other
than a Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary)
organized or acquired after the date of the Indenture, unless such Subsidiary
shall have been designated as an Unrestricted Subsidiary by resolution of the
Board of Directors as provided in and in compliance with the definition of
"Unrestricted Subsidiary"; and (ii) any Unrestricted Subsidiary which is
designated as a Restricted Subsidiary by the Board of Directors of the Company;
provided that immediately after giving effect to the designation referred to in
clause (ii), no Default or Event of Default shall have occurred and be
continuing and the Company could incur at least $1.00 of additional
Indebtedness under the first paragraph under the "Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock" covenant. The Company shall
evidence any such designation to the Trustee by promptly filing with the
Trustee an Officers' Certificate certifying that such designation has been made
and stating that such designation complies with the requirements of the
immediately preceding sentence.
"Senior Indebtedness" means, with respect to the Company, (i) the
Obligations of the Company with respect to the Credit Facility, and (ii) any
other Indebtedness permitted to be incurred by the Company under the terms of
the Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is pari passu with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (aa) any obligation of the
Company to, in respect of or imposed by any environmental, landfill, waste
management or other regulatory governmental agency, statute, law or court
order, (bb) any liability for federal, state, local or other taxes owed or
owing by the Company, (cc) any Indebtedness of the Company to any of the
Company's Subsidiaries or other Affiliates, (dd) any trade payables or (ee) any
Indebtedness that is incurred in violation of the Indenture on or after the
date of the Indenture.
"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 Persons or one or more Subsidiaries
of such Person or any combination thereof.
"Unrestricted Subsidiary" means, until such time as any of the
following shall be designated as a Restricted Subsidiary of the Company by the
Board of Directors of the Company as provided in and in compliance with the
definition of "Restricted Subsidiary," (i) any Subsidiary of the Company or of
a Restricted Subsidiary of the Company organized or acquired after the date of
the Indenture that is designated concurrently with its organization or
acquisition as an Unrestricted Subsidiary by resolution of the Board of
Directors of the Company, (ii) any Subsidiary of any Unrestricted Subsidiary
and (iii) any Restricted Subsidiary of the Company that is designated as an
Unrestricted Subsidiary by resolution of the Board of Directors of the Company,
provided that (a) immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing, (b) any such
designation shall be deemed, at the election of the Company at the time of such
designation, to be either (but not both) (x) the making of a Restricted Payment
at the time of such designation in an amount equal to the Investment in such
Subsidiary subject to the restrictions contained in the "Limitation on
Restricted Payments" covenant or (y) the making of an Asset Sale at the time of
such designation in an amount equal to the Investment in such Subsidiary
subject to the restrictions contained in the "Asset Sales" covenant, and (c)
such Subsidiary or any of its Subsidiaries does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any property of, the Company or any
other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to
be so designated. A Person may be designated as an Unrestricted Subsidiary only
if and for so long as such Person (i) has no Indebtedness other than
Non-Recourse Debt; (ii) is a Person with respect to which neither the Company
nor any of its Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or (b) to make any payment to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (iii) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. The Company
shall evidence any designation pursuant to clause (i) or (iii) of the first
sentence hereof to the Trustee by filing with the Trustee within 45 days of
such designation
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an Officers' Certificate certifying that such designation has been made and, in
the case of clause (iii) of the first sentence hereof, the related election of
the Company in respect thereof.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers,
general partners or trustees of any Person (irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might
have, voting power by reasons of the happening of any contingency) or, with
respect to a partnership (whether general or limited), any general partner
interest in such partnership.
"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 payments 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 100% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall be at the time
beneficially owned by such Person either directly or indirectly through Wholly
Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will
initially be issued in the form of one or more Global Notes (the "Global
Notes"). The Global Notes will be deposited on the date of the closing of the
sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
the Depositary and registered in the name of Cede & Co., as nominee for the
Depositary (such nominee being referred to herein as the "Global Note Holder").
Exchange Notes that are issued as described below under " --
Certificated Securities" will be issued in registered form (the "Certificated
Securities"). Upon the transfer of Certificated Securities, such Certificated
Securities may, unless the Global Notes have previously been exchanged for
Certificated Securities, be exchanged for an interest in a Global Note
representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company which 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 Purchaser), 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.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants with portions of the principal amount of the Global
Notes and (ii) ownership of the Notes evidenced by the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only 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 Exchange
Notes evidenced by the Global Notes will be limited to such extent. For certain
other restrictions on the transferability of the Exchange Notes, see "Notice to
Investors."
So long as the Global Note Holder is the registered owner of any
Exchange Notes, the Global Note Holder will be considered the sole owner or
holder of such Exchange Notes outstanding under the Indenture. Beneficial
owners of Exchange Notes evidenced by the Global Note will not be considered
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.
76
<PAGE> 83
The ability of a Person having a beneficial interest in Exchange Notes
represented by a Global Note to pledge such interest to Persons or entities
that do not participate in the Depositary's system or to otherwise take actions
in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest.
None of the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Exchange Notes by the Depositary, or for maintaining, supervising or
reviewing any records of the Depositary relating to such Exchange Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of a
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of such 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 the Exchange
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Exchange Notes (including principal, premium, if any, interest and
Liquidated Damages, if any).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in
principal amount 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 Exchange
Notes will be governed by standing instructions and customary practice and will
be 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 a Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Definitive Notes. Upon
any such issuance, the Trustee is required to register such Exchange Notes in
the name of, and cause the same to be delivered to, such Person or Persons. 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 appoint 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 Exchange Notes in the form of Definitive Notes under the Indenture,
then, upon surrender by the relevant Global Note Holder of its Global Note,
Exchange Notes in such form will be issued to each Person that the Depositary
identifies as the beneficial owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by
the Depositary in identifying the beneficial owners of the related Exchange
Notes and each such Person may conclusively rely on, and shall be protected in
relying on, instructions from the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Exchange Notes to be issued).
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to MMI Products, Inc., 515 West Greens Road, Suite
710, Houston, Texas 77067, Attn: Robert N. Tenczar.
77
<PAGE> 84
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income
tax considerations to holders of the Exchange Notes who are subject to U.S. net
income tax with respect to the Exchange Notes ("U.S. persons") and who will
hold the Exchange Notes as capital assets. There can be no assurance that the
U.S. Internal Revenue Service (the "IRS") will take a similar view of the
purchase, ownership or disposition of the Exchange Notes. This summary is based
upon the Internal Revenue Code of 1986, as amended, and regulations, rulings
and judicial decisions now in effect, all of which are subject to change. It
does not include any discussion of the tax laws of any state, local or foreign
governments or any estate or gift tax considerations that may be applicable to
the Exchange Notes or holders thereof; nor does it discuss all aspects of U.S.
federal income taxation that may be relevant to a particular investor under his
particular circumstances or to investors subject to special treatment under the
U.S. federal income tax laws (for example, dealers in securities or currencies,
S corporations, life insurance companies, tax-exempt organizations, taxpayers
subject to the alternative minimum tax and non-U.S. persons) and also does not
discuss Exchange Notes held as a hedge against currency risks or as part of a
straddle with other investments or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprising an
Exchange Note and one or more other investments, or situations in which the
functional currency of the holders is not the U.S. dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer
should consult their tax advisors with respect to their particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for Exchange Notes should not be a taxable
event to holders for federal income tax purposes. The exchange of Old Notes for
the Exchange Notes pursuant to the Exchange Offer should not be treated as an
"exchange" for federal income tax purposes, because the Exchange Notes should
not be considered to differ materially in kind or extent from the Old Notes.
