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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-30699
PROSPECTUS
[LOGO]
RELIANT BUILDING PRODUCTS, INC.
OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF 10 7/8% SENIOR
SUBORDINATED NOTES DUE 2004 FOR EACH $1,000 PRINCIPAL AMOUNT OF
OUTSTANDING 10 7/8% SENIOR SUBORDINATED NOTES DUE 2004
Reliant Building Products, Inc., a Delaware corporation (a wholly-owned
subsidiary of RBPI Holding Corporation ("Holdings")) (the "Company"), hereby
offers to exchange (the "Exchange Offer") up to $70,000,000 in aggregate
principal amount of its 10 7/8% Series B Senior Subordinated Notes due 2004 (the
"Exchange Notes") for up to $70,000,000 in aggregate principal amount of its
outstanding 10 7/8% Series A Senior Subordinated Notes due 2004 that were issued
and sold in reliance upon an exemption from registration under the Securities
Act of 1933, as amended (the "Senior Subordinated Notes" and, together with the
Exchange Notes, the "Notes").
The terms of the Exchange Notes will be the same in all respects (including
principal amount, interest rate, maturity and ranking) as the terms of the
Senior Subordinated Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and therefore will
not be subject to certain restrictions on transfer applicable to the Senior
Subordinated Notes. The Exchange Notes will be issued under the Indenture (as
defined) governing the Senior Subordinated Notes, and the Exchange Notes will
not be entitled to registration rights except under certain limited
circumstances. The Senior Subordinated Notes are, and the Exchange Notes will
be, unsecured and will be subordinated to all existing and future Senior
Indebtedness (as defined) of the Company. The Notes will rank PARI PASSU with
any future senior subordinated indebtedness of the Company and will rank senior
to all other Subordinated Indebtedness (as defined) of the Company. The Senior
Subordinated Notes are, and the Exchange Notes will be, jointly and severally,
and fully and unconditionally guaranteed, on a senior subordinated basis, by
each of the Company's direct and indirect subsidiaries on the issue date of the
Senior Subordinated Notes and by each direct and indirect subsidiary of the
Company (excluding Unrestricted Subsidiaries (as defined)) formed or acquired
thereafter (collectively, the "Guarantors"). Initially, the Guarantors will
consist of LeVan Builders Supply Company, Inc., RBP of Arizona, Inc., RBP Custom
Glass, Inc., RBP Trans, Inc., RBP Fenesco, Inc., RBP of Texas, Inc. and Timber
Tech, Inc. The Indenture permits the Company to incur additional indebtedness,
including Senior Indebtedness, subject to certain limitations. See "Description
of the Notes." At August 1, 1997, the Company had outstanding $2,427,576 of
Senior Indebtedness, $70,000,000 of Senior Subordinated Indebtedness and
$899,334 of Subordinated Indebtedness. For a description of the terms of the
Exchange Notes, see "Description of the Notes." There will be no cash proceeds
to the Company from the Exchange Offer.
The Senior Subordinated Notes were originally issued and sold on May 9, 1997 in
a transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A of the
Securities Act (the "Initial Offering"). Accordingly, the Senior Subordinated
Notes may not be reoffered, resold or otherwise pledged, hypothecated or
transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Based upon interpretations provided to third parties by the Staff (the "Staff")
of the Securities and Exchange Commission (the "Commission"), the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Senior Subordinated Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any holder which is (i) an
"affiliate" of the Company within the meaning of the Securities Act (an
"Affiliate"), (ii) a broker-dealer who acquired Senior Subordinated Notes
directly from the Company or (iii) a broker-dealer who acquired Senior
Subordinated Notes as a result of market-making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
with any person to participate in a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal that is filed
as an exhibit to the Registration Statement of which this Prospectus is a part
(the "Letter of Transmittal") states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Senior
Subordinated Notes where such Senior Subordinated Notes were acquired by such
broker-dealer as a result of market-making or other trading activities. The
Company has agreed that, for a period of 180 days after the Expiration Date (as
defined), it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See "Plan of Distribution."
The Senior Subordinated Notes and the Exchange Notes constitute new issues of
securities with no established public trading market. The Company does not
intend to apply for listing of the Exchange Notes on any national securities
exchange or for their quotation through the National Association of Securities
Dealers Automated Quotation System. Therefore, there can be no assurance as to
the development or liquidity of any trading market for the Exchange Notes. Any
Senior Subordinated Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Senior Subordinated Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Senior Subordinated Notes could be adversely affected.
Following consummation of the Exchange Offer, the holders of Senior Subordinated
Notes will continue to be subject to the existing restrictions on transfer
thereof and the Company will have no further obligation to register such Senior
Subordinated Notes under the Securities Act except under certain limited
circumstances. See "Description of the Notes--Senior Subordinated Notes
Registration Rights."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Subordinated Notes being tendered or accepted for exchange. The
Exchange Offer will expire at 5:00 p.m., New York City time, on October 6, 1997,
unless extended (the "Expiration Date"). The date of acceptance for exchange of
the Senior Subordinated Notes (the "Exchange Date") will be the Expiration Date,
upon surrender of the Senior Subordinated Notes. Senior Subordinated Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. Otherwise such tenders are irrevocable.
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SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 5, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in this entirety by such reference.
Upon consummation of the Exchange Offer, the Company will become subject to
the periodic reporting and to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies can be obtained by mail at prescribed rates. Requests for
copies should be directed to the Commission's Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site (http:// www.sec.gov) that contains reports, proxy and
information statements regarding registrants that file electronically with the
Commission. Copies of such material can be obtained from the Company upon
request.
The Company is required by the terms of the indenture dated as of May 9,
1997 between the Company, the Guarantors and Bank One, N.A. (formerly known as
Bank One Columbus, N.A.), as trustee (the "Trustee"), under which the Senior
Subordinated Notes were issued and under which the Exchange Notes are to be
issued (the "Indenture"), to furnish the Trustee and the holders of the Notes
with annual reports containing consolidated financial statements audited by its
independent certified public accountants, with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year and with current reports on Form 8-K.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OF MADE
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF ANY OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
MARKET AND INDUSTRY DATA
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY AND CONDUCTED BY THIRD
PARTIES AND FROM INDUSTRY OR GENERAL PUBLICATIONS. THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY THIRD PARTIES OR INDUSTRY
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OR GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY
THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL STATEMENTS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL THESE FORWARD LOOKING
STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE
COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN.
THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND
STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS
WILL BE REALIZED AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) CHANGES IN GENERAL ECONOMIC
CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY FROM TIME TO TIME COMPETE;
AND (5) CHANGES IN THE NUMBER OF HOUSING STARTS IN THESE MARKETS. MANY OF SUCH
FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR
FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF
THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN
THIS PROSPECTUS, UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES TO THE
"COMPANY" MEAN RELIANT BUILDING PRODUCTS, INC. AND ITS CONSOLIDATED
SUBSIDIARIES. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO
WINDOW MARKET UNIT DATA ARE DERIVED FROM THE NEW CONSTRUCTION REPORT--APRIL 1996
AND THE REPAIR AND REMODELING REPORT--APRIL 1996 PREPARED BY F.W. DODGE AND ALL
REFERENCES TO OTHER INDUSTRY DATA (INCLUDING WITH RESPECT TO THE COMPANY'S
MARKET SHARE IN ITS PRIMARY MARKET) ARE DERIVED FROM COMPANY ESTIMATES BELIEVED
TO BE RELIABLE. REFERENCES HEREIN TO (I) THE "NON-WOOD SEGMENT" REFER TO THE NEW
CONSTRUCTION NON-WOOD WINDOW SEGMENT OF THE U.S. RESIDENTIAL WINDOW MARKET; (II)
THE "ALUMINUM SEGMENT" REFER TO THE NEW CONSTRUCTION ALUMINUM WINDOW SEGMENT OF
THE U.S. RESIDENTIAL WINDOW MARKET; AND (III) THE "VINYL SEGMENT" REFER TO THE
NEW CONSTRUCTION VINYL WINDOW SEGMENT OF THE U.S. RESIDENTIAL WINDOW MARKET.
REFERENCES HEREIN TO THE COMPANY'S PRIMARY MARKET REFER TO THE FOLLOWING STATES:
ALABAMA, ARIZONA, CALIFORNIA, COLORADO, FLORIDA, GEORGIA, ILLINOIS, KENTUCKY,
LOUISIANA, NEVADA, NEW MEXICO, NORTH CAROLINA, TENNESSEE, TEXAS AND VIRGINIA.
REFERENCES HEREIN TO "CAGR" MEAN COMPOUND ANNUAL GROWTH RATE. AS USED IN THIS
PROSPECTUS, REFERENCES TO FISCAL YEAR MEAN THE COMPANY'S FISCAL YEAR ENDED THE
FRIDAY CLOSEST TO MARCH 31 OF SUCH YEAR.
THE COMPANY
COMPANY OVERVIEW
The Company is one of the nation's largest manufacturers of aluminum and
vinyl, or non-wood, framed windows for the residential new construction market.
The Company believes that it is the largest competitor in the Non-Wood Segment
of its Primary Market and that it is the largest or second largest such
competitor in each state within its Primary Market. The Company's products are
marketed under well recognized brand names, including ALENCO and GAPCO, across
all major price points. Sales in the Company's Primary Market represented 84.8%
of the Company's fiscal year 1997 window net sales. The Company estimates that
it has a 23% market share in the Non-Wood Segment of its Primary Market. The
Company's Primary Market includes some of the fastest growing residential
housing markets in the United States with a CAGR in housing starts of 7.9% for
the five-year period ended December 31, 1996, compared to 5.3% nationally for
the same period. The Company's net sales increased at a CAGR of 11.6% from
$112.0 million in fiscal year 1993 to $174.4 million in fiscal year 1997.
Historically, the Company has emphasized the sale of aluminum windows, which
are the product of choice in the Company's Primary Market. The Company
attributes the preference for aluminum windows in its Primary Market primarily
to aluminum's lower cost and the reduced need for thermal efficiency in homes in
moderate southern climates. The Company estimates that its market share in the
Aluminum Segment of its Primary Market has increased from approximately 23% in
fiscal year 1993 to 29% in fiscal year 1997.
Over the past four years, the Company has increased its focus on the sale of
vinyl windows. The Vinyl Segment is the fastest growing segment of the new
construction window market, growing at a 39.4% CAGR from 1992 to 1996 on a
national basis and at a 63.0% CAGR in the Company's Primary Market over the same
period. Demand for vinyl windows increased during this period as manufacturers
such as the Company offered more thermally efficient vinyl windows of higher
quality and improved appearance at more competitive prices. Over the 1993 to
1995 period, the Company implemented the first phase of a comprehensive vinyl
market penetration program, which enabled the Company to manufacture
vinyl-framed windows at four of its five residential window manufacturing
facilities. The Company increased its vinyl sales from $2.2 million in fiscal
year 1992 to $29.1 million in fiscal year 1997. The Company believes that it is
well positioned to continue to increase its sales of vinyl windows due to
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its broad product line, well established distribution base and strategically
located manufacturing facilities.
INDUSTRY OVERVIEW
The Company primarily competes in the $875 million aluminum and vinyl, or
Non-Wood Segment, of the $7.5 billion U.S. residential window industry. Over the
1992 to 1996 period, the volume of non-wood windows sold in the residential new
construction market grew by a 7.4% CAGR in the Company's Primary Market,
compared to 5.5% for the nation as a whole. The new construction and repair and
remodel markets are highly fragmented and historically have consisted of a large
number of relatively small, independent businesses serving discrete local
markets and a small number of multi-regional operators. Relative to smaller
competitors, larger multi-regional operators such as the Company benefit from
several competitive advantages, including economies of scale in purchasing,
manufacturing and distribution and the ability to attract and retain strong
distributors.
COMPETITIVE STRENGTHS
The Company believes that it benefits from the following competitive
advantages, which have contributed to an increase in net sales and operating
income and to the Company's maintenance of its leading market position in the
Non-Wood Segment:
INDUSTRY LEADERSHIP. The Company believes that it is the largest competitor
in the Non-Wood Segment of its Primary Market and that it is the largest or
second largest such competitor in each state within its Primary Market. The
Company believes that its market leadership position, broad product line across
all major price points and reputation for high quality provide it with several
competitive advantages, including: (i) the ability to attract and retain many of
the strongest distributors within its markets; (ii) the ability to serve a
customer base on a broad geographic basis; and (iii) economies of scale related
to the Company's manufacturing, purchasing and distribution operations. The
Company believes that its industry leadership position may also allow it to
benefit from the consolidation currently occurring within the Non-Wood Segment.