Accordingly, the Exchange Notes should have the same issue price as the Old
Notes, and a holder should have the same adjusted basis and holding period in
the Exchange Notes as it had in the Old Notes immediately before the exchange.
INTEREST ON EXCHANGE NOTES
A holder of an Exchange Note will be required to report as ordinary
interest income for U.S. federal income tax purposes interest earned on the
Exchange Note in accordance with the holder's method of tax accounting.
DISPOSITION OF EXCHANGE NOTES
A holder's tax basis for an Exchange Note generally will be the
holder's purchase price for the Old Note. Upon the sale, exchange, redemption,
retirement or other disposition of an Exchange Note, a holder will recognize
gain or loss equal to the difference (if any) between the amount realized and
the holders' tax basis in the Exchange Note. Such gain or loss will be
long-term capital gain or loss if the Exchange Note has been held for more than
one year and otherwise will be short-term capital gain or loss (with certain
exceptions to the characterization as capital gain if the Exchange Note was
acquired at a market discount).
BACKUP WITHHOLDING
A holder of an Exchange Note may be subject to backup withholding at
the rate of 31% with respect to interest paid on the Exchange Note and proceeds
from the sale, exchange, redemption or retirement of the Exchange Note, unless
such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. A holder of an Exchange Note who does not provide the
Company with his correct taxpayer identification number may be subject to
penalties imposed by the IRS.
78
<PAGE> 85
A holder of an Exchange Note who is not a U.S. person will generally
be exempt from backup withholding and information reporting requirements, but
may be required to comply with certification and identification procedures in
order to obtain an exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the
holder's U.S. federal income tax liability.
79
<PAGE> 86
DESCRIPTION OF CREDIT FACILITY
The information relating to the Credit Facility is qualified in its
entirety by reference to the complete text of the documents entered into.
Borrowings under the Credit Facility will be secured by first priority liens on
substantially all of the Company's assets.
The Credit Facility provides for a revolving credit facility not to
exceed $48.5 million. Borrowings under the Credit Facility are subject to
various conditions precedent and are subject to a borrowing base equal to the
sum of 50% of eligible finished goods inventory plus 65% of eligible raw
materials inventory plus 85% of eligible receivables.
Borrowings under the Credit Facility bear interest, at the option of
the Company, at either (i) the base rate (as announced from time to time by
Fleet National Bank) plus 0.25% or (ii) the Eurodollar Base Rate (as defined
therein) for the applicable Eurodollar Interest Period (as defined therein)
plus 2.00%. The Company is required to pay certain fees in connection with the
Credit Facility, including a commitment fee of 0.50% of the undrawn portion of
the revolving credit facility commitment.
The Credit Facility contains customary representations, warranties and
events of default and requires compliance by the Company with certain
covenants, including, among other things, (i) limitations on incurrence of
indebtedness, imposition of liens on assets of the Company, capital
expenditures, mergers and consolidations, disposition of assets, acquisition of
assets and payment of dividends and other distributions, (ii) a requirement
that the Company maintain EBITDA for each rolling 12 month period of not less
than $20.0 million and (iii) a requirement that the Company maintain a coverage
ratio of EBITDA to cash interest expense of not less than 1.5 to 1.0.
DESCRIPTION OF EQUITY INTERESTS
COMPANY CAPITAL STOCK
The authorized capital stock of the Company consists of 500,000 shares
of common stock, par value $1.00 per share (the "Company Common Stock"). There
currently are 252,000 shares of the Company Common Stock outstanding, all of
which are owned of record and beneficially by Holding.
HOLDING CAPITAL STOCK
The authorized capital stock of Holding consists of 3,000,000 shares
of Holding Common Stock and 4,000,000 shares of Holding Preferred Stock. Of the
authorized shares, (i) 2,000,000 shares of Class A Common Stock, par value $.01
per share (the "Holding Class A Common Stock"), of which 115,402 shares are
issued and outstanding; (ii) 1,000,000 shares of Class B Common Stock, par
value $.01 per share (the "Holding Class B Common Stock"), of which 658,982
shares are issued and outstanding; (iii) 1,500,000 shares of Series A Junior
Preferred Stock, none of which are issued and outstanding; and (iv) 1,500,000
shares of Series B Senior Preferred Stock, none of which are issued and
outstanding. Parent owns of record and beneficially more than 98% of the
Holding Common Stock (representing more than 98% of the voting power of
Holding).
Certain Company Repurchase Rights
Upon the death of any member of management who holds Parent Common
Units (or upon the termination of any such person's employment with the
Company), such Parent Common Units will automatically be exchanged for a like
number of shares of Holding Class A Common Stock. Such members of management
have granted to Holding the right to repurchase (the "Repurchase Agreements")
such persons' Holding Class A Common Stock in the event that such persons cease
for any reason to be employed by the Company prior to the fourth anniversary of
the completion of the Recapitalization.
The repurchase price initially is $1.00 per share. However, on each of
the first through third anniversaries of the completion of the
Recapitalization, the repurchase price for 25% of the Holding Class A Common
Stock of such person
80
<PAGE> 87
will become an amount equal to the fair value of such shares of Holding Class A
Common Stock (as determined in good faith by the Board of Directors of Holding)
as of the time of any exercise of Holding's repurchase right.
Holding Stockholders Agreement
Certain stockholders of the Company have entered into the Holding
Stockholders Agreement (the "Holding Stockholders Agreement"). The Holding
Stockholders Agreement provides for, among other things, the following: (i) the
delivery by Holding to CVC of certain financial statements and information so
long as CVC holds any Holding Common Stock or Holding Preferred Stock
(collectively, the "Holding Securities") or any option, warrant or right to
acquire any of the Holding Securities; (ii) an agreement among the stockholders
to vote the Holding Common Stock of the Company such that the Board of
Directors will consist of a CVC designee, the Chief Executive Officer of the
Company and a joint CVC- management designee; and (iii) certain demand and
incidental registration rights on the part of the stockholders.
LIMITED LIABILITY COMPANY INTERESTS OF PARENT
The equity interests of Parent consists of (i) 112,922 Parent Class A
Common Units, and (ii) 652,066 Parent Class B Common Units.
81
<PAGE> 88
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its
own account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities (other than a resale of an unsold allotment from the original sale
of Old Notes). The Company has agreed that 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 such Exchange Notes for a period
ending 180 days from the date on which the Exchange Offer Registration
Statement is declared effective. However, a Participating Broker-Dealer who
intends to use this Prospectus in connection with the resale of Exchange Notes
received in exchange for Old Notes pursuant to the Exchange Offer must notify
the Company, or cause the Company to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be
delivered to the Exchange Agent at one of the addresses set forth in the Letter
of Transmittal. See "The Exchange Offer -- Resales of Exchange Notes."
The Company will not receive any proceeds from the issuance of the
Exchange Notes offered hereby. Exchange Notes received by Participating
Broker-Dealers for their own accounts in connection with the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Exchange Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells Exchange Notes that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates
in a distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period ending 180 days from the date on which the Exchange Offer
Registration Statement is declared effective, 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.
82
<PAGE> 89
LEGAL MATTERS
The legality of the securities being offered hereby will be passed
upon for the Company by Baker & Botts, L.L.P., Dallas, Texas.