WELL RECOGNIZED BRAND NAMES. The Company's ALENCO and GAPCO brand names
have been well established in the industry for over 40 years. ALENCO has
consistently ranked as the nation's most recognized non-wood window brand name
according to BUILDER and PROFESSIONAL BUILDER magazines, two of the leading
industry trade publications. The GAPCO brand is regionally focused in the
Midwest, Mid-Atlantic and Southeast regions and has achieved a high degree of
recognition in those markets. The Company has established well recognized brand
names primarily by providing high quality products and strong customer service.
The Company has successfully leveraged the strength of its brands to expand its
product offerings, particularly with regard to vinyl products, and to expand its
geographic market coverage. The Company intends to utilize the strength of its
brand names to increase its penetration in its existing markets and pursue
expansion into new markets.
STRONG MANUFACTURING AND DISTRIBUTION NETWORK. The Company's strategically
located manufacturing facilities allow it to provide its customers with one-stop
shopping across all major price points on a cost-effective and timely basis. The
Company operates five residential window manufacturing facilities serving over
200 distributors who generally distribute the Company's products on an exclusive
basis. The Company attributes its ability to establish exclusive relationships
with many of the strongest distributors in its markets to its: (i) broad product
offerings across all major price points; (ii) well recognized brand names; (iii)
reputation for high quality; and (iv) high level of customer service. These
factors have resulted in a loyal distributor base characterized by low turnover.
The average tenure of the Company's relationships with its distributors is in
excess of 24 years.
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LOW-COST MANUFACTURING. The Company believes that it is one of the lowest
cost manufacturers of vinyl and aluminum windows. This advantage is primarily
attributable to: (i) centralized purchasing of major raw materials and
equipment; (ii) automation of manufacturing processes such as glass cutting and
the manufacture of insulated glass; and (iii) vertical integration. The Company
believes that it is one of the industry's most vertically integrated non-wood
window manufacturers. In addition to extruding and recycling aluminum, the
Company produces processed glass and window components, which provide it with a
reliable source of high-quality materials.
CUSTOMER SERVICE. The Company's systems, processes and organization are
designed specifically to provide a high level of customer service. The Company
believes that it offers its distributors high quality, competitively priced
products and short lead times while maintaining high order-fill rates. The
Company's lead time is generally between five to ten working days on a
make-to-order basis. Furthermore, on-time delivery and order-fill rates
typically run in the 95-98% range, which the Company believes are among the best
in the industry.
EXPERIENCED MANAGEMENT. The Company has assembled a strong and experienced
management team at the corporate and operating levels. At the corporate level,
the top three members of the senior management team have an average of 15 years
of experience with the Company. The Company's operational managers, who manage
the Company's six window manufacturing facilities, have an average of ten years
of experience with the Company and 25 years of industry experience. Senior
executives of the Company own approximately 4% of the outstanding common stock
of Holdings.
BUSINESS STRATEGY
The Company's strategy for enhancing its market leadership position and
maximizing profitability and cash flow includes: (i) expanding market
penetration in the Vinyl Segment; (ii) expanding into attractive geographic
markets; (iii) achieving cost reductions; (iv) expanding into the repair and
remodel market; and (v) pursuing selected strategic acquisitions.
EXPAND PENETRATION IN THE VINYL SEGMENT. The Company believes that it is
among the largest manufacturers of residential new construction vinyl windows in
the United States, and that no single competitor holds a dominant position in
this market. The Vinyl Segment is the fastest growing segment of the window
market, growing at a 39.4% CAGR from 1992 to 1996 on a national basis, and a
63.0% CAGR in the Company's Primary Market. The Company recognized the potential
for growth in sales of vinyl windows early in the product life cycle and, over
the 1993 to 1995 period, established vinyl manufacturing capabilities at four of
its five residential window manufacturing facilities. As a result, the Company's
sales of vinyl windows increased from $2.2 million in fiscal year 1992 to $29.1
million in fiscal year 1997. The Company believes it is well positioned to
continue its expansion in the Vinyl Segment and intends to leverage its well
recognized brand names, broad product line and established distribution network
in an effort to increase its vinyl window sales. The Company intends to achieve
this growth by increasing sales to existing distributors and by entering new
geographic markets.
EXPAND INTO ATTRACTIVE GEOGRAPHIC MARKETS. The Company intends to continue
to expand its business by entering geographic areas contiguous to the Company's
existing markets, as well as by targeting new markets with attractive growth
characteristics. The Company is actively pursuing expansion opportunities in
regions that exhibit favorable demographic trends, particularly with respect to
population growth, concentration of population base and housing starts. The
Company believes that it has advantages in penetrating new markets due to its
ability to offer customers well recognized brand name windows, a high level of
customer service and one-stop shopping for non-wood windows.
ACHIEVE COST REDUCTIONS. The Company expects to benefit from more than $5.0
million of annual cost reductions over the next three years. Approximately $1.2
million of these cost reductions are associated with previously implemented
initiatives that were completed in the fourth quarter of fiscal year
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1997, including the automation of labor intensive operations and strategic
initiatives with key raw material suppliers. The balance of the annual cost
reductions, or approximately $3.8 million, is associated with new initiatives
that the Company intends to implement over the next two years, including: (i)
improvements in manufacturing processes; (ii) materials cost reductions; (iii)
continued improvements in information systems; and (iv) additional factory
automation. However, a large portion of these cost savings will likely not be
achieved until fiscal year 1999 and there can be no assurance that any such cost
savings can be achieved or, specifically, that they can be achieved within three
years.
EXPAND INTO THE REPAIR AND REMODEL MARKET. The Company believes that the
highly fragmented $2.8 billion non-wood repair and remodel market represents a
significant opportunity. The repair and remodel market is generally
counter-cyclical and provides the Company with the ability to diversify its
product mix as well as increase sales. The Company intends to increase its
presence in this market by leveraging its well recognized brand names and
utilizing its existing strong manufacturing and distribution network to
penetrate existing geographic markets and to expand into new markets through
selected acquisitions.
PURSUE SELECTED STRATEGIC ACQUISITIONS. The Company intends to pursue
opportunities to make acquisitions that complement and expand its core business
or enable the Company to enter new markets for its products. The non-wood new
construction and repair and remodel markets are highly fragmented with over 350
manufacturers, the majority of which are small regional manufacturers. The
Company believes that significant opportunities exist to make selected strategic
acquisitions at attractive valuations. Strategic acquisitions could allow the
Company to (i) leverage its well recognized brand names; (ii) achieve cost
reductions through purchasing economies and the application of the Company's
best manufacturing practices; and (iii) further diversify the Company's
geographic, product and market focus, including expansion into the repair and
remodel market. However, no assurance can be given that the Company will be able
to complete strategic acquisitions at attractive valuations.
The Company is a Delaware corporation. Its principal executive offices are
located at 3030 LBJ Freeway, Suite 300, Dallas, Texas 75234, and its telephone
number is (972) 919-1000.
OWNERSHIP AND MANAGEMENT
Reliant Partners, L.P. ("Reliant Partners") and Reliant Partners II, L.P.
("Reliant Partners II") were formed by principals of Keystone, Inc.
("Keystone"), FW Strategic Partners, L.P. ("Strategic Partners") and employees
of George Group Inc. ("George Group") for the purpose of effecting the
Transaction (as defined below). Keystone, formerly Robert M. Bass Group, Inc.,
is the principal investment entity of Robert M. Bass. Since 1987, Keystone and
associated entities have directly and indirectly sponsored over 25 leveraged
acquisitions valued at more than $6.0 billion. These acquisitions have included
American Savings Bank, F.A., Bell & Howell Company, CapStar Hotel Company,
Wometco Cable Corp., Atlanta and Georgia Cable, National Reinsurance
Corporation, Ivex Packaging Corporation and Stage Stores, Inc., among others.
Strategic Partners is a Delaware limited partnership formed to invest in public
and private debt and equity securities and commodities. George Group is an
acquisition and management consulting firm that applies its strategic and
operations management expertise to manufacturing businesses. George Group has
established an exclusive relationship with Keystone to pursue leveraged
acquisitions of companies in which George Group's operational expertise may
significantly increase revenue, cash flow and return on invested capital.
THE TRANSACTION
On May 9, 1997 (the "Transaction Closing Date"), pursuant to a Stock
Purchase Agreement, as amended (together with the related agreements, the "Stock
Purchase Agreement"), Reliant Partners, Reliant Partners II and certain senior
executives of the Company (collectively, the "Purchasers") acquired all the
outstanding common stock of Holdings from Wingate Partners, L.P. and certain
other
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selling stockholders (collectively, the "Selling Stockholders"). The aggregate
consideration paid for such acquisition was $90.2 million, consisting of (i)
$30.1 million in cash paid to the Selling Stockholders; (ii) $9.8 million of
notes issued by Holdings (the "Seller Notes") to the Selling Stockholders; (iii)
the repayment of $44.3 million of certain existing indebtedness of the Company;
and (iv) the redemption of $6.2 million of preferred stock of Holdings (the
"Preferred Redemption"). Existing indebtedness of the Company of $1.2 million
remained outstanding upon consummation of the Transaction. The acquisition by
the Purchasers of all the outstanding common stock of Holdings (the
"Acquisition"), the Preferred Redemption and the repayment of certain existing
indebtedness of the Company are referred to hereinafter collectively as the
"Transaction."
The gross proceeds of the Initial Offering, together with cash paid by the
Purchasers and the issuance of the Seller Notes, were used to fund the
Transaction, pay the fees and expenses relating to the Transaction and the
Initial Offering and for working capital and general corporate purposes of the
Company.
The following table sets forth the sources and uses of funds used by the
Purchasers to effect the Transaction:
<TABLE>
<CAPTION>
AMOUNT
-------------------
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES:
The Notes.................................................................................... $ 70.0
Cash paid by the Purchasers and Seller Notes................................................. 29.8
-------
Total Sources............................................................................ $ 99.8
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-------
<CAPTION>
USES:
<S> <C>
Cash paid to Selling Stockholders(a)(b)...................................................... $ 30.1
Seller Notes issued to Selling Stockholders(c)............................................... 9.8
Preferred Redemption(a)...................................................................... 6.2
Repayment of existing indebtedness........................................................... 44.3
Estimated fees and expenses relating to the Transaction and the Initial Offering............. 5.4
Working capital and general corporate purposes of the Company................................ 4.0
-------
Total Uses............................................................................... $ 99.8
-------
-------
</TABLE>
- ---------------------
(a) In connection with the Transaction, the Company paid a dividend to Holdings
in the amount of $16.1 million out of the proceeds of the Initial Offering,
which dividend was used by Holdings for the Preferred Redemption in the
amount of $6.2 million and to fund $10.1 million of the $30.1 million in
cash to be paid to the Selling Stockholders.
(b) Subject to reduction for the following amounts: (i) certain costs of the
Acquisition payable by the Company or Holdings on behalf of the Selling
Stockholders; (ii) $250,000 payable by the Company to David G. Fiore, the
Chairman, President and Chief Executive Officer of the Company, as a special
bonus related to the Transaction; and (iii) the aggregate cash payments
required to be made to holders of stock incentive units (See note (a) under
"Management--SAR Grants in the Last Fiscal Year").
(c) Includes the portion of the Seller Notes issuable to holders of stock
incentive units.
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer.................. The Company is offering to exchange up to $70,000,000
aggregate principal amount of 10 7/8% Series B Senior
Subordinated Notes due 2004 for up to $70,000,000
aggregate principal amount of its outstanding 10 7/8%
Series A Senior Subordinated Notes due 2004 that were
issued and sold on May 9, 1997 in reliance upon an
exemption from registration under the Securities Act.
The terms of the Exchange Notes will be substantially
identical in all respects (including principal
amount, interest rate, maturity and ranking) to the
terms of the Senior Subordinated Notes for which they
may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes have been registered
under the Securities Act and therefore will not be
subject to certain restrictions on transfer except as
provided herein (see "The Exchange Offer-- Terms of
the Exchange Offer") and will not be entitled to
registration rights except under certain limited
circumstances.
Exchange Notes issued pursuant to the Exchange Offer
in exchange for the Senior Subordinated Notes may be
offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is
(i) an Affiliate, (ii) a broker-dealer who acquired
Senior Subordinated Notes directly from the Company
or (iii) a broker-dealer who acquired Senior
Subordinated Notes as a result of market making or
other trading activities) without compliance with the
registration and prospectus delivery provisions of
the Securities Act except as provided herein and
provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such
holders have no arrangement with any person to
participate in a distribution of such Exchange Notes.
Minimum Condition................... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Senior
Subordinated Notes being tendered for exchange.
Expiration Date..................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on October 6, 1997 unless extended (the
"Expiration Date").
Exchange Date....................... The first date of acceptance for exchange for the
Senior Subordinated Notes will be the Expiration
Date.
Conditions to the Exchange Offer.... The obligation of the Company to consummate the
Exchange Offer is subject to certain conditions. See
"The Exchange Offer--Certain Conditions to the
Exchange Offer." The Company reserves the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Withdrawal Rights................... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Senior Subordinated Notes not
accepted for any reason will be returned without
expense to the tendering holders thereof as promptly
as practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering Senior
Subordinated Notes................ See "The Exchange Offer--How to Tender."
Federal Income Tax Consequences..... The exchange of Senior Subordinated Notes for
Exchange Notes by holders should not constitute an
exchange for federal income tax purposes, and U.S.
holders should not realize any gain or loss upon
receipt of Exchange Notes. See "The Exchange
Offer--Certain Federal Income Tax Considerations."
Effect on Holders of Senior
Subordinated Notes................ As a result of the making of this Exchange Offer, and
upon acceptance for exchange of all validly tendered
Senior Subordinated Notes pursuant to the terms of
this Exchange Offer, the Company will have fulfilled
covenants contained in the terms of the Senior
Subordinated Notes and the Registration Rights
Agreement (the "Registration Rights Agreement") dated
May 9, 1997 between the Company, the Guarantors and
Chase Securities Inc. and CIBC Wood Gundy Securities
Corp., as initial purchasers (collectively, the
"Initial Purchasers") and, accordingly, the holders
of the Senior Subordinated Notes will have no further
registration or other rights under the Registration
Rights Agreement, except under certain limited
circumstances. See "Description of the Notes--Senior
Subordinated Notes Registration Rights." Holders of
the Senior Subordinated Notes who do not tender their
Senior Subordinated Notes in the Exchange Offer will
continue to hold such Senior Subordinated Notes and
will be entitled to all the rights and limitations
applicable thereto under the Indenture. All
untendered, and tendered but unaccepted, Senior
Subordinated Notes will continue to be subject to the
restrictions on transfer provided for in the Senior
Subordinated Notes and the Indenture. To the extent
that Senior Subordinated Notes are tendered and
accepted in the Exchange Offer, the trading market,
if any, for the Senior Subordinated Notes could be
adversely affected. See "Risk Factors--Consequences
of Exchange and Failure to Exchange."
</TABLE>
TERMS OF THE NOTES
The Exchange Offer applies to $70,000,000 aggregate principal amount of the
Senior Subordinated Notes. The form and terms of the Exchange Notes are the same
as the form and terms of the Senior Subordinated Notes except that the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof. The Exchange Notes will evidence
the
10
<PAGE>
same debt as the Senior Subordinated Notes and will be entitled to the benefit
of the Indenture. See "Description of the Notes."
<TABLE>
<S> <C>
Securities Offered.................. $70,000,000 aggregate principal amount of 10 7/8%
Senior Subordinated Notes due 2004.
Maturity............................ May 1, 2004.
Interest Payment Dates.............. May 1 and November 1 of each year, commencing on
November 1, 1997.
Sinking Fund........................ None.
Optional Redemption................. Except as described below, the Company may not redeem
the Notes prior to May 1, 2001. On or after such
date, the Company may redeem the Notes, in whole or
in part, at any time at the redemption prices set
forth herein, plus accrued and unpaid interest
thereon, if any, to the date of redemption. In
addition, at any time and from time to time on or
prior to May 1, 2000, the Company may, subject to
certain requirements, redeem in the aggregate up to
35% of the originally issued aggregate principal
amount of the Notes with the net cash proceeds of one
or more Public Equity Offerings by Holdings (to the
extent that the net cash proceeds thereof are
contributed to the equity capital of the Company) or
the Company after which there is a Public Market, at
a redemption price equal to 110.875% of the principal
amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption; PROVIDED,
HOWEVER, that at least 65% of the originally issued
aggregate principal amount of the Notes must remain
outstanding immediately after each such redemption.
See "Description of the Notes--Optional Redemption."
Change of Control................... Upon the occurrence of a Change of Control, (i) the
Company will have the option, at any time, on or
prior
to May 1, 2001 (but in no event more than 90 days
after the occurrence of such Change of Control), to
redeem the Notes, in whole but not in part, at a
redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium (as
defined) as of, and accrued and unpaid interest, if
any, to, the date of redemption, and (ii) if the
Company does not so redeem the Notes or if such
Change of Control occurs after May 1, 2001, the
Company will be required to make an offer to purchase
the Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase.
See "Description of the Notes-- Optional Redemption"
and "--Offer to Purchase upon Change of Control."
Subsidiary Guaranties............... The Notes will be guaranteed (the "Guaranties"),
jointly and severally, fully and unconditionally on a
senior subordinated basis, by each of the Company's
direct and indirect Subsidiaries (as defined) on the
issue date of the Notes and by each direct and
indirect Subsidiary of the Company (excluding
Unrestricted Subsidiaries) formed or acquired
thereafter. The Guaranties will be general unsecured
obligations of the Guarantors. The Guarantors also
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
guarantee all obligations of the Company under the
Senior Credit Facility (as defined), and each
Guarantor has granted a security interest in all or
substantially all its assets to secure the
obligations under the Senior Credit Facility. The
obligations of each Guarantor under its Guaranty will
be subordinated in right of payment to the prior
payment in full of all Guarantor Senior Indebtedness
(as defined) of such Guarantor to substantially the
same extent as the Notes are subordinated to all
existing and future Senior Indebtedness of the
Company. See "Description of the Notes--Guaranties of
the Notes."
Ranking............................. The Notes will be unsecured and will be subordinated
to all existing and future Senior Indebtedness of the
Company. The Notes will rank PARI PASSU with any
future senior subordinated indebtedness of the
Company and will rank senior to all other
Subordinated Indebtedness of the Company. At August
1, 1997, the Company had outstanding $2,427,576 of
Senior Indebtedness, $70,000,000 of Senior
Subordinated Indebtedness and $899,334 of
Subordinated Indebtedness. See "Description of the
Notes--Ranking" and "--Subordination of the Notes."
Restrictive Covenants............... The Indenture limits: (i) the incurrence of
additional indebtedness by the Company and its
Restricted Subsidiaries (as defined); (ii) the
payment of dividends on, and the redemption of,
capital stock of the Company and its Restricted
Subsidiaries and the redemption of certain
subordinated obligations of the Company and its
Restricted Subsidiaries; (iii) investments; (iv)
sales of assets; (v) certain transactions with
affiliates; (vi) the sale or issuance of capital
stock of Restricted Subsidiaries; (vii) the creation
of liens; (viii) the lines of business in which the
Company and its Restricted Subsidiaries may operate;
and (ix) consolidations, mergers and transfers of all
or substantially all the Company's assets. The
Indenture also prohibits certain restrictions on
distributions from Restricted Subsidiaries. However,
all these limitations and prohibitions are subject to
a number of important qualifications and exceptions.
See "Description of the Notes--Certain Covenants."
</TABLE>
RISK FACTORS
Holders of the Senior Subordinated Notes should carefully consider all the
information set forth in this Prospectus under "Risk Factors" prior to making a
decision with respect to the Exchange Offer.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents summary historical financial information of the
Company, as of the dates and for the periods indicated, and unaudited pro forma
financial information of the Company, as of the dates and for the periods
indicated, adjusted to give pro forma effect to the Transaction, the Offering
and the application of the net proceeds therefrom and the anticipated closure of
the Company's Houston manufacturing facility.
The historical financial information as of April 2, 1993, April 1, 1994,
March 31, 1995, March 29, 1996 and March 28, 1997 and for each of the five years
in the period ended March 28, 1997 has been derived from the Predecessor's
financial statements, which have been audited by Ernst & Young LLP. The
historical financial information of the Predecessor as of the thirteen week
period ended June 28, 1996, the six week period ended May 9, 1997, and of the
Company as of the seven week period ended June 27, 1997, has been derived from
unaudited financial statements of the Predecessor and Company, respectively,
and, in the opinion of Management, includes all adjustments necessary for a fair
presentation of results of operations for these periods. The unaudited pro forma
financial information for the year ended March 28, 1997 and the thirteen weeks
ended June 27, 1997 gives effect to the Transaction, the Offering and the
application of the net proceeds therefrom and the anticipated closure of the
Company's Houston manufacturing facility as if they had occurred on March 30,
1996. The pro forma financial information does not purport to represent what the
Company's results of operations would have been if such events had occurred at
the dates indicated, nor does such information purport to project the results of
the Company for any future period. The summary financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
-----------
13 WEEKS
PREDECESSOR COMPANY
------------------------------------------------------------- -----------
FISCAL YEAR ENDED
-------------------------------------------------------------------------- ENDED
PRO FORMA -----------
APRIL 2, APRIL 1, MARCH 31, MARCH 29, MARCH 28, MARCH 28, JUNE 28,
1993 1994 1995 1996 1997 1997 1996
---------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 111,964 $ 123,166 $ 137,184 $ 173,271 $ 174,401 $ 160,483 $ 49,396
Cost of products sold.............. 88,432 96,964 106,760 133,337 131,474 117,513 37,580
---------- ---------- ----------- ----------- ----------- ----------- -----------
Gross profit..................... 23,532 26,202 30,424 39,934 42,927 42,970 11,816
Selling, general and
administrative................... 18,903 20,723 23,620 31,498 32,724 30,280 8,011
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income from operations........... 4,629 5,479 6,804 8,436 10,203 12,690 3,805
Interest expense, net.............. 4,053 4,282 4,843 6,125 5,381 8,248 1,474
Other expenses..................... 150 150 359 753 577 -- 140
Income tax expense (benefit)....... 300 612 833 753 1,892 1,942 880
Extraordinary loss (a)............. -- -- 552 -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................ $ 126 $ 435 $ 217 $ 805 $ 2,353 $ 2,500 $ 1,311
---------- ---------- ----------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 15,690 $ 15,481 $ 17,980 $ 14,340 $ 17,301
Total assets....................... 60,624 59,504 70,666 76,769 73,077
Long-term obligations.............. 38,924 36,979 41,282 44,933 43,327
Redeemable preferred stock......... 4,296 4,483 4,720 5,312 6,119
Shareholders' equity(e)............ 1,962 1,960 1,740 1,953 3,913
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities............. 2,607 5,448 949 8,348 4,400 (668)
Net cash used in investing
activities....................... (2,707) (1,909) (4,515) (9,285) (3,234) (672)
Net cash provided by (used in)
financing activities............. 106 (3,436) 3,445 1,006 (1,117) 1,347
EBITDA(b).......................... $ 8,611 $ 9,555 $ 11,055 $ 12,681 $ 15,069 $ 16,916 5,075
Adjusted EBITDA(c)................. 8,853 9,794 11,536 13,160 15,426 17,273 5,149
Depreciation and amortization...... 3,982 4,076 4,251 4,245 4,866 4,226 1,270
Capital expenditures............... 1,854 2,043 4,628 5,631 3,516 3,516 683
Cash interest expense(d)........... 3,626 3,794 4,261 5,467 4,725 7,865 1,246
Ratio of Adjusted EBITDA to cash
interest expense................. 2.2x
<CAPTION>
COMPANY
------------------------
6 WEEKS 7 WEEKS 13 WEEKS
ENDED ENDED
ENDED ----------- -----------
---------- PRO FORMA
MAY 9, JUNE 27, JUNE 27,
1997 1997 1997
---------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 20,095 $ 23,681 $ 41,327
Cost of products sold.............. 14,852 18,300 30,837
---------- ----------- -----------
Gross profit..................... 5,243 5,381 10,490
Selling, general and
administrative................... 3,765 4,501 7,880
---------- ----------- -----------
Income from operations........... 1,478 880 2,610
Interest expense, net.............. 587 1,104 2,049
Other expenses..................... 3,350 -- 3,350
Income tax expense (benefit)....... (846) (125) (844)
Extraordinary loss (a)............. 715 -- --
---------- ----------- -----------
Net income (loss)................ $ (2,328) $ (99) $ (1,945)
---------- ----------- -----------
---------- ----------- -----------
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... 26,940
Total assets....................... 124,733
Long-term obligations.............. 71,054
Redeemable preferred stock......... --
Shareholders' equity(e)............ 27,469
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities............. 2,448 (2,533)
Net cash used in investing
activities....................... (155) (331)
Net cash provided by (used in)
financing activities............. 1,983 7,044
EBITDA(b).......................... 2,013 1,826 3,989
Adjusted EBITDA(c)................. 2,013 1,826 3,989
Depreciation and amortization...... 535 946 1,379
Capital expenditures............... 198 347 545
Cash interest expense(d)........... 543 1,033 1,967
Ratio of Adjusted EBITDA to cash
interest expense................. 2.2x
</TABLE>
See Notes to Summary Historical and Pro Forma Financial Information
13
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) The Company recorded an extraordinary loss of $552,000 which is net of a tax
benefit of $297,000 and $715,000 which is net of tax benefit of $369,000,
related to the write-off of debt issuance costs and an original issue
discount in connection with its September 1994 debt refinancing and May 1997
Initial Offering, respectively.