EXPERTS
The financial statements and schedule of MMI Products, Inc. at
December 28, 1996 and December 30, 1995, and for each of the three fiscal years
in the period ended December 28, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
83
<PAGE> 90
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors....................................................................... F-2
Audited Financial Statements
Balance Sheets as of December 30, 1995 and December 28, 1996....................................... F-3
Statements of Income for fiscal years 1994, 1995 and 1996.......................................... F-5
Statements of Stockholder's Equity for fiscal years 1994, 1995 and 1996............................ F-6
Statements of Cash Flows for fiscal years 1994, 1995 and 1996...................................... F-7
Notes to Audited Financial Statements.............................................................. F-8
Unaudited Financial Statements
Balance Sheet as of June 28, 1997.................................................................. F-17
Statements of Income for the six month periods ended June 29, 1996 and June 28, 1997............... F-18
Statements of Cash Flows for the six month periods ended June 29, 1996 and June 28, 1997........... F-19
Notes to Unaudited Financial Statements............................................................ F-20
</TABLE>
F-1
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder
MMI Products, Inc.
We have audited the accompanying balance sheets of MMI Products, Inc.,
as of December 30, 1995 and December 28, 1996, and the related statements of
income, stockholder's equity and cash flows for each of the three fiscal years
in the period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MMI Products, Inc.
at December 30, 1995 and December 28, 1996, and the results of its operations
and its cash flows for each of the three fiscal years in the period ended
December 28, 1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 10, 1997
F-2
<PAGE> 92
MMI PRODUCTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(NOTE 1)
PRO FORMA
DECEMBER 30, DECEMBER 28, DECEMBER 28,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 2,163 $ 234 $ 234
Accounts receivable, net of allowance for doubtful
accounts of $1,701 ($1,314 in 1995) ............... 27,772 35,637 35,637
Inventories .......................................... 32,331 41,687 41,687
Prepaid expenses ..................................... 2,643 1,315 1,315
Deferred income taxes ................................ 1,301 3,722 3,722
------------ ------------ ------------
Total current assets ......................... 66,210 82,595 82,595
Property, plant and equipment:
Land ................................................. 3,734 4,814 4,814
Buildings and improvements ........................... 11,610 15,465 15,465
Machinery and equipment .............................. 32,839 46,639 46,639
------------ ------------ ------------
48,183 66,918 66,918
Less accumulated depreciation ........................ 18,710 22,046 22,046
------------ ------------ ------------
29,473 44,872 44,872
Intangible assets ...................................... 6,518 6,105 6,105
Deferred charges and other assets ...................... 1,655 1,691 1,691
------------ ------------ ------------
Total assets ................................. $ 103,856 $ 135,263 $ 135,263
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 93
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(NOTE 1)
PRO FORMA
DECEMBER 30, DECEMBER 28, DECEMBER 28,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Accounts payable ....................................... $ 20,186 $ 29,114 $ 29,114
Accrued liabilities .................................... 7,773 10,405 10,405
Accrued income taxes ................................... 718 1,090 1,090
Due to Holding ......................................... -- 5,810 5,810
Distribution payable to Holding (Note 1) ............... -- -- 57,000
Current maturities of long-term debt, including
capital lease obligations ........................... 970 3,027 3,027
----------- ----------- -----------
Total current liabilities ...................... 29,647 49,446 106,446
Long-term debt, including capital lease obligations ...... 33,715 52,251 52,251
Subordinated notes payable-- affiliates .................. 14,800 -- --
Deferred interest payable-- affiliates ................... 6,389 -- --
Deferred income taxes .................................... 3,699 5,032 5,032
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $1 par value; 500,000 shares authorized;
252,000 shares issued and outstanding ............... 252 252 252
Additional paid-in capital ............................. 8,008 14,599 14,599
Retained earnings (deficit) (Note 1) ................... 7,346 13,683 (43,317)
----------- ----------- -----------
Total stockholder's equity (deficit) ........... 15,606 28,534 (28,466)
----------- ----------- -----------
Total liabilities and stockholder's equity
(deficit) .................................... $ 103,856 $ 135,263 $ 135,263
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 94
MMI PRODUCTS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales .................................... $197,617 $233,284 $283,402
Cost of sales ................................ 163,473 196,123 238,439
-------- -------- --------
Gross profit ............................... 34,144 37,161 44,963
Selling, general and administrative expenses . 17,098 19,196 23,143
Nonrecurring expenses-- stock options (Note 2) -- -- 3,106
Other expenses, net .......................... 419 166 721
-------- -------- --------
Income before interest and income taxes ...... 16,627 17,799 17,993
Interest expense:
Affiliates ................................. 2,223 2,223 2,046
Other ...................................... 4,014 5,172 5,383
-------- -------- --------
Income before income taxes ................... 10,390 10,404 10,564
Provision for income taxes ................... 2,878 4,058 4,227
-------- -------- --------
Net income ......................... $ 7,512 $ 6,346 $ 6,337
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 95
MMI PRODUCTS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-In Earnings Stockholder's
Stock Capital (Deficit) Equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 ..................... $ 252 $ 8,008 $ (6,204) $ 2,056
Net income ................................... -- -- 7,512 7,512
Dividends .................................... -- -- (308) (308)
---------- ---------- ---------- ----------
Balance at December 31, 1994 ................... 252 8,008 1,000 9,260
Net income ................................... -- -- 6,346 6,346
---------- ---------- ---------- ----------
Balance at December 30, 1995 ................... 252 8,008 7,346 15,606
Net income ................................... -- -- 6,337 6,337
Contribution of capital-- Recapitalization ... -- 3,485 -- 3,485
Contribution of capital-- stock options ...... -- 3,106 -- 3,106
---------- ---------- ---------- ----------
Balance at December 28, 1996 ................... $ 252 $ 14,599 $ 13,683 $ 28,534
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE> 96
MMI PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................. $ 7,512 $ 6,346 $ 6,337
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ............................ 3,370 3,814 4,448
Nonrecurring expenses-- stock options .................... -- -- 3,106
Provision for losses on accounts receivable .............. 725 448 879
Deferred income taxes .................................... 1,085 1,313 (1,088)
(Gain) loss on sale of property, plant and equipment ..... (18) (100) 193
Changes in operating assets and liabilities, net of
effects of acquired
businesses:
Increase in accounts receivable ....................... (2,169) (5,585) (8,339)
(Increase) decrease in inventories .................... (5,869) 1,034 (1,668)
Decrease in prepaid expenses and other assets ......... 351 551 2,068
Increase in accounts payable and accrued
liabilities ......................................... 4,761 6,868 9,762
Decrease in deferred interest
payable-- affiliates ................................ -- (648) (6,389)
Increase in due to Holding ............................ -- -- 5,810
Increase (decrease) in accrued income taxes ........... 1,768 (1,296) 372
--------- --------- ---------
Net cash provided by operating activities ........ 11,516 12,745 15,491
INVESTING ACTIVITIES
Purchases of property, plant and equipment ................. (2,470) (2,246) (3,545)
Proceeds from sale of property, plant and equipment ........ 18 1,219 89
Cash paid for acquired businesses .......................... -- (13,714) (20,858)
--------- --------- ---------
Net cash used in investing activities ...................... (2,452) (14,741) (24,314)
FINANCING ACTIVITIES
Proceeds from long-term debt, net of debt issue costs ...... 55,957 88,421 122,033
Payments on long-term debt, including capital lease
obligations .............................................. (64,540) (84,740) (103,824)
Payments on subordinated notes payable-- affiliates ........ -- -- (14,800)
Contribution of capital from Holding ....................... -- -- 3,485
Dividends paid ............................................. (308) -- --
--------- --------- ---------
Net cash provided by (used in) financing activities ........ (8,891) 3,681 6,894
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ........... 173 1,685 (1,929)
Cash and cash equivalents at beginning of year ............. 305 478 2,163
--------- --------- ---------
Cash and cash equivalents at end of year ................... $ 478 $ 2,163 $ 234
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE> 97
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
MMI Products, Inc. (the Company), is a wholly-owned subsidiary of
Merchants Metals Holding Company (Holding). The Company is a manufacturer and
distributor of products used in the residential, commercial and infrastructure
construction industries. The Company sells its products along three principal
product lines: fence, wire mesh and concrete accessories. Each of the Company's
product lines is primarily produced from the same raw material, steel rod. The
Company's customers include contractors, fence wholesalers, industrial
manufacturers, highway construction contractors and fabricators of concrete
reinforcing bar. The Company operates in one business segment.