(b) The Company defines EBITDA as income from operations before depreciation and
amortization. The Company includes information concerning EBITDA because it
is used by certain investors as a measure of the Company's ability to
service debt. EBITDA should not be considered in isolation or as a
substitute for net income or cash flows from operating activities presented
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. In addition, the EBITDA measures
presented may not be comparable to other similarly titled measures of other
companies.
(c) The following items were included in the results of operations and have been
eliminated to calculate "Adjusted EBITDA:"
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------------------
PRO FORMA
APRIL 2, APRIL 1, MARCH 31, MARCH 29, MARCH 28, MARCH 28,
1993 1994 1995 1996 1997 1997
----------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Closed distribution facilities (i)..... $ 242 $ 239 $ 481 $ 416 $ -- $
Interruption of operations at joint
venture (ii)......................... -- -- -- 63 357 357
----- ----- ----- ----- ----- -----
Total adjustments.................... $ 242 $ 239 $ 481 $ 479 $ 357 $ 357
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
7 WEEKS 13 WEEKS
13 WEEKS 6 WEEKS ENDED ENDED
ENDED ENDED ----------- -------------
------------- ----------- PRO FORMA
JUNE 28, MAY 9, JUNE 27, JUNE 27,
1996 1997 1997 1997
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Closed distribution facilities (i)..... $ -- $ -- $ -- $ --
Interruption of operations at joint
venture (ii)......................... 74 -- -- --
----- ----- ----- -----
Total adjustments.................... $ 74 $ -- $ -- $ --
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
(i) Represents EBITDA losses for six distribution facilities that the
Company no longer operates.
(ii) Represents the incremental cost of purchasing aluminum raw materials
from outside suppliers and the Company's lost earnings recorded under
the equity method of accounting during an interruption in operations
due to a fire at the Company's aluminum reprocessing joint venture. The
Company's aluminum joint venture has resumed operations at production
levels similar to those prior to the fire.
(d) Cash interest expense represents total interest expense less the
amortization of debt issuance costs.
(e) In connection with the closing of the Transaction, the Company recorded an
extraordinary charge of approximately $715,000 which is net of a tax benefit
of approximately $369,000, relating to the extinguishment of debt with
proceeds of the Initial Offering. In addition, the Company recorded a charge
of approximately $2,004,000 which is net of a tax benefit of approximately
$1,177,000, relating to incentive stock units. The incentive stock unit
holders received approximately $2,227,000 in cash and $954,000 in Seller
Notes.
14
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE
TENDERING THEIR SENIOR SUBORDINATED NOTES FOR THE EXCHANGE NOTES OFFERED HEREBY,
HOLDERS OF THE SENIOR SUBORDINATED NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS, WHICH (OTHER THAN "CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE")
ARE GENERALLY APPLICABLE TO THE SENIOR SUBORDINATED NOTES AS WELL AS THE
EXCHANGE NOTES.
SUBSTANTIAL LEVERAGE
As a result of the Transaction and the Initial Offering, the Company is
highly leveraged and has substantial outstanding indebtedness. At August 1,
1997, the Company and its consolidated subsidiaries had outstanding $2,427,576
of Senior Indebtedness, $70,000,000 of Senior Subordinated Indebtedness and
$899,334 of Subordinated Indebtedness. The Indenture permits the Company to
incur additional indebtedness, including Senior Indebtedness (which may be
secured), subject to certain limitations. See "Capitalization" and "Description
of the Notes."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired; (ii)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) certain of
the Company's borrowings may be at variable rates of interest, including
borrowings under the Senior Credit Facility (as hereinafter defined), which will
expose the Company to the risk of increased interest rates; (iv) indebtedness
under the Senior Credit Facility is secured and will mature prior to the
maturity of the Notes; (v) the Company may be substantially more leveraged than
certain of its competitors, which may place the Company at a competitive
disadvantage; and (vi) the Company's substantial degree of leverage may limit
its flexibility to adjust to changing market conditions, reduce its ability to
withstand competitive pressures and make it more vulnerable to a downturn in
general economic conditions or its business. See "Description of the Senior
Credit Facility" and "Description of the Notes."
ABILITY TO SERVICE DEBT; REFINANCING OF INDEBTEDNESS
The Company's ability to satisfy its interest payment obligations under its
indebtedness will depend largely on its future performance, which, in turn, is
subject to prevailing economic conditions and to financial, business and other
factors beyond its control. In addition, any amounts owing under the Senior
Credit Facility will become due before any principal payments on the Notes are
scheduled to become due and such amounts may need to be refinanced. Furthermore,
the Company may not be able to repay the principal amount of the Notes at
maturity and accordingly will need to refinance the Notes, or repay the Notes
with the proceeds of an equity offering, at or prior to their maturity. There
can be no assurance that the Company will be able to generate sufficient cash
flow to service its interest payment obligations under its indebtedness or that
cash flows, future borrowings or equity financing will be available for the
payment or refinancing of the Company's indebtedness. To the extent that the
Company is not successful in repaying or negotiating renewals of its borrowings
or in arranging new financing, it may have to sell significant assets, which
would have a material adverse effect on the Company's business and results of
operations. Among the factors that will affect the Company's ability to effect
an offering of its capital stock or refinance the Notes are financial market
conditions and the value and performance of the Company at the time of such
offering or refinancing. There can be no assurance that any such offering or
refinancing can be successfully completed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of the Senior Credit Facility."
15
<PAGE>
FLUCTUATIONS IN RAW MATERIALS COST AND SUPPLY
The Company purchases aluminum, vinyl, glass and other raw materials from
various suppliers. While all such materials are available from numerous
independent suppliers, commodity raw materials are subject to fluctuations in
price and there can be no assurance that severe shortages of such materials will
not occur in the future, which could increase the cost of or delay the shipment
of the Company's products and have a material adverse effect on the Company's
operating results. Because such materials in the aggregate constitute
significant components of the Company's cost of goods sold, fluctuations in
price could have a material adverse effect on the Company's results of
operations. There have been historical periods of rapid and significant
movements in the price of aluminum, both upward and downward. Historically, the
Company has been successful in passing on these increases to its customers after
a period of 60 to 90 days. However, there can be no assurance that the Company
will continue to be able to do so in the future. See "Business--Raw Materials."
ENVIRONMENTAL MATTERS
The past and present business operations of the Company and the past and
present ownership and operation of real property by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws and
regulations pertaining to the discharge of certain materials into the
environment, the handling and disposal of wastes (including solid and hazardous
wastes) or otherwise relating to health, safety and protection of the
environment. As such, the nature of the Company's operations and previous
operations by others at real property currently or formerly owned or operated by
the Company expose the Company to the risk of claims under such environmental
laws and regulations, and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based on its
experience to date, the Company does not expect such claims, or the costs of
compliance with environmental laws and regulations, to have a material impact on
its capital expenditures, earnings or competitive position. No assurance can be
given, however, that the discovery of presently unknown environmental
conditions, changes in environmental laws and regulations or their
interpretation, or other unanticipated events will not give rise to expenditures
or liabilities that may have such an effect. See "Business--Government
Regulation and Environmental Matters" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company is associated with two Superfund sites that are being
investigated or undergoing remediation pursuant to CERCLA. The Company is a
potentially responsible party ("PRP") at the Chemical Recycling, Inc. or "CRI"
Superfund site in Wylie, Texas. The Company is a very small contributor at the
CRI site, being assigned less than 1.275% of the damages based on its waste
volume at the site. The site was a solvent reclamation facility, and the Company
sent paint sludges and waste xylene to the site for recycling. The site has soil
and groundwater contamination, with the contaminants of concern being solvents
such as vinyl chloride, acetone, dichloroethene, toluene, and xylene. Some areas
of soil have metal contamination. Major removal actions have occurred; however,
the final remediation action plan has not been prepared. According to the
studies performed by the site's steering committee, affected groundwater has not
migrated off-site. According to the Environmental Protection Agency ("EPA")
general counsel in charge of the site, the site is low priority compared to
other sites in the region. There are 115 PRPs at this site with approximately 85
that are members of the site's steering committee. Two main PRPs, Glidden and
Sherwin Williams, account for 50% of all liability. The Company's costs to date
associated with this site have been approximately $39,800, with an approximate
$20,000 current credit.
The second site is the SAAD Trousdale Road landfill in Nashville, Tennessee.
There is no documentation linking the Company to the site, and costs paid to the
generator group to date have been $55,000. Because of the lack of documentation
linking the Company to the site, it is not expected that the costs will increase
materially in the future. Records indicate that, through agreements with the
site's steering committee and EPA, the Company will not receive any orders from
EPA or be allocated further costs for
16
<PAGE>
continuing work because the Company does not have a volume contribution assigned
to it (because of the lack of records showing it used the site). There are 49
PRPs who have received orders from EPA for remediation. Soil contaminants of
concern at the site are benzene, ethyl benzene, tetrachloroethane, toluene,
trichloroethane, and vinyl chloride. The facility was a waste oil disposal
facility from the 1970s to the 1980s, resulting in impacted soil and
groundwater. In 1995, the EPA determined that groundwater remediation would not
be required but indicated that further soil remediation was necessary as well as
a study of the potential impact to a nearby stream. Additional removal actions
were completed in 1996; no further activities have occurred since then.
GEOGRAPHIC CONCENTRATION
The Company currently sells its products principally in the 15 states
constituting its Primary Market. In fiscal year 1997, 84.8% of the Company's
window net sales were derived from customers in this market. As a result of this
geographic concentration, unfavorable changes in economic conditions (including,
but not limited to, household and job formation rates) affecting these states,
which are primarily within the southern half of the United States, could have a
materially adverse effect on the Company's business, financial condition or
results of operations. See "Business."
CYCLICALITY
Demand for the Company's products is based primarily on the level of new
home construction activity. Factors that impact the housing sector of the
economy, especially those that impact the level of housing start activity in the
Company's Primary Market, may have a direct impact on the financial performance
of the Company. The overall strength of the United States economy, interest
rates, rate of job formation, consumer confidence and availability of consumer
credit, as well as demographic factors such as the rate of household formation
and population shifts, have a direct bearing on the Company. Housing start
declines would adversely impact the Company's business, financial condition and
results of operations and no assurance can be given that any such adverse effect
would not be material.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is materially dependent upon the
continued services of its President and Chief Executive Officer, David G. Fiore,
and other key officers and employees. The loss of Mr. Fiore or such other key
personnel due to death, disability or termination of employment could have a
material adverse effect on the results of operations or financial condition, or
both, of the Company.
CONTROLLING STOCKHOLDERS
Approximately 96% of the common stock of Holdings is owned by Reliant
Partners and Reliant Partners II. As a result of this ownership, Reliant
Partners and Reliant Partners II are able to direct the election of the members
of the Board of Directors of Holdings and therefore direct the management and
policies of the Company. The interests of Reliant Partners and Reliant Partners
II may differ from the interests of holders of the Notes. See "Ownership of
Capital Stock" and "Certain Transactions."
COMPETITION
The Company competes with other national and regional manufacturers. Certain
of the Company's principal competitors are less highly leveraged than the
Company and have greater financial resources than the Company. Accordingly, such
competitors may be better able to withstand changes in conditions within the
window industry and have significantly greater operating and financial
flexibility than the Company. As a result of the competitive environment in the
markets in which the Company operates, the Company faces (and will continue to
face) pressure on sales prices of its products from competitors, as well as from
large customers. As a result of such pricing pressures, the Company may in the
future
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experience reductions in the profit margins on its sales, or may be unable to
pass future raw material price or labor cost increases on to its customers
(which would also reduce profit margins). There can be no assurance that the
Company will not encounter increased competition in the future, which could have
a material adverse effect on the Company's business. See
"Business--Competition."
SUBORDINATION OF THE NOTES
The Notes are unsecured, senior subordinated obligations of the Company and
are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, including all indebtedness under the Senior Credit
Facility. At August 1, 1997, the Company had $2,427,576 of Senior Indebtedness,
$70,000,000 of Senior Subordinated Indebtedness and $899,334 of Subordinated
Indebtedness outstanding. The Company can incur Senior Indebtedness under the
terms of the Indenture, subject to certain limitations. The maximum amount of
Senior Indebtedness that the Company could incur, as of the date hereof, under
the most restrictive covenants under the Indenture is $50.0 million. By reason
of such subordination, in the event of a bankruptcy, insolvency, liquidation or
other reorganization of the Company, the assets of the Company will be available
to pay obligations on the Notes only after all Senior Indebtedness has been paid
in full, and there may not be sufficient assets remaining to pay amounts due on
all or any of the Notes then outstanding. In addition, under certain
circumstances, no payments may be made with respect to the Notes if a payment
default exists with respect to certain Senior Indebtedness until such payment
default shall have been cured or waived. Upon the occurence of a covenant event
of default with respect to certain Senior Indebtedness permitting the immediate
acceleration thereof and receipt by the Trustee of written notice of such
occurrence, no payment may be made with respect to the Notes for a maximum of
179 days. See "Description of the Notes--Subordination of the Notes."