On December 13, 1996, the Company and Holding completed a
recapitalization transaction (the Recapitalization). Pursuant to the
Recapitalization, (i) Holding made an additional capital contribution to the
Company of approximately $3.5 million in cash and loaned the Company
approximately $5.8 million, (ii) the Company borrowed an additional $5 million
in senior subordinated secured notes payable from a supplier and an additional
$1 million in other long-term debt, and (iii) the Company repaid the full
amount of subordinated notes payable to affiliates of $14.8 million plus
accrued interest.
The Company intends to make a Rule 144A offering (the Offering) of
$120 million of Notes due 2007 (the Notes) in April 1997. The net proceeds from
the sale of the Notes are estimated to be approximately $116.1 million. The
Company intends to use the net proceeds (i) to distribute $57 million to
Holding to permit the redemption of Holding's preferred stock and options to
acquire preferred stock, including dividends in arrears, held primarily by
Holding's common stockholders, (ii) to repay the entire $10 million principal
amount, plus accrued but unpaid interest, on the senior subordinated secured
note payable, (iii) to repay the Company's existing indebtedness under the term
loan facility which totaled $12.0 million as of December 28, 1996, (iv) to
reduce the Company's indebtedness under the revolving credit facility which
totaled $30.1 million as of December 28, 1996 and (v) to the extent of
remaining net proceeds from the Offering, for general corporate purposes.
The accompanying pro forma balance sheet as of December 28, 1996
reflects the planned distribution to Holding and corresponding decrease in
retained earnings as if the Offering closed as of December 28, 1996.
Fiscal Year
In 1994, the Company adopted a 52-53 week fiscal year ending on the
Saturday closest to December 31st. The change had no effect on net income for
any fiscal year presented. The 1994, 1995 and 1996 fiscal years refer to the
fifty-two week periods ended December 31, 1994, December 30, 1995 and December
28, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 98
Cash and Cash Equivalents
The Company considers all demand deposits and time deposits with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost except for
assets acquired in business combinations which are recorded at fair market
value at the date of acquisition. Depreciation is computed on the straight-line
method using rates based on the estimated useful lives of the related assets.
Estimated useful lives used for depreciation purposes are as follows:
Buildings and improvements................... 10 to 31 years
Machinery and equipment...................... 2 to 20 years
Major capital upgrades are capitalized. Maintenance, repairs and minor
upgrades are expensed as incurred.
The Company leases certain machinery and equipment under capital
leases. Assets recorded under capital leases are amortized over the lives of
the respective leases. Assets under these obligations, totaling $2,426,000 and
$2,784,000 (net of accumulated amortization of $744,000 and $1,356,000) at
December 30, 1995 and December 28, 1996, respectively, are included in
property, plant and equipment in the accompanying balance sheets.
Intangible Assets
The excess of the purchase price over the estimated fair values of net
assets acquired is accounted for as goodwill and is amortized on a
straight-line basis over periods not exceeding 40 years (the period when
benefits are expected to be derived). Other intangible assets, consisting
primarily of customer lists arising from acquisitions, are amortized on a
straight-line basis over their respective estimated lives, generally three to
five years.
Impairment of Long-Lived Assets
The carrying value of long-lived assets, principally identifiable
intangibles, property, plant and equipment and any related goodwill, is
reviewed for potential impairment when events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable, as
determined based on the undiscounted cash flows over the remaining amortization
periods. In such a case, the carrying value of the related assets is reduced by
the estimated shortfall of discounted cash flows.
Fair Value of Financial Instruments
The Company considers the recorded value of its monetary assets and
liabilities, which consist primarily of cash and cash equivalents, accounts
receivable, accounts payable and long-term debt, to approximate their
respective fair values at December 30, 1995 and December 28, 1996.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995
financial information in order to conform to the 1996 presentation.
F-9
<PAGE> 99
2. NONRECURRING EXPENSES -- STOCK OPTIONS
Effective December 13, 1996 in connection with the Recapitalization,
the Company incurred nonrecurring charges relating to Holding's stock options
granted in previous years to employees and a supplier of the Company. The
aggregate effect of these expenses was $3.1 million for fiscal year 1996.
Under Holding's 1988 Stock Option Plan, certain employees of the
Company received noncompensatory stock options for shares of Holding common
stock. The options expire generally 10 years from the date of grant. No options
were granted or exercised in fiscal years 1994 and 1995. Effective December 13,
1996, Holding amended the 1988 Stock Option Plan to convert the outstanding
options for common stock into options for a total of 22,895 shares of Holding's
junior series preferred stock. As a result of the amendment, which changed the
underlying securities of the options and resulted in a new measurement date,
the Company recorded $2.1 million in compensation expense in 1996.
In 1989, in connection with issuing a senior subordinated secured note
to a supplier, Holding granted the supplier stock options for shares of Holding
common stock which were to expire December 31, 1996. None of these options were
exercised. Effective December 13, 1996, Holding amended the supplier's option
agreement in connection with the Recapitalization to extend the expiration date
of the options three years and to convert the options for common stock into
options for 9,893 shares of Holding's junior series preferred stock. As a
result, the Company recognized $964,000 in expense in 1996.
3. ACQUISITIONS OF BUSINESSES
During fiscal years 1995 and 1996, the Company made the acquisitions
set forth below, each of which has been accounted for as a purchase. The
financial statements include the operating results of each business from the
date of the acquisition. Pro forma results of operations have not been
presented because the effects of these acquisitions were not significant.
Effective July 31, 1996, the Company acquired certain net assets,
consisting primarily of fixed assets and inventories, of Atlantic Steel
Industries, Inc. through its Sivaco/National Wire Group (National Wire) for a
total cost of $17.3 million. Liabilities assumed and acquisition expenses
incurred totaled $2,083,000. The purchase price approximated the preliminary
fair market value of the assets acquired. National Wire is engaged in the
manufacturing and wholesale distribution of wire mesh products.
During October 1996, the Company acquired certain assets and assumed
certain liabilities of two other companies for $3.6 million in cash.
In 1995, the Company purchased certain tangible assets, consisting
primarily of fixed assets and inventories, of Semmerling Fence and Supply, Inc.
and Pioneer Fence and Pipe Supply, Inc. for a total cost of approximately $13.7
million in cash. The excess of the purchase price over the fair values of the
net assets acquired was $4.2 million and is being amortized over 20 years.
4. INVENTORIES
Inventories consist of the following at December 30, 1995 and December
28, 1996:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials .......................... $ 4,263 $ 9,854
Work-in-process ........................ 254 312
Finished goods ......................... 27,814 31,521
------- -------
$32,331 $41,687
======= =======
</TABLE>
The Company entered into a procurement agreement in 1989 (which was
subsequently amended on December 13, 1996) with a supplier whereby the Company
appointed the supplier as its sole and exclusive agent for import purchases of
the Company's primary raw materials. The agreement requires the Company to
purchase from the supplier a specified
F-10
<PAGE> 100
volume of raw materials annually for a three-year term. At December 28, 1996,
these purchase commitments are approximately $50 million per year. During
fiscal years 1994, 1995 and 1996, the Company purchased 73%, 75% and 63%,
respectively, of its raw material purchases from this supplier.
5. INTANGIBLE ASSETS
Intangible assets at December 30, 1995 and December 28, 1996 are
comprised of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill ............................................. $ 6,486 $ 6,486
Customer lists and other ............................. 4,195 4,233
------- -------
10,681 10,719
Less accumulated amortization ........................ 4,163 4,614
------- -------
Intangible assets at cost less amortization .......... $ 6,518 $ 6,105
======= =======
</TABLE>
Total amortization expense for the fiscal years 1994, 1995 and 1996
was $311,000, $476,000 and $451,000, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities at December 30, 1995 and December 28, 1996 consist
of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation ......................... $ 2,669 $ 3,533
Accrued insurance ............................ 2,071 2,134
Accrued retirement benefits .................. 866 1,611
Other accrued liabilities .................... 2,167 3,127
------- -------
$ 7,773 $10,405
======= =======
</TABLE>
7. LONG-TERM DEBT, INCLUDING CAPITAL LEASE OBLIGATIONS
At December 30, 1995 and December 28, 1996, long-term debt, including
capital lease obligations, consists of:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility .............................. $27,138 $30,058
Term loan facility ..................................... -- 12,000
Senior subordinated secured note payable ............... 5,000 10,000
14% subordinated notes payable to affiliates ........... 8,000 --
13% subordinated note payable to affiliate ............. 6,800 --
Capital lease obligations .............................. 2,547 3,220
------- -------
49,485 55,278
Less current maturities ................................ 970 3,027
------- -------
Long-term debt, including capital lease obligations .... $48,515 $52,251
======= =======
</TABLE>
On December 13, 1996, in connection with the Recapitalization, the
Company repaid its subordinated notes payable to affiliates and amended its
revolving credit and term loan facilities and senior subordinated secured note
payable.
Revolving Credit Facility and Term Loan Facility (the Credit Facility)
- -- The Company's Credit Facility provides for a revolving credit facility (due
December 1999) not to exceed $60.5 million less the outstanding term loan
facility, with interest payable on both facilities at the bank's base rate plus
1/4% or Eurodollar rate plus 2 3/4% at December 28, 1996 (the bank's base rate
plus 3/4% or LIBOR plus 3 1/4% at December 30, 1995). As of December 28, 1996,
the interest rate was 8.5%. A commitment fee of .50% per annum is paid on the
unused portion of the commitments. The term loan facility is due in
installments in varying amounts through December 1999.
F-11
<PAGE> 101
The Credit Facility is secured by all assets and stock of the Company
and guaranteed by Holding. The Credit Facility is to be used for working
capital purposes. Loans under the revolving credit facility plus outstanding
letters of credit are further restricted to a borrowing base formula of 85% of
eligible receivables plus 65% of eligible raw material and 50% of eligible
finished goods inventories. As of December 28, 1996, the formulas yielded a
maximum borrowing base of $47.6 million. At December 30, 1995 and December 28,
1996, outstanding letters of credit (which cannot exceed $5 million) totaled
$527,000 and $750,000, respectively. The term loan facility requires mandatory
monthly payments of $200,000, commencing on February 1, 1997, with the
remaining balance due December 1999. In addition, semiannual mandatory
prepayments in the amount of 25% of the last twelve months' excess cash flow,
as defined, beginning May 1, 1997, are required. The terms of the Credit
Facility contain, among other provisions, requirements for maintenance of
certain minimums for net worth, liquidity, fixed charge coverage, and capital
expenditures and place certain restrictions on dividend payments.
Senior subordinated secured note payable -- The Company has a senior
subordinated secured note payable to a supplier, with interest at prime plus 1%
(9.25% as of December 28, 1996), due December 1999, secured by a second
mortgage on certain real estate (subordinated only to the Credit Facility).
Subordinated notes payable to affiliates -- The Company's 13%
subordinated note and 14% subordinated notes with certain affiliates were
repaid in full in connection with the Recapitalization, including accrued
interest of $425,000. Interest of $2,223,000, $2,871,000, and $8,436,000 was
paid on the subordinated notes payable to affiliates for the fiscal years ended
1994, 1995 and 1996, respectively.
Scheduled maturities of long-term debt, including capital lease
obligations, are as follows (see Note 1 for proposed early repayments):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997 ....................................................... $ 2,200 $ 1,053
1998 ....................................................... 2,400 972
1999 ....................................................... 47,458 764
2000 ....................................................... -- 500
2001 and thereafter ........................................ -- 501
--------- ---------
52,058 3,790
Less amount representing interest .......................... -- 570
--------- ---------
Long-term debt and present value of future lease payments .. $ 52,058 $ 3,220
========= =========
</TABLE>
The Company paid interest of $6,053,000, $7,739,000 and $13,530,000
for the fiscal years ended 1994, 1995 and 1996, respectively.
The Company entered into $1,094,000, $1,282,000 and $1,443,000 in
capital leases during the fiscal year ending 1994, 1995 and 1996, respectively.
F-12
<PAGE> 102
8. OPERATING LEASES
The Company leases warehouse and office space and certain machinery
and equipment under operating leases. Future minimum payments on noncancelable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1997 ............................................................... $2,820
1998 ............................................................... 1,879
1999 ............................................................... 1,264
2000 ............................................................... 1,028
2001 and thereafter ................................................ 2,015
------
Total .................................................... $9,006
======
</TABLE>
Total rental expense for the fiscal years 1994, 1995 and 1996 was
$2,551,000, $3,035,000 and $3,572,000, respectively.
9. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
The Company has defined-contribution plans that cover eligible
employees of the Company. Company contributions to the plans are based on
employee contributions or compensation. The Company's contributions for the
fiscal years 1994, 1995 and 1996 were $801,000, $900,000 and $1,042,000,
respectively.
Defined Benefit Plans
In connection with the 1996 National Wire acquisition (see Note 3),
the Company assumed the liability for a retirement plan which covers certain
employees under a collective bargaining agreement. Plan benefits are based
primarily on years of service. It is the policy of the Company to fund this
plan currently based upon actuarial determinations, and applicable regulations.