The indebtedness evidenced by the Guaranties of the Notes by the Guarantors
is subordinated in right of payment to the prior payment in full of all existing
and future Guarantor Senior Indebtedness of each such Guarantor, including all
amounts owing pursuant to their guarantees of the Senior Credit Facility, to
substantially the same extent as the Notes are subordinated to all existing and
future Senior Indebtedness of the Company. See "Description of the
Notes--Subordination of the Notes" and
"--Guaranties of the Notes."
The Notes are not secured by any of the Company's or the Guarantors' assets.
Under the Senior Credit Facility, the obligations of the Company and the
Guarantors are secured by substantially all the assets of the Company and the
Guarantors. If the Company becomes insolvent or is liquidated, or if payment
under the Senior Credit Facility is accelerated, the lenders under the Senior
Credit Facility would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to the terms of the Senior
Credit Facility. Accordingly, any claims of such lenders with respect to such
assets will be prior to any claim of the holders of the Notes with respect to
such assets. There can be no assurance that the Company's assets could be sold
quickly enough, or for sufficient amounts, to enable the company to meet its
obligations (including its obligations with respect to the Notes). See
"Description of the Senior Credit Facility."
At August 1, 1997, the Guarantors had outstanding $899,334 of the Company's
total of $73,326,910 of outstanding indebtedness. All of such indebtedness is
Subordinated Indebtedness. Of such $899,334 of indebtedness, $240,000 is secured
by the assets and inventory of the Guarantor that operates the Company's
manufacturing facility in Houston, Texas. By reason of such security, if an
event of default under the instrument evidencing such indebtedness occurs or
such indebtedness is accelerated, the holder of such indebtedness would be
entitled to exercise the remedies available to a secured creditor. Accordingly,
any claims of such holder with respect to the assets of such Guarantor will be
prior to any claim of the holders of the Notes with respect to such assets. The
Company anticipates closing its Houston manufacturing facility and anticipates
repaying such $240,000 of indebtedness prior to any such closing.
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FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company of indebtedness such as the Notes to finance
the Transaction and the incurrence by the Guarantors of indebtedness such as the
Guaranties may be subject to review under Federal bankruptcy law or relevant
state fraudulent conveyance laws if a bankruptcy case is commenced with respect
to the Company or any Guarantor, or a lawsuit is commenced by or on behalf of
unpaid creditors of the Company or any such Guarantor, as the case may be. Under
these laws, if a court were to find that, after giving effect to the sale of the
Notes and the application of the net proceeds therefrom and the issuance of the
Guaranties by the Guarantors, either (a) the Company or any such Guarantor, as
the case may be, incurred such indebtedness with the intent of hindering,
delaying or defrauding creditors or (b) the Company or such Guarantor, as the
case may be, received less than reasonably equivalent value or consideration for
incurring such indebtedness and (i) was insolvent or was rendered insolvent by
reason of such transactions, (ii) was engaged in a business or transaction for
which the assets remaining with the Company or such Guarantor, as the case may
be, constituted unreasonably small capital, or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured,
such court might subordinate such indebtedness to presently existing and future
indebtedness of the Company or such Guarantor, as the case may be, or void the
issuance of such indebtedness and direct the repayment of any amounts paid
thereunder to the creditors of the Company or such Guarantor, as the case may
be, or take other action detrimental to the holders of such indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its debts, including contingent
liabilities, was greater than the value of all its assets at a fair valuation,
or if the present fair saleable value of the debtor's assets was less than the
amount required to repay its probable liability on its debts, including
contingent liabilities, as they become absolute and mature.
To the extent that proceeds from the Initial Offering were used to make the
payments required to effect the Transaction, a court might find that the Company
did not receive fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented thereby. In addition, if a court were
to find that any of the components of the Transaction constituted a fraudulent
transfer, to the extent that proceeds from the Initial Offering were used to
finance or refinance such components, a court might find that the Company did
not receive fair consideration or reasonably equivalent value for the incurrence
of the indebtedness represented by the Notes.
To the extent that the Guaranty of any Guarantor is avoided as a fraudulent
conveyance or found unenforceable for any other reason, holders of the Notes
would cease to have any claim in respect of such Guarantor. In such event, the
claims of the holders of the Notes against such Guarantor would be subject to
the prior payment of all liabilities and preferred stock claims, if any, of such
Guarantor. There can be no assurance that, after providing for all prior claims
and preferred stock interests, if any, there would be sufficient assets to
satisfy the claims of the holders of the Notes relating to any voided portion of
the Guaranty of such Guarantor.
The Company and the Guarantors believe that it and they, respectively,
received equivalent value at the time the indebtedness under the Notes was
incurred. In addition, after giving effect to the consummation of the
Transaction and the Initial Offering and the application of the proceeds
therefrom, the Company does not: (i) believe that it or any Guarantor was
insolvent or rendered insolvent; (ii) believe that it or any Guarantor was
engaged in a business or transaction for which its remaining assets constituted
unreasonably small capital; or (iii) intend for it or any Guarantor to incur, or
believe that it or any Guarantor will incur, debts beyond its ability to pay as
they mature. These beliefs are based on the Company's analysis of internal cash
flow projections and estimated values of assets and liabilities of the Company
and the Guarantors at the time of the Transaction and the Initial Offering.
There can be no assurance, however, that a court passing on these issues would
make the same determination.
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RESTRICTIVE COVENANTS IN SENIOR CREDIT FACILITY
The Senior Credit Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, pay dividends and make other
payments in respect of its capital stock, make investments, engage in mergers or
consolidations, engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, under the Senior
Credit Facility, the Company is required to comply with specified financial
ratios and tests, including minimum interest coverage ratios (defined as the
ratio of (a) EBITDA less capital expenditures for the Company and its
Subsidiaries, on a consolidated basis, for the applicable calculation period to
(b) interest expense of the Company and its Subsidiaries, on a consolidated
basis, for such calculation period) and maximum leverage ratios (defined as the
ratio of (a) aggregate indebtedness of the Company and its Subsidiaries, on a
consolidated basis, as of such date to (b) EBITDA of the Company and its
Subsidiaries, on a consolidated basis, for the applicable calculation period).
The minimum interest coverage ratios are: (i) 1.25x for 1998 and 1999; and (ii)
1.75x for 2000, 2001 and 2002. The maximum leverage ratios are: (i) 5.50x for
the initial two (2) fiscal quarters of 1998; (ii) 5.00x for the last two (2)
fiscal quarters of 1998; (iii) 5.00 for 1999; (iv) 4.75x for 2000; (v) 4.5x for
2001; and (vi) 4.25x for 2002. See "Description of the Senior Credit Facility."
The Company is currently in compliance with the covenants and restrictions
contained in the Senior Credit Facility and in the Indenture. However, its
ability to continue to comply may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such covenants or restrictions could result in an event of default under
the Senior Credit Facility, which would permit the senior lenders thereunder to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest, and the commitments of the senior lenders to make
further extensions of credit under the Senior Credit Facility would be
terminated. In such event, all other indebtedness of the Company represented by
instruments that contain cross-acceleration or cross-default provisions
(including the Notes) may be declared immediately due and payable. However, the
subordination provisions of the Indenture would likely restrict payments to the
holders of the Notes until the Senior Credit Facility and all other Senior
Indebtedness is repaid in full. If the Company were unable to repay its
indebtedness to its lenders under the Senior Credit Facility, such lenders could
proceed against the collateral securing such indebtedness as described under
"Description of the Senior Credit Facility." There can be no assurance that the
Company will have sufficient cash to repay the principal and accrued interest of
the Notes in the event of any such acceleration.
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control, unless the Company shall have redeemed the Notes
if the Change of Control occurred on or prior to May 1, 2001, the Company will
be required to make an offer to purchase all the outstanding Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase. A Change of Control constitutes an
event of default under the Senior Credit Facility, permitting the lenders
thereunder to accelerate the repayment of indebtedness thereunder, in which case
the subordination provisions of the Indenture would require the repayment in
full of the Senior Credit Facility and all other Senior Indebtedness before the
Company could distribute cash to purchase the Notes. The inability to repay such
indebtedness, if accelerated, and to purchase all the tendered Notes constitutes
an event of default under the Indenture. Finally, there can be no assurance that
the Company will have funds available to repurchase the Notes upon the
occurrence of a Change of Control. See "Description of the Senior Credit
Facility" and "Description of the Notes--Offer to Purchase upon Change of
Control."
Notwithstanding the foregoing, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings, or other
recapitalizations or highly leveraged transactions, that would not constitute a
Change of Control under the Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Company's capital
structure or credit ratings or otherwise adversely affect the Holders.
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ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Exchange Notes are new securities for which there is no market. Although
the Initial Purchasers have informed the Company that they currently intend to
make a market in the Exchange Notes, the Initial Purchasers are not obligated to
do so and any such market making may be discontinued at any time without notice.
In addition, such market making activity may be limited during the pendency of
the Exchange Offer. Accordingly, there can be no assurance as to the development
or liquidity of any market for the Exchange Notes. If a trading market does not
develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market may be discontinued
at any time. The Company does not intend to apply for listing of the Exchange
Notes on any securities exchange or for quotation of the Exchange Notes through
the National Association of Securities Dealers Automated Quotation System.
The Exchange Notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration. The
Exchange Offer will not be conditioned upon any minimum or maximum aggregate
principal amount of Senior Subordinated Notes being tendered for exchange. In
the case of non-exchanging holders of Senior Subordinated Notes, no assurance
can be given as to the liquidity of the trading market for the Senior
Subordinated Notes following the Exchange Offer. See "Plan of Distribution."
The liquidity of, and trading market for, the Senior Subordinated Notes or
the Exchange Notes also may be adversely affected by general declines in the
market or by declines in the market for similar securities. Such declines may
adversely affect such liquidity and trading markets independent of the financial
performance of, and prospects for, the Company.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Senior Subordinated Notes who do not exchange their Senior
Subordinated Notes for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Senior
Subordinated Notes as set forth in the legend thereon as a consequence of the
issuance of the Senior Subordinated Notes pursuant to exemption from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Senior Subordinated Notes
may not be offered or sold unless registered under the Securities Act and
applicable state securities laws or pursuant to an exemption therefrom. Except
under certain limited circumstances, the Company does not intend to register the
Senior Subordinated Notes under the Securities Act. In addition, any holder of
Senior Subordinated 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 transaction. To the extent Senior Subordinated Notes
are tendered and accepted in the Exchange Offer, the trading market, if any, for
the Senior Subordinated Notes not tendered could be adversely affected. See "The
Exchange Offer" and "Senior Subordinated Notes Registration Rights."
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USE OF PROCEEDS
There will be no net proceeds to the Company from the exchange pursuant to
the Exchange Offer. The Company used the gross proceeds from the issuance of the
Senior Subordinated Notes in the Initial Offering to (i) repay (A) all
outstanding indebtedness under the Company's then existing credit facility (the
"Old Credit Facility") in the amount of $38.7 million, (B) a promissory note
payable to Wingate Partners, L.P. in the amount of $4.6 million and (C) a
promissory note payable to Redman Industries, Inc. in the amount of $1.0
million; (ii) pay a dividend to Holdings in the amount of $16.1 million, which
dividend was used by Holdings, (x) for the Preferred Redemption in the amount of
$6.0 million and (y) to fund $10.1 million of the $30.1 million in cash paid to
the Selling Stockholders in connection with the Acquisition; (iii) provide $4.2
million to the Company for working capital and general corporate purposes; and
(iv) pay estimated fees and expenses relating to the Transaction and the Initial
Offering of approximately $5.4 million.
The Old Credit Facility (which has been replaced by the Senior Credit
Facility) would have matured on September 8, 2001 and, at April 15, 1997, the
average interest rate on borrowings under the Old Credit Facility was
approximately 10.25% per annum. The $5.6 million of other indebtedness repaid
consisted of three notes, each due March 15, 2002, in principal amounts of $1.0
million, $1.0 million and $2.6 million with interest rates of 11.0%, 11.0% and
12.9%, respectively, and one note due April 1, 2001 in principal amount of $1.0
million with an interest rate of 7.0%.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Registration Rights Agreement.
The Senior Subordinated Notes were originally issued and sold on May 9, 1997
(the "Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A under the Securities Act. In connection with the sale of the Senior
Subordinated Notes, the Company agreed to file with the Commission a
registration statement relating to an exchange offer (the "Exchange Offer
Registration Statement") pursuant to which Exchange Notes covered by such
registration statement and containing the same terms as the Senior Subordinated
Notes, except as set forth in this Prospectus, would be offered in exchange for
Senior Subordinated Notes tendered at the option of the holders thereof. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Senior Subordinated Notes, where such Senior Subordinated Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Senior Subordinated Notes
Registration Rights."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING SENIOR SUBORDINATED NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Senior Subordinated Notes
that are properly tendered on or prior to the Expiration Date and not withdrawn
as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on October 6, 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer has been extended.