A summary of the components of net periodic pension cost included in
earnings since the date of the acquisition is as follows (in thousands):
<TABLE>
<S> <C>
Service cost .................................................... $ 58
Interest cost on projected benefit obligation ................... 140
Actual return on plan assets .................................... (69)
Net amortization and deferral ................................... 15
-----
Net periodic pension cost ..................................... $ 144
=====
</TABLE>
The following table presents the funded status of the plan as of
December 28, 1996 (in thousands):
<TABLE>
<S> <C>
Actuarial present value of accumulated benefit obligations:
Vested ......................................................... $ 1,741
Nonvested ...................................................... 76
-------
Total .................................................. $ 1,817
=======
Actuarial present value of projected benefit obligation .......... $ 1,817
Plan assets at fair value ........................................ 1,178
-------
Projected benefit obligation ................................... $ (639)
=======
Assumptions:
Discount rate .................................................. 7.50%
Expected long-term rate of return on assets .................... 8.50%
</TABLE>
F-13
<PAGE> 103
The Company also contributes to certain multi-employer, defined
benefit plans covering certain employees under other collective bargaining
agreements. Total expenses for these plans were $55,000, $46,000 and $125,000
for fiscal years 1994, 1995 and 1996, respectively.
STOCK OPTIONS
On December 13, 1996, Holding issued noncompensatory options for
17,890 shares of Holding common stock to certain employees of the Company.
These options, exercisable for $1 per share, the fair market value of the
common stock at the date of grant, vest over a four-year period and expire five
years from the date of grant. No such options were granted in 1994 or 1995.
(See Note 2.)
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock- Based Compensation (SFAS 123). SFAS
123 establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. The Company has elected to use the
intrinsic value method of accounting as prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, for Holding's stock options granted to the Company's
employees. This method does not result in the recognition of compensation
expense when employee stock options are granted if the exercise price of the
option equals or exceeds the fair market value of the stock at the date of
grant.
If the accounting provisions of the new Statement had been adopted as
of the beginning of fiscal year 1995, the effect on fiscal year 1995 and 1996
earnings would not have been material. Further, based on current and
anticipated use of stock options by Holding, it is not envisioned that the
impact of the Statement's accounting provisions would be material in any future
period.
10. INCOME TAXES
As of December 31, 1994 and December 30, 1995, the Company had minimum
tax credit carry forwards of $1,274,000 and $1,031,000, respectively, which
were available to reduce future federal regular income taxes. At December 28,
1996, these minimum tax credit carryforwards were fully utilized.
Significant components of the provision for income taxes are as
follows for fiscal years 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal ................................ $ 1,575 $ 1,904 $ 4,206
State and local ........................ 218 841 1,109
------- ------- -------
1,793 2,745 5,315
Deferred:
Federal ................................ 535 1,140 (845)
State and local ........................ 550 173 (243)
------- ------- -------
1,085 1,313 (1,088)
------- ------- -------
Total .......................... $ 2,878 $ 4,058 $ 4,227
======= ======= =======
</TABLE>
F-14
<PAGE> 104
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as
of December 30, 1995 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation .............................. $ 4,397 $ 4,258
Other ................................................... 555 812
-------- --------
Total deferred tax liabilities ............................ 4,952 5,070
Deferred tax assets:
Stock options ........................................... -- 1,186
Minimum tax credit carryforwards ........................ 1,031 --
Inventory valuation ..................................... 432 1,209
Allowance for doubtful accounts ......................... 436 601
Self-insurance accruals ................................. 297 463
Book over tax amortization .............................. 192 29
Other ................................................... 166 272
-------- --------
Total deferred tax assets ....................... 2,554 3,760
-------- --------
Net deferred tax liabilities .................... $ 2,398 $ 1,310
======== ========
</TABLE>
The reconciliation of income tax computed at U.S. federal statutory
tax rates to income tax expense is as follows for fiscal years 1994, 1995 and
1996:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates ............................ $ 3,533 $ 3,537 $ 3,697
State and local income taxes, net of federal benefit ... 507 669 512
.......
Reduction in valuation allowance ....................... (1,809) -- --
Other, net ............................................. 647 (148) 18
------- ------- -------
$ 2,878 $ 4,058 $ 4,227
======= ======= =======
</TABLE>
The Company paid income taxes of $165,000, $4,043,000, and $4,938,000
for the fiscal years 1994, 1995 and 1996, respectively.
11. CONTINGENCIES
A former stockholder of Holding has exercised its appraisal rights and
filed a lawsuit against Holding with respect to the value of the common and
preferred stock redeemed in connection with the Recapitalization. Subsequent to
December 28, 1996, Holding paid the stockholder with respect to the value of
the preferred stock for $2.2 million, the original value offered in the
Recapitalization. The Company has recorded a liability to Holding for $3.7
million which is equal to the amount the stockholder would have received for
its common stock if it had not exercised its appraisal rights. Although
management believes the value that the Recapitalization provided to be paid to
holders of Holding common stock was fair to such holders, there can be no
assurance that the court will agree. Any difference resulting from the
settlement of the value of the common stock would be recorded as an adjustment
to the contribution of capital from Holding and would therefore have no effect
on the operating results of the Company.
The Company is involved in a number of legal actions arising in the
ordinary course of business. The Company believes that the various asserted
claims and litigation in which it is involved will not materially affect its
financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome of any such claim or litigation.
F-15
<PAGE> 105
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 (BY FISCAL QUARTER)
-----------------------------------------
1 2 3 4
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ......................... $ 49,149 $ 66,736 $ 62,306 $ 55,093
Gross profit ...................... 8,132 11,473 9,787 7,769
Net income ........................ 1,198 2,345 2,002 801
</TABLE>
<TABLE>
<CAPTION>
1996 (BY FISCAL QUARTER)
-----------------------------------------
1 2 3 4
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ......................... $ 51,777 $ 76,426 $ 82,593 $ 72,606
Gross profit ...................... 7,595 13,049 13,430 10,889
Nonrecurring expenses(a) .......... -- -- -- 3,106
Net income (loss) ................. 291 3,393 3,316 (663)
</TABLE>
- ----------
(a) In the fourth quarter, the Company recorded nonrecurring
expenses resulting from the modification of stock options granted in
previous years as part of the Recapitalization of the Company and
Holding (see Note 2).
F-16
<PAGE> 106
MMI PRODUCTS, INC.
BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED )
ASSETS
<TABLE>
<CAPTION>
JUNE 28, 1997
-------------
<S> <C>
Current assets:
Cash and cash equivalents ..................................... $ 2,321
Accounts receivable, net of allowance for doubtful
accounts of $1,611 ......................................... 51,412
Inventories ................................................... 45,427
Prepaid expenses .............................................. 1,040
Deferred income taxes ......................................... 2,952
---------
Total current assets ............................................. 103,152
Property, plant and equipment
Land .......................................................... 4,814
Buildings and improvements .................................... 15,713
Machinery and equipment ....................................... 48,899
---------
69,426
Less accumulated depreciation ................................. 24,060
---------
45,366
Intangible assets ................................................ 5,935
Deferred charges and other assets ................................ 5,380
---------
Total assets .................................................. $ 159,833
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable .............................................. $ 38,066
Accrued liabilities ........................................... 12,099
Accrued income taxes .......................................... 527
Due to Holding ................................................ 3,705
Current maturities of long-term debt, including
capital lease obligations ................................... 986
---------
Total current liabilities ......................... 55,293
Long-term debt, including capital lease obligations .............. 122,871
Deferred income taxes ............................................ 5,207
Other long-term liabilities ...................................... 318
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value; 500,000 shares
authorized; 252,000 shares issued and outstanding .......... 252
Additional paid-in capital .................................... 14,711
Retained earnings (deficit) ................................... (38,819)
---------
Total stockholder's equity (deficit) ................... (23,856)
---------
Total liabilities and stockholder's equity ....................... $ 159,833
=========
</TABLE>
See accompanying notes.