As of the date of this Prospectus, $70 million aggregate principal amount of
Senior Subordinated Notes is outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about the date of this
Prospectus, to all Holders of Senior Subordinated Notes known to the Company.
The Company's obligation to accept Senior Subordinated Notes for exchange
pursuant to the Exchange
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Offer is subject to certain conditions as set forth under "--Certain Conditions
to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Senior Subordinated Notes, by
giving oral or written notice of such extension to the Holders thereof as
described below. During any such extension, all Senior Subordinated Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Senior Subordinated Notes not accepted
for exchange for any reason will be returned without expense to the tendering
Holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
Senior Subordinated Notes tendered in the Exchange Offer must be in
denominations of principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Senior Subordinated Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer specified below under "--Certain Conditions to the
Exchange Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Senior
Subordinated Notes as promptly as practicable, such notice in the case of any
extension to be issued by means of a press release or other public announcement
no later than 9:00 a.m., New York City time, on the next business day following
the previously scheduled Expiration Date.
HOW TO TENDER
The tender to the Company of Senior Subordinated Notes by a Holder thereof
as set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Senior Subordinated Notes for exchange pursuant to the Exchange
Offer must transmit a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to Bank One, N.A. (the "Exchange Agent") at the address set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Senior Subordinated Notes must be received by
the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Senior Subordinated Notes, if such procedure is available, into the Exchange
Agent's account at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the Holder must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF SENIOR SUBORDINATED NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR SENIOR
SUBORDINATED NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Senior Subordinated 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. If such
beneficial owner wishes to tender on his own behalf, such beneficial owner must,
prior to completing and executing the Letter of Transmittal and delivering
Senior Subordinated Notes, either make appropriate arrangements to register
ownership of the Senior Subordinated Notes in such beneficial owner's name or
obtain a properly completed bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Senior Subordinated Notes surrendered for
exchange are tendered (i) by a registered Holder of the Senior Subordinated
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). 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 guarantees must be by a member of the
Securities Agents Medallion Program, The New York Stock Exchanges Medallion
Signature Program or The Stock Exchanges Medallion Program (collectively,
"Eligible Institutions"). If Senior Subordinated Notes are registered in the
name of a person other than a signer of the Letter of Transmittal, the Senior
Subordinated Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Senior Subordinated Notes tendered for exchange will
be determined by the Company in its sole discretion, which determination shall
be final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Senior Subordinated Notes not properly tendered or
to not accept any particular Senior Subordinated Notes which acceptance might,
in the judgment of the Company or its counsel, be unlawful. The Company also
reserves the right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Senior Subordinated Notes either before or
after the Expiration Date (including the right to waive the ineligibility of any
Holder who seeks to tender Senior Subordinated Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Senior Subordinated Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Senior Subordinated Notes for
exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Senior Subordinated Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Senior Subordinated Notes, such Senior
Subordinated Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
Holder or Holders appear on the Senior Subordinated Notes.
If the Letter of Transmittal or any Senior Subordinated Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, 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, and that neither the
Holder nor such other person has any arrangement or understanding with any
person to participate in the distribution of the Exchange Notes. In the case of
a Holder that is not a broker-dealer, each such Holder, by tendering, will also
represent to the Company that such Holder is not engaged in and does not intend
to engage in, a distribution of the Exchange Notes. If any Holder or any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company, or is engaged in or intends to engage in or has an arrangement
or understanding with any person to participate in a distribution of such
Exchange Notes to be acquired pursuant to the Exchange Offer, such Holder or any
such other person (i) cannot rely on the applicable interpretations of the Staff
of the Commission and
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(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Senior
Subordinated Notes, where such Senior Subordinated Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. See "Plan of Distribution." The Letter of Transmittal states
that by so acknowledging and by delivering such a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
ACCEPTANCE OF SENIOR SUBORDINATED NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all conditions to the Exchange Offer, the
Company will accept, promptly after the Expiration Date, all Senior Subordinated
Notes properly tendered and will issue the Exchange Notes promptly after
acceptance of the Senior Subordinated Notes. See "--Certain Conditions to the
Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted properly tendered Senior Subordinated Notes for exchange
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent, with written confirmation of any oral notice to be given
promptly thereafter.
For each Senior Subordinated Note accepted for exchange, the Holder will
receive an Exchange Note having a principal amount equal to that of the
surrendered Senior Subordinated Note. The Exchange Notes will bear interest from
the most recent date to which interest has been paid on the Senior Subordinated
Notes or, if no interest has been paid on the Senior Subordinated Notes, from
May 9, 1997. Accordingly, registered Holders of Exchange Notes on the relevant
record date for the first interest payment date following the consummation of
the Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid or, if no interest has been paid, from May 9, 1997.
Senior Subordinated Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders of Senior
Subordinated Notes whose Senior Subordinated Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Senior
Subordinated Notes otherwise payable on any interest payment date the record
date for which occurs on or after the date of consummation of the Exchange
Offer.
In all cases, issuance of Exchange Notes for Senior Subordinated Notes that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Senior
Subordinated Notes (or a timely Book-Entry Confirmation of such Senior
Subordinated Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal and all
other required documents. If any tendered Senior Subordinated Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Senior Subordinated Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged
Senior Subordinated Notes will be returned without expense to the tendering
Holder (or, in the case of Senior Subordinated Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged Senior
Subordinated Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Senior Subordinated Notes at the Book-Entry Transfer Facility for
purposes of the Exchange Offer within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Senior
Subordinated Notes by causing the Book-Entry Transfer Facility to transfer such
Senior Subordinated Notes into the Exchange
25
<PAGE>
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Senior Subordinated Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must have been complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Senior Subordinated Notes desires to tender
such Senior Subordinated Notes and the Senior Subordinated Notes are not
immediately available, or time will not permit such Holder's Senior Subordinated
Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of Senior Subordinated Notes and the amount of Senior Subordinated Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the Expiration
Date, the certificates for all physically tendered Senior Subordinated Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Senior Subordinated Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Senior Subordinated Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under "--Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having tendered the Senior
Subordinated Notes to be withdrawn (the "Depositor"), (ii) identify the Senior
Subordinated Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Senior Subordinated Notes), (iii) contain a
statement that such person is withdrawing his election to have such Senior
Subordinated Notes exchanged, (iv) be signed by the person in the same manner as
the original signature on the Letter of Transmittal by which such Senior
Subordinated Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer to have the Trustee with respect to
the Senior Subordinated Notes register the transfer of such Senior Subordinated
Notes in the name of the person withdrawing the tender and (v) specify the name
in which such Senior Subordinated Notes are registered, if different from that
of the Depositor. If Senior Subordinated Notes have been tendered pursuant to
the procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Senior Subordinated Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Senior Subordinated Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the
26
<PAGE>
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Senior Subordinated Notes so withdrawn are validly re-tendered. Any Senior
Subordinated Notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to the tendering Holder without cost
to such Holder (or, in the case of Senior Subordinated Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
Senior Subordinated Notes will be credited to an account maintained with the
Book-Entry Transfer Facility for the Senior Subordinated Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Senior Subordinated Notes may be re-tendered by
following the procedures described under "--How to Tender" above at any time on
or prior to 5:00 p.m., New York City time, on the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Senior Subordinated Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Senior Subordinated Notes
for exchange or the exchange of the Exchange Notes for such Senior Subordinated
Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Senior
Subordinated Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the reasonable judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the reasonable judgment of
the Company, might result in the holders of Exchange Notes having
obligations with respect to resales and transfers of Exchange Notes that are
greater than those described in the interpretation of the Commission
referred to on the cover page of this Prospectus, or would otherwise make it
inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by a governmental agency or authority that may adversely affect the ability
of the Company to complete the transactions contemplated by the Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United States,
or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
reasonable judgment of the Company, is or may be adverse to the Company, or
the Company shall have become aware of facts that, in the reasonable
judgment of the Company, have or may have adverse significance with respect
to the value of the Senior Subordinated Notes or the Exchange
27
<PAGE>
Notes; that in the reasonable judgment of the Company in any case, and
regardless of the circumstances (including any action by the Company) giving
rise to any such condition, makes it inadvisable to proceed with the
Exchange Offer and/or with such acceptance for exchange or with such
exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The Company's failure at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right that may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Senior
Subordinated Notes tendered, and no Exchange Notes will be issued in exchange
for any such Senior Subordinated Notes, if at such time any stop order shall be
threatened or in effect with respect to the Registration Statement of which this
Prospectus constitutes a part or the qualification of the Indenture under the
Trust Indenture Act of 1939.
EXCHANGE AGENT
Bank One, N.A. has been appointed as the Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal should be directed to the Exchange
Agent at the address set forth below. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
BANK ONE, N.A., EXCHANGE AGENT
<TABLE>
<CAPTION>
BY HAND OR OVERNIGHT DELIVERY: FACSIMILE TRANSMISSIONS BY REGISTERED OR CERTIFIED MAIL:
(ELIGIBLE INSTITUTIONS
ONLY):
<S> <C> <C>
Bank One, N.A. (614) 248-5088 (OH) Bank One, N.A.
c/o Bank One Trust Company, N.A. (212) 240-8988 (NY) c/o Bank One Trust Company, N.A.
235 West Schrock Road To Confirm by Telephone: P.O. Box 710184
Attention:Corporate Trust (212) 240-8862 (NY) Attention:Corporate Trust
Operations--OHI-0184 For Information Call: Operations
Westerville, Ohio 43081-0184 (800) 346-5153 Columbus, Ohio 43271-0184
or or
Bank One, N.A. Bank One, N.A.
c/o First Chicago Trust c/o First Chicago Trust
Company of New York Company of New York
Attention: Corporate Trust Dep't Attention: Corporate Trust Dep't
14 Wall Street 14 Wall Street
8th Floor, Window 2 8th Floor, Window 2
New York, New York 10005 New York, New York 10005
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The estimated cash expenses to be
incurred in connection with the Exchange Offer will be paid by the Company and
are estimated in the aggregate to be $250,000.
28
<PAGE>
TRANSFER TAXES
Holders who tender their Senior Subordinated Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that Holders
who instruct the Company to register Exchange Notes in the name of, or request
that Senior Subordinated Notes not tendered or not accepted in the Exchange
Offer be returned to, a person other than the registered tendering Holder will
be responsible for the payment of any applicable transfer tax.
CONSEQUENCES OF EXCHANGING SENIOR SUBORDINATED NOTES
Holders of Senior Subordinated Notes who do not exchange their Senior
Subordinated Notes for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the provisions in the Indenture regarding transfer and
exchange of the Senior Subordinated Notes and the restrictions on transfer of
such Senior Subordinated Notes as set forth in the legend thereon as a
consequence of the issuance of the Senior Subordinated Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Senior Subordinated Notes may not be offered or sold unless
registered under, pursuant to an exemption from or in a transaction not subject
to, the Securities Act and applicable state securities laws. The Company does
not currently anticipate that it will register Senior Subordinated Notes under
the Securities Act. Based on interpretations by the Staff of the Commission, as
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 Senior
Subordinated Notes may be offered for resale, resold or otherwise transferred by
Holders 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 were acquired in the ordinary
course of such Holders' business and such Holders have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. However, the Staff of the Commission has not rendered a
no-action letter with respect to the Exchange Offer, and there can be no
assurance that the Staff would make a similar determination for the Exchange
Offer as in such other circumstances. Each Holder, other than a broker-dealer,
must acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no arrangement or understanding to
participate in a distribution of Exchange Notes. If any Holder is an affiliate
of the Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such Holder (i) cannot rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Senior Subordinated Notes
must acknowledge that such Senior Subordinated Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences associated with the exchange of Senior Subordinated Notes for
Exchange Notes and the ownership and disposition of the Exchange Notes by
holders who acquired the Exchange Notes pursuant to the Exchange Offer. The
summary is based upon current laws, regulations, rulings and judicial decisions,
all of which are subject to change. The discussion below does not address all
aspects of United States federal income taxation that may be relevant to
particular holders in the context of their specific investment circumstances or
certain types of holders subject to special treatment under such laws (for
example, financial institutions, banks, tax-exempt organizations and insurance
companies). In addition, the discussion does not address any aspect of state,
local or foreign taxation and assumes that a holder of the Exchange Notes (i)
will hold them as "capital assets" (generally, property held for investment)
within the
29
<PAGE>
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) will not own, directly or indirectly, 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote.
For purposes of the discussion, a "United States holder" is an individual
who is a citizen or resident of the United States, a corporation, partnership or
other entity created under the laws of the United States or any political
subdivision thereof, or an estate or trust that is subject to United States
federal income taxation without regard to the source of income and a "Non-United
States holder" is any holder who is not a United States holder.
PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
ACQUIRING, OWNING AND DISPOSING OF THE EXCHANGE NOTES AS WELL AS THE APPLICATION
OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
EXCHANGE OFFER. The exchange of Senior Subordinated Notes for Exchange
Notes pursuant to the Exchange Offer should not be treated as an exchange or
other taxable event for U.S. federal income tax purposes because under Treasury
regulations, the Exchange Notes should not be considered to differ materially in
kind or extent from the Senior Subordinated Notes. Rather, the Exchange Notes
received by a holder should be treated as a continuation of the Senior
Subordinated Notes in the hands of such holder. As a result, there should be no
U.S. federal income tax consequences to holders who exchange Senior Subordinated
Notes for Exchange Notes pursuant to the Exchange Offer and any such holder
should have the same tax basis and holding period in the Exchange Notes as it
had in the Senior Subordinated Notes immediately before the exchange.
UNITED STATES HOLDERS. Interest payable on the Exchange Notes will be
includible in the income of a United States holder in accordance with such
holder's regular method of accounting. If an Exchange Note is redeemed, sold or
otherwise disposed of, a United States holder generally will recognize gain or
loss equal to the difference between the amount realized on the sale or other
disposition of such Exchange Note (to the extent such amount does not represent
accrued but unpaid interest) and such holder's tax basis in the Exchange Note.
Subject to the market discount rules discussed below, such gain or loss will be
capital gain or loss, assuming that the holder has held the Exchange Note as a
capital asset, and will be long-term if the holder has held the Exchange Note
for more than one year at the time of disposition (including the holding period
of the Senior Subordinated Notes).
Under the market discount rules of the Code, a holder (other than a holder
who made the election described below) who purchased a Senior Subordinated Note
with "market discount" (generally defined as the amount by which the stated
redemption price at maturity exceeds the holder's purchase price) will be
required to treat any gain recognized on the redemption, sale or other
disposition of the Exchange Note received in the disposition as ordinary income
to the extent of the market discount that accrued during the holding period of
such Exchange Note (which would include the holding period of the Senior
Subordinated Note). A holder who has elected under applicable Code provisions to
include market discount in income annually as such discount accrues will not,
however, be required to treat any gain recognized as ordinary income under these
rules. Holders should consult their tax advisors as to the portion of any gain
that would be taxable as ordinary income under these provisions.
NON-UNITED STATES HOLDERS. An investment in the Exchange Notes by a
Non-United States holder generally will not give rise to any United States
federal income tax consequences if the interest received or any gain recognized
on the sale, redemption or other disposition of the Exchange Notes by such
holder is not treated as effectively connected with the conduct by such holder
of a trade or business in the United States, and in the case of gains derived by
an individual, such individual is not present in the United States for 183 days
or more and certain other requirements are met. Under current Treasury
regulations, in order to avoid back-up withholding of 31% on payments of
interest (i) a Non-United States holder of the Exchange Notes generally must
certify to the issuer or its agent, under penalties of perjury,
30
<PAGE>
that it is not a United States person and complete and provide the payor with a
U.S. Treasury Form W-8 (or a suitable substitute form), which includes its name
and address, or (ii) a securities clearing organization, bank or other financial
organization that holds customers' securities in the ordinary course of business
(a "financial institution") and holds the Exchange Note, must certify under
penalties of perjury that such a Form W-8 (or suitable substitute form) has been
received from the beneficial owner of the Exchange Notes by it or by a financial
institution between it and the beneficial owner, and must furnish the payor with
a copy thereof.
On April 22, 1996, the Internal Revenue Service proposed regulations (the
"Proposed Regulations") that, if enacted in their current form, could affect the
procedures to be followed by a Non-United States holder in establishing such
holder's status as a Non-United States holder for purposes of the backup
withholding rules discussed above. The Proposed Regulations, if adopted in their
current form, generally would be effective for payments made after December 31,
1997. Prospective investors should consult their tax advisors concerning the
potential adoption of the Proposed Regulations and the potential effect of such
regulations on an investment in the Exchange Notes.
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
at June 27, 1997 after giving effect to the Transaction and the Initial Offering
and the application of the net proceeds therefrom as if they occurred on such
date. This table should be read in conjunction with "Use of Proceeds," "Selected
Historical and Pro Forma Financial Information," "Unaudited Pro Forma Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the Company
and the notes thereto, all included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL AS OF
JUNE 27, 1997
----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash............................................................................................ $ 8,638
--------
--------
Long-term debt (including current portion):
Senior Credit Facility(a)..................................................................... $ --
Senior Subordinated Notes due 2004............................................................ 70,000
Other debt and capital lease obligations(b)................................................... 1,054
--------
Total long-term debt........................................................................ 71,054
Shareholders' equity(c):
Common stock.................................................................................. 1
Additional paid-in capital.................................................................... 27,567
Accumulated Deficit........................................................................... (99)
--------
Total shareholders' equity................................................................ 27,469
--------
Total capitalization...................................................................... $ 98,523
--------
--------
</TABLE>
- ---------------------
(a) The Senior Credit Facility provides for borrowings of up to $25.0 million
subject to availability under a borrowing base. No revolving credit loans
were drawn at June 27, 1997. See "Description of the Senior Credit
Facility."
(b) Includes current portion of long-term debt of $894,000.
(c) Shareholders' equity reflects cash paid by the Purchasers of $20.0 million
and the issuance of the Seller Notes of $9.8 million in connection with the
Transaction, less certain costs of the Transaction of $2.2 million.
31
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents selected historical and pro forma financial
information of the Company, as of the dates and for the periods indicated. The
historical financial information as of April 2, 1993, April 1, 1994, March 31,
1995, March 29, 1996 and March 28, 1997 and for each of the five years in the
period ended March 28, 1997 has been derived from the Predecessor's financial
statements, which have been audited by Ernst & Young LLP. The historical
financial information of the Predecessor as of the thirteen week period ended
June 28, 1996, the six week period ended May 9, 1997, and of the Company as of
the seven week period ended June 27, 1997, has been derived from unaudited
Financial Statements of the Predecessor and Company, respectively, and, in the
opinion of Management, includes all adjustments necessary for a fair
presentation of results of operations for these periods. The unaudited pro forma
financial information for the year ended March 28, 1997 and the thirteen weeks
ended June 27, 1997 gives effect to the Transaction, the Initial Offering and
the application of the net proceeds therefrom and the anticipated closure of the
Company's Houston manufacturing facility as if they had occurred on March 30,
1996. The pro forma financial information does not purport to represent what the
Company's results of operations would have been if such events had occurred at
the dates indicated, nor does such information purport to project the results of
the Company for any future period. The selected financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Offering
Memorandum.
<TABLE>
<CAPTION>
PREDECESSOR
-----------
13 WEEKS
PREDECESSOR COMPANY
------------------------------------------------------------- -----------
FISCAL YEAR ENDED
-------------------------------------------------------------------------- ENDED
PRO FORMA -----------
APRIL 2, APRIL 1, MARCH 31, MARCH 29, MARCH 28, MARCH 28, JUNE 28,
1993 1994 1995 1996 1997 1997 1996
---------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales:
Aluminum window sales............... $ 89,581 $ 96,348 $ 100,985 $ 130,299 $ 126,083 $ 112,165 36,577
Vinyl window sales.................. 3,509 7,758 15,259 22,938 29,055 29,055 7,489
Other sales......................... 18,874 19,060 20,940 20,034 19,263 19,263 5,330
---------- ---------- ----------- ----------- ----------- ----------- -----------
Total net sales..................... 111,964 123,166 137,184 173,271 174,401 160,483 49,396
Cost of products sold................. 88,432 96,964 106,760 133,337 131,474 117,513 37,580
---------- ---------- ----------- ----------- ----------- ----------- -----------
Gross profit........................ 23,532 26,202 30,424 39,934 42,927 42,970 11,816
Selling, general and administrative... 18,903 20,723 23,620 31,498 32,724 30,280 8,011
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income from operations.............. 4,629 5,479 6,804 8,436 10,203 12,690 3,805
Interest expense, net................. 4,053 4,282 4,843 6,125 5,381 8,248 1,474
Other expenses........................ 150 150 359 753 577 -- 140
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes &
extraordinary items............... 426 1,047 1,602 1,558 4,245 4,442 2,191
Income tax expense (benefit).......... 300 612 833 753 1,892 1,942 880
Extraordinary loss(a)................. -- -- 552 -- -- -- --
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................... $ 126 $ 435 $ 217 $ 805 $ 2,353 $ 2,500 $ 1,311
---------- ---------- ----------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................... $ 15,690 $ 15,481 $ 17,980 $ 14,340 $ 17,301
Total assets.......................... 60,624 59,504 70,666 76,769 73,077
Long term Obligations................. 38,924 36,979 41,282 44,933 43,327
Redeemable preferred stock............ 4,296 4,483 4,720 5,312 6,119
Shareholders' equity(f)............... 1,962 1,960 1,740 1,953 3,913
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities................ 2,607 5,448 949 8,348 4,400 (668)
Net cash used in investing
activities.......................... (2,707) (1,909) (4,515) (9,285) (3,234) (672)
Net cash provided by (used in)
financing activities................ 106 (3,436) 3,445 1,006 (1,117) 1,347
EBITDA(b)............................. $ 8,611 $ 9,555 $ 11,055 $ 12,681 $ 15,069 $ 16,916 5,075
Adjusted EBITDA(c).................... 8,853 9,794 11,536 13,160 15,426 17,273 5,149
Depreciation and amortization......... 3,982 4,076 4,251 4,245 4,866 4,226 1,270
Capital expenditures.................. 1,854 2,043 4,628 5,631 3,516 3,516 683
Cash interest expense(d).............. 3,626 3,794 4,261 5,467 4,725 7,865 1,246
Ratio of Adjusted EBITDA to cash
interest expense.................... 2.2x
Ratio of earnings to fixed
charges(e).......................... 1.1x 1.2x 1.3x 1.2x 1.6x 1.5x 2.2x
<CAPTION>
COMPANY
-----------------------
6 WEEKS 7 WEEKS 13 WEEKS
ENDED ENDED
ENDED ---------- -----------
--------- PRO FORMA
MAY 9, JUNE 27, JUNE 27,
1997 1997 1997
--------- ---------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Aluminum window sales............... 13,727 15,873 27,151
Vinyl window sales.................. 4,035 4,717 8,752
Other sales......................... 2,333 3,091 5,424
--------- ---------- -----------
Total net sales..................... 20,095 23,681 41,327
Cost of products sold................. 14,852 18,300 30,837
--------- ---------- -----------
Gross profit........................ 5,243 5,381 10,490
Selling, general and administrative... 3,765 4,501 7,880
--------- ---------- -----------
Income from operations.............. 1,478 880 2,610
Interest expense, net................. 587 1,104 2,049
Other expenses........................ 3,350 -- 3,350
--------- ---------- -----------
Income (loss) before income taxes &
extraordinary items............... (2,459) (224) (2,789)
Income tax expense (benefit).......... (846) (125) (844)
Extraordinary loss(a)................. 715 -- --
--------- ---------- -----------
Net income (loss)................... $ (2,328) $ (99) $ (1,945)
--------- ---------- -----------
--------- ---------- -----------
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................... 26,940
Total assets.......................... 124,733
Long term Obligations................. 71,054
Redeemable preferred stock............ --
Shareholders' equity(f)............... 27,469
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities................ 2,448 (2,533)
Net cash used in investing
activities.......................... (155) (331)
Net cash provided by (used in)
financing activities................ 1,983 7,044
EBITDA(b)............................. 2,013 1,826 3,989
Adjusted EBITDA(c).................... 2,013 1,826 3,989
Depreciation and amortization......... 535 946 1,379
Capital expenditures.................. 198 347 545
Cash interest expense(d).............. 543 1,033 1,967
Ratio of Adjusted EBITDA to cash
interest expense.................... 2.2x
Ratio of earnings to fixed
charges(e).......................... (1.3)x .9x (0.2)x
</TABLE>
See Notes to Selected Historical and Pro Forma Financial Information
32
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) The Company recorded an extraordinary loss of $552,000 which is net of a tax
benefit of $297,000 and $715,000 which is net of tax benefit of $369,000,
related to the write-off of debt issuance costs and an original issue
discount in connection with its September 1994 debt refinancing and May 1997
Initial Offering, respectively.
(b) The Company defines EBITDA as income from operations before depreciation and
amortization. The Company includes information concerning EBITDA because it
is used by certain investors as a measure of the Company's ability to
service debt. EBITDA should not be considered in isolation or as a
substitute for net income or cash flows from operating activities presented
in accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. In addition, the EBITDA measures
presented may not be comparable to other similarly titled measures of other
companies.