F-17
<PAGE> 107
MMI PRODUCTS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIODS
-----------------
ENDED
-----
JUNE 29, JUNE 28,
1996 1997
--------- ---------
<S> <C> <C>
Net sales .............................................. $ 128,203 $ 168,631
Cost of sales .......................................... 107,559 144,204
--------- ---------
Gross profit ....................................... 20,644 24,427
Selling, general and administrative expenses ........... 10,848 12,193
Other income, net ...................................... 148 (162)
--------- ---------
Income before interest and income taxes ................ 9,648 12,396
Interest expense ....................................... 3,511 4,954
--------- ---------
Income before income taxes ............................. 6,137 7,442
Provision for income taxes ............................. 2,453 2,976
--------- ---------
Net income ............................................. $ 3,684 $ 4,466
========= =========
</TABLE>
See accompanying notes.
F-18
<PAGE> 108
MMI PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
-----------------------
JUNE 29, JUNE 28,
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .............................................. $ 3,684 $ 4,466
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ........................ 1,904 2,694
Other ................................................ 409 1,052
Changes in operating assets and liabilities:
Increase in accounts receivable ...................... (10,796) (15,780)
Increase in inventories .............................. (4,437) (3,740)
Increase in accounts payable and
accrued liabilities ................................ 13,038 10,918
Decrease in deferred interest payable - affiliates ... (5,878) --
Decrease in due to Holding ........................... -- (2,105)
Other ................................................ 1,728 114
--------- ---------
Cash used in operating activities ....................... (348) (2,381)
INVESTING ACTIVITIES
Purchase of property, plant and equipment ............... (1,335) (2,187)
Other ................................................... 35 40
--------- ---------
Cash used in investing activities ....................... (1,300) (2,147)
FINANCING ACTIVITIES
Proceeds from long-term debt ............................ 40,890 160,189
Payments on long-term debt, including capital
lease obligations..................................... (40,303) (96,606)
Distribution to Holding ................................. -- (56,968)
--------- ---------
Cash provided by financing activities ................... 587 6,615
--------- ---------
Increase (decrease) in cash and
cash equivalents ..................................... $ ( 1,061) $ 2,087
========= =========
</TABLE>
See accompanying notes.
F-19
<PAGE> 109
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. 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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 28, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ended January 3, 1998. For further information, refer to the
audited financial statements and notes thereto included elsewhere in this
Prospectus.
2. INVENTORIES
Inventories consist of the following at June 28, 1997 (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Raw materials................................ $10,130
Work-in-process.............................. 227
Finished goods............................... 35,070
-------
$45,427
=======
</TABLE>
3. LONG-TERM DEBT
On April 16, 1997, MMI Products, Inc. (the Company) issued $120 million of
senior subordinated notes due 2007. The net proceeds of $116.1 million, after
estimated fees and expenses, were used (i) to distribute $57 million to
Merchants Metals Holding Company (Holding), the sole owner of the Company's
common stock, to permit the redemption of certain of Holding's equity
interests, (ii) to repay the entire $10 million principal amount, plus accrued
but unpaid interest, on a senior subordinated secured note payable, (iii) to
repay the Company's remaining indebtedness under a term loan facility of $11.4
million and (iv) to reduce the Company's indebtedness under its revolving
credit facility.
On April 15, 1997, the Company's revolving credit facility of $48.5 million was
amended to extend it through December 2001 with interest payable at the bank's
base rate plus 1/4% or Eurodollar rate plus 2%. The terms of the revolving
credit facility contain, among other provisions, requirements for maintenance
of certain minimums for liquidity and capital expenditures and place certain
restrictions on dividend payments.
4. CONTINGENCIES
A former stockholder of Holding has exercised its appraisal rights and filed a
lawsuit against Holding with respect to the value of the common and preferred
stock redeemed in connection with a recapitalization transaction (the
Recapitalization) which occurred on December 13, 1996. In January 1997, Holding
paid the stockholder $2.2 million with respect to the value of the preferred
stock, the original value offered in the Recapitalization. The Company has
recorded a liability to Holding for $3.7 million which is equal to the amount
the stockholder would have received for its common stock if it had not
exercised its appraisal rights. Although management believes the value that the
Recapitalization provided to be paid to holders of
F-20
<PAGE> 110
Holding common stock was fair to such holders, there can be no assurance that
the court will agree. Any difference resulting from the settlement of the value
of the common stock would be recorded as an adjustment to the contribution of
capital from Holding and would therefore have no effect on the operating
results of the Company.
The Company is involved in a number of legal actions arising in the ordinary
course of business. The Company believes that the various asserted claims and
litigation in which it is involved will not materially affect its financial
position or future operating results, although no assurance can be given with
respect to the ultimate outcome of any such claim or litigation.
5. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
----------------------------------
MARCH 29, 1997 JUNE 28, 1997
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net Sales............................. $69,587 $99,044
Gross Profit.......................... 9,161 15,266
Net Income............................ 832 3,634
</TABLE>
F-21
<PAGE> 111
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN
THE EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANYONE OR BY
ANYONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 12
Use of Proceeds ........................................................... 17
Selected Financial Data ................................................... 18
Management's Discussion and Analysis Of
Financial Condition and Results of Operations ........................... 20
Business .................................................................. 27
Management ................................................................ 39
Security Ownership ........................................................ 44
Certain Transactions ...................................................... 46
The Exchange Offer ........................................................ 47
Description of Exchange Notes ............................................. 55
Certain United States Federal Income Tax
Considerations .......................................................... 78
Description of Credit Facility ............................................ 80
Description of Equity Interests ........................................... 80
Plan of Distribution ...................................................... 82
Legal Matters ............................................................. 83
Experts ................................................................... 83
Index to Financial Statements ............................................. F-1
</TABLE>
UNTIL , 1997, (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
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.
===============================================================================
===============================================================================
MMI PRODUCTS, INC.
OFFER TO EXCHANGE
ITS 11 1/4% SENIOR SUBORDINATED
NOTES DUE 2007 (SERIES B)
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES
DUE 2007 (SERIES A)
-----------------------------
PROSPECTUS
------------------------------
, 1997
-------------
===============================================================================
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law (the "DGCL"), 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 reason 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.
Article VIII of the Company's Restated Certificate of Incorporation
(the "Restated Certificate") provides for the indemnification of directors,
officers, employees and agents of the Company to the fullest extent permitted
by the DGCL, as it currently exists or may hereafter be amended. In addition,
the Restated Certificate provides that to the fullest extent permitted by the
DGCL, as it currently exists or may hereafter be amended, no director of the
Company will be liable to the Company or its stockholders for monetary damages
arising from a breach of fiduciary duty owed to the Company.
The foregoing statements are subject to the detailed provisions of
Section 145 of the DGCL and the Restated Certificate.
II-1
<PAGE> 113
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<S> <C>
3.1* Restated Certificate of Incorporation of MMI Products, Inc.
3.2* Amended and Restated By-laws of MMI Products, Inc.
4.1* Indenture dated as of April 16, 1997 between MMI Products, Inc. and U.S. Trust
Company of Texas, N.A.
4.2* Registration Rights Agreement dated as of April 16, 1997 among MMI Products, Inc.
and Bear, Stearns & Co. Inc.
5.1* Opinion and consent of Baker & Botts, L.L.P.
10.1* Amended and Restated Loan and Security Agreement dated as of
December 13, 1996 among MMI Products, Inc., Fleet Capital
Corporation, as a lender and collateral agent, and
Transamerica Business Credit Corporation, as amended.
10.2* Stockholders Agreement dated as of December 13, 1996 by and
among Merchant Metals Holding Company and certain of its
stockholders.
10.3* Employment Agreement dated as of December 31, 1994 by and among MMI Products,
Inc. and Julius S. Burns, as amended.
10.4* MMI Products, Inc. Pension Plan, as amended.
10.5* Amended and Restated Put Agreement dated as of June 11, 1997, between Merchants
Metals Holding Company and Julius S. Burns.
10.6* Procurement Agreement dated as of December 13, 1996 between MMI Products, Inc.
and Mannesmann Pipe & Steel Corporation, as amended.
10.7* The Merchants Metals Holding Company 1988 Stock Option Plan dated as of December
12, 1988, as amended.
10.8* The MMI Products, Inc. 401(k) Savings Plan, as amended.
10.9* Non-Competition Agreement dated as of December 31, 1994 between MMI Products,
Inc. and Julius S. Burns.
10.10* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Julius S. Burns.
10.11* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Carl L. Blonkvist.
10.12* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Thomas. F. McWilliams.
10.13* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
James M. McCall.
10.14* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Davy J. Wilkes.
10.15* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Robert N. Tenczar.
10.16* Purchase Agreement dated as of April 11, 1997 among MMI Products, Inc. and Bear,
Stearns & Co. Inc.
10.17* Limited Liability Company Agreement of MMI Products, L.L.C.
10.18* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Julius S. Burns.
10.19* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Robert N. Tenczar.
10.20* Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and James
M. McCall.
10.21* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Davy J. Wilkes.
10.22* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and William T. Stewart.
10.23* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Michael W. Babcock.
</TABLE>
II-2
<PAGE> 114
<TABLE>
<S> <C>
10.24* Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and Michael
Weaver.
12.1* Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1* Subsidiaries of MMI Products, Inc.
23.1** Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Baker & Botts, L.L.P. (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.
27.1* Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Tender Instructions.
</TABLE>
- ------------
*Previously filed.
**Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Schedule No. Description
------------ -----------
<S> <C>
Schedule II Valuation and Qualifying Accounts
</TABLE>
All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are inapplicable and
therefore have been omitted.
II-3
<PAGE> 115
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) 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.
(2) 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.
(3) 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 provision 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.
II-4
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on August 15, 1997.
MMI PRODUCTS, INC.
By: /s/ Julius S. Burns
-------------------------------------
Julius S. Burns
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement has been signed by the following
persons on August 15, 1997 in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Julius S. Burns President and Chief Executive Officer, Director
- ----------------------------------------- (principal executive officer)
Julius S. Burns
* Vice President, Chief Financial Officer
- ----------------------------------------- (principal financial officer and accounting officer)
Robert N. Tenczar
*
- ----------------------------------------- Director
Thomas F. McWilliams
*
- ----------------------------------------- Director
Carl L. Blonkvist
*By: /s/ Julius S. Burns
-------------------------------------
Julius S. Burns
Attorney-in-fact
</TABLE>
<PAGE> 117
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
We have audited the financial statements of MMI Products, Inc. as of
December 28, 1996 and December 30, 1995, and for each of the three fiscal years
in the period ended December 28, 1996, and have issued our report thereon dated
March 10, 1997 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 21(B) of this
Registration Statement. This 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.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 10, 1997
S-1
<PAGE> 118
SCHEDULE II
MMI PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Deductions End of
of Period Expenses Describe Period
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended December 28, 1996:
Allowance for Doubtful Accounts $ 1,314 $ 879 $ (492)(1) $ 1,701
Reserve for damaged and
slow-moving inventory 417 1,558 (142)(2) 1,833
Fiscal Year Ended December 30, 1995:
Allowance for Doubtful Accounts $ 1,546 $ 448 $ (680)(1) $ 1,314
Reserve for damaged and
slow-moving inventory 123 623 (329)(2) 417
Fiscal Year Ended December 31, 1994:
Allowance for Doubtful Accounts $ 1,213 $ 725 $ (392)(1) $ 1,546
Reserve for damaged and
slow-moving inventory 50 76 (3)(2) 123
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Write off of inventory.
S-2
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.1* Restated Certificate of Incorporation of MMI Products, Inc.
3.2* Amended and Restated By-laws of MMI Products, Inc.
4.1* Indenture dated as of April 16, 1997 between MMI Products, Inc. and U.S. Trust
Company of Texas, N.A.
4.2* Registration Rights Agreement dated as of April 16, 1997 among MMI Products, Inc.
and Bear, Stearns & Co. Inc.
5.1* Opinion and consent of Baker & Botts, L.L.P.
10.1* Amended and Restated Loan and Security Agreement dated as of
December 13, 1996 among MMI Products, Inc., Fleet Capital
Corporation, as a lender and collateral agent, and
Transamerica Business Credit Corporation, as amended.
10.2* Stockholders Agreement dated as of December 13, 1996 by and
among Merchant Metals Holding Company and certain of its
stockholders.
10.3* Employment Agreement dated as of December 31, 1994 by and among MMI Products,
Inc. and Julius S. Burns, as amended.
10.4* MMI Products, Inc. Pension Plan, as amended.
10.5* Amended and Restated Put Agreement dated as of June 11, 1997, between Merchants
Metals Holding Company and Julius S. Burns.
10.6* Procurement Agreement dated as of December 13, 1996 between MMI Products, Inc.
and Mannesmann Pipe & Steel Corporation, as amended.
10.7* The Merchants Metals Holding Company 1988 Stock Option Plan dated as of December
12, 1988, as amended.
10.8* The MMI Products, Inc. 401(k) Savings Plan, as amended.
10.9* Non-Competition Agreement dated as of December 31, 1994 between MMI Products,
Inc. and Julius S. Burns.
10.10* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Julius S. Burns.
10.11* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Carl L. Blonkvist.
10.12* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Thomas. F. McWilliams.
10.13* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
James M. McCall.
10.14* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Davy J. Wilkes.
10.15* Indemnification Agreement dated as of April 16, 1997 between MMI Products, Inc. and
Robert N. Tenczar.
10.16* Purchase Agreement dated as of April 11, 1997 among MMI Products, Inc. and Bear,
Stearns & Co. Inc.
10.17* Limited Liability Company Agreement of MMI Products, L.L.C.
10.18* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Julius S. Burns.
10.19* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Robert N. Tenczar.
10.20* Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and James
M. McCall.
10.21* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Davy J. Wilkes.
10.22* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and William T. Stewart.
</TABLE>
<PAGE> 120
<TABLE>
<S> <C>
10.23* Amended and Restated Repurchase Agreement dated as of June 12, 1997 between
Merchants Metals Holding Company and Michael W. Babcock.
10.24* Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and Michael
Weaver.
12.1* Statement of Computation of Ratios of Earnings to Fixed Charges.
21.1* Subsidiaries of MMI Products, Inc.
23.1** Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Baker & Botts, L.L.P. (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.
27.1* Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Tender Instructions.
</TABLE>
- ------------
**Filed herewith.
*Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Summary Financial
Data", "Selected Financial Data", and "Experts" and to the use of our reports
dated March 10, 1997, in Amendment No. 2 to the Registration Statement (Form
S-4 No. 333-29141) and related Prospectus of MMI Products, Inc.
/s/ ERNST & YOUNG LLP
Houston, Texas
August 14, 1997