(c) The following items were included in the results of operations and have been
eliminated to calculate "Adjusted EBITDA:"
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS
------------------------------------------------------------------------------------ ENDED
PRO FORMA -------------
APRIL 2, APRIL 1, MARCH 31, MARCH 29, MARCH 28, MARCH 28, JUNE 28,
1993 1994 1995 1996 1997 1997 1996
----------- ----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Closed distribution
facilities(i).......... $ 242 $ 239 $ 481 $ 416 $ -- $ -- $ --
Interruption of
operations at joint
venture(ii)............ -- -- -- 63 357 357 74
----- ----- ----- ----- ----- ----- ---
Total adjustments...... $ 242 $ 239 $ 481 $ 479 $ 357 $ 357 $ 74
----- ----- ----- ----- ----- ----- ---
----- ----- ----- ----- ----- ----- ---
<CAPTION>
13 WEEKS
6 WEEKS 7 WEEKS ENDED
ENDED ENDED -------------
----------- ----------- PRO FORMA
MAY 9, JUNE 27, JUNE 27,
1997 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
Closed distribution
facilities(i).......... $ -- $ -- $ --
Interruption of
operations at joint
venture(ii)............ -- -- --
----- ----- -----
Total adjustments...... $ -- $ -- $ --
----- ----- -----
----- ----- -----
</TABLE>
(i) Represents EBITDA losses for six distribution facilities that the
Company no longer operates.
(ii) Represents the incremental costs of puchasing aluminum raw materials
from outside suppliers and the Company's lost earnings recorded under
the equity method of accounting during an interruption in operations
due to a fire at the Company's aluminum reprocessing joint venture.
The Company's aluminum joint venture has resumed operations at
production levels similar to those prior to the fire.
(d) Cash interest expense represents total interest expense less the
amortization of debt issuance costs.
(e) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income before extraordinary loss plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs, accretion of redeemable put warrants issued by
Holdings, and the portion of rent expense that management believes is
representative of the interest component of rent expense on operating leases
(approximately one-third of total rent expense).
(f) In connection with the closing of the Transaction, the Company recorded an
extraordinary charge of approximately $715,000 which is net of a tax benefit
of approximately $369,000, relating to the extinguishment of debt with
proceeds of the Initial Offering. In addition, the Company recorded a charge
of approximately $2,004,000 which is net of a tax benefit of approximately
$1,177,000, relating to incentive stock units. The incentive stock unit
holders received approximately $2,227,000 in cash and $954,000 in Seller
Notes.
33
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements of the Company are
based on the Consolidated Financial Statements of the Company and the notes
thereto included elsewhere in this Offering Memorandum, as adjusted to give pro
forma effect to the Transaction, the Offering and the application of the net
proceeds therefrom and the anticipated closure of the Company's Houston
manufacturing facility.
The unaudited pro forma income statements of the Company for the thirteen
week period ended June 27, 1997 and the year ended March 28, 1997 give pro forma
effect to the Transaction, the Initial Offering and the application of the net
proceeds therefrom and the anticipated closure of the Company's Houston
manufacturing facility as if they had occurred on March 30, 1996. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Transaction was accounted for using the
purchase method of accounting in accordance with Accounting Principles Board
Opinion 16 "Business Combinations." The unaudited pro forma financial statements
do not purport to represent what the Company's results of operations would have
been if such events had occurred at the dates indicated, nor do such statements
purport to project the results of the Company for any future period. The
unaudited pro forma financial statements should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Offering Memorandum.
34
<PAGE>
RELIANT BUILDING PRODUCTS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED JUNE 27, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA
----------------
6 WEEKS 7 WEEKS
ENDED ENDED 13 WEEKS ENDED
--------- --------- ----------------
MAY 9, JUNE 27, PRO FORMA JUNE 27,
1997 1997 ADJUSTMENTS 1997
--------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Net sales................................................ 20,095 23,681 (2,449)(a) 41,327
Cost of products sold.................................... 14,852 18,300 (2,214)(a) 30,837
(101)(b)
--------- --------- ------------ --------
Gross profit............................................. 5,243 5,381 (134) 10,490
Selling, general and administrative...................... 3,765 4,501 (435)(a) 7,880
-- -- 49(c)
--------- --------- ------------ --------
Income from operations................................... 1,478 880 252 2,610
Interest expense, net.................................... 587 1,104 358(d) 2,049
Other expenses........................................... 3,350 -- -- 3,350
--------- --------- ------------ --------
Loss before income taxes & extraordinary items........... (2,459) (224) (106) (2,789)
Income tax (benefit)..................................... (846) (125) 127(e) (844)
--------- --------- ------------ --------
Loss before extraordinary loss........................... (1,613) (99) (233) (1,945)
Extraordinary loss, net of tax benefit................... 715 -- (715)(f) --
--------- --------- ------------ --------
Net income (loss)........................................ $ (2,328) $ (99) $ 482 $ (1,945)
--------- --------- ------------ --------
--------- --------- ------------ --------
OTHER DATA:
EBITDA (g)............................................... $ 2,013 $ 1,826 $ 150 $ 3,989
--------- --------- ------------ --------
--------- --------- ------------ --------
</TABLE>
35
<PAGE>
RELIANT BUILDING PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(a) Reflects the elimination of the historical results of operations for the
Company's Houston manufacturing facility, which the Company anticipates
closing in connection with the Transaction. The elimination of the
historical cost of products sold includes $50,000 historical depreciation
expense recorded for the Company's Houston manufacturing facility for the
thirteen weeks ended June 27, 1997.
(b) Reflects decrease in depreciation as a result of extending the remaining
useful lives of certain property, plant and equipment. These remaining
useful lives have been revised due to the fact that such property, plant and
equipment has historically not been subject to technological change and is
expected to be used over such revised remaining useful lives. Management
does not expect such extension to result in a material increase over
historical repair and maintenance expense.
(c) Reflects net increase in amortization resulting from the additional goodwill
created as a result of the Transaction. A life of 40 years has been assigned
to goodwill.
(d) Reflects net increase in interest expense resulting from the Offering and
the Transaction as follows (dollars in thousands):
<TABLE>
<CAPTION>
13 WEEKS
ENDED
JUNE 27, 1997
---------------
<S> <C>
Elimination of historical interest expense related to debt that will be repaid as a result
of the Initial Offering................................................................... $ (579)
Interest resulting from the issuance of the Notes at 10.875%................................ 878
Amortization of the $2,600 of debt issuance costs related to the Notes and Senior Credit
Facility.................................................................................. 45
Estimated line of credit fees related to the Senior Credit Facility......................... 14
------
$ 358
------
------
</TABLE>
(e) Net change in provision for income taxes as a result of notes (a)-(d) and
additional goodwill amortization which is not deductible for tax purposes.
(f) Reflects the elimination of historical extraordinary loss relating to the
extinguishment of debt with proceeds of the Initial Offering.
(g) EBITDA should not be considered in isolation or as a substitute for net
income or cash flows from operating activities presented in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
36
<PAGE>
RELIANT BUILDING PRODUCTS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 28, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
<S> <C> <C> <C>
Net sales............................................................ $ 174,401 $ (13,918)(a) $ 160,483
Cost of products sold................................................ 131,474 (13,086)(a) 117,513
(875)(b)
----------- ------------ -----------
Gross profit......................................................... 42,927 43 42,970
Selling, general and administrative.................................. 32,724 (2,867)(a) 30,280
423(c)
----------- ------------ -----------
Income from operations............................................... 10,203 2,487 12,690
Interest expense, net................................................ 5,381 2,867(d) 8,248
Other expenses....................................................... 577 (350)(e) --
(227)(f)
----------- ------------ -----------
Income before income taxes........................................... 4,245 197 4,442
Income tax expense................................................... 1,892 50(g) 1,942
----------- ------------ -----------
Net income........................................................... $ 2,353 $ 147 $ 2,500
----------- ------------ -----------
----------- ------------ -----------
OTHER DATA:
Adjusted EBITDA(h)................................................... $ 15,426 $ 1,847 $ 17,273
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
37
<PAGE>
RELIANT BUILDING PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(a) Reflects the elimination of the historical results of operations for the
Company's Houston manufacturing facility, which the Company anticipates
closing in connection with the Transaction. The elimination of the
historical cost of products sold includes $188,000 historical depreciation
expense recorded for the Company's Houston manufacturing facility for the
year ended March 28, 1997.
(b) Reflects decrease in depreciation as a result of extending the remaining
useful lives of certain property, plant and equipment. These remaining
useful lives have been revised due to the fact that such property, plant and
equipment has historically not been subject to technological change and is
expected to be used over such revised remaining useful lives. Management
does not expect such extension to result in a material increase over
historical repair and maintenance expense.
(c) Reflects net increase in amortization resulting from the additional goodwill
created as a result of the Transaction. A life of 40 years has been assigned
to goodwill.
(d) Reflects net increase in interest expense resulting from the Offering and
the Transaction as follows (dollars in thousands):
FISCAL
YEAR ENDED
MARCH 28, 1997
--------------
Elimination of historical interest expense related
to debt that will be repaid as a result of the
Initial Offering................................ $ (5,264)
Interest resulting from the issuance of the Notes
at 10.875%...................................... 7,613
Amortization of the $2,600 of debt issuance costs
related to the Notes and Senior Credit
Facility........................................ 393
Estimated line of credit fees related to the
Senior Credit Facility.......................... 125
-------
$ 2,867
-------
-------
(e) Represents management fees charged to the Company by the former owners that
will cease with the Transaction.
(f) To reflect elimination of accretion of redeemable common stock warrants
that are being redeemed with proceeds of the Initial Offering.
(g) Net change in provision for income taxes as a result of notes (a)-(f) and
additional goodwill amortization which is not deductible for tax purposes.
(h) The following items were included in the results of operations and have been
eliminated to calculate "Adjusted EBITDA" (see Notes to Summary Historical
and Pro Forma Financial Information for a definition of EBITDA) (dollars in
thousands):
FISCAL
YEAR ENDED
MARCH 28,
1997
-------------
Interruption of operations at joint venture(1).............. $ 357
-----
Total Adjustments......................................... $ 357
-----
-----
(1) Represents the incremental costs of purchasing aluminum raw
materials from outside suppliers and the Company's lost earnings
recorded under the equity method of accounting during an
interruption in operations due to a fire at the Company's aluminum
reprocessing joint venture. The Company's aluminum joint venture has
resumed operations at production levels similar to those prior to
the fire.
Adjusted EBITDA should not be considered in isolation or as a
substitute for net income or cash flows from operating activities
presented in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is one of the nation's largest manufacturers of aluminum and
vinyl-framed windows for the residential new construction market. Accordingly,
its market is influenced by demographic, as well as regional and national
economic trends, such as household and job formation rates, interest rates,
population shifts, consumer credit availability and consumer confidence. The
Company's products are marketed under well recognized brand names, including
ALENCO and GAPCO, and are sold through over 200 distributors. Total window net
sales accounted for 89.0% of the Company's total net sales in fiscal year 1997,
of which aluminum and vinyl window net sales accounted for 72.3% and 16.7%,
respectively. Aluminum window net sales increased at a CAGR of 9.2% from $81.3
million in fiscal year 1992 to $126.1 million in fiscal year 1997. For the same
period, vinyl window net sales increased at a CAGR of 67.6% from $2.2 million in
fiscal year 1992 to $29.1 million in fiscal year 1997.
Management attributes growth in its vinyl window sales to the improvement in
the appearance and quality of vinyl windows, more competitively priced product
designs and increased demand for energy efficient products in many markets. The
Company recognized the potential for growth in sales of vinyl windows early in
the product life cycle and established vinyl window manufacturing capabilities
at four of its five residential window manufacturing facilities. The Company
believes that it is well positioned to continue its expansion in the Vinyl
Segment and intends to leverage its well recognized brand names, broad product
line and established distribution network in an effort to increase its sales of
vinyl windows. The Company intends to achieve this growth by increasing sales to
existing distributors and by entering new geographic markets.
The Company supplements its window business through the manufacture of
related products such as processed glass, custom aluminum extrusion and window
components for the Company's internal needs and for sale to third parties. The
Company believes that these products provide it with a low-cost, reliable source
of parts and components and reduce working capital requirements. The sale of
processed glass, custom aluminum extrusion and window components to third
parties accounted for 11.0% of total net sales in fiscal year 1997. Sales of the
Company's supplemental products to third parties increased at a CAGR of 13.2%
from $10.4 million in fiscal year 1992 to $19.3 million in fiscal year 1997.
The Company's net sales increased at a CAGR of 13.2% from $93.8 million in
fiscal year 1992 to $174.4 million in fiscal year 1997. The Company attributes
this growth primarily to an increase in product demand and market share gains in
its Primary Market as well as the Company's expansion into new geographic
markets. The Company attributes its increase in market share to the expansion of
its vinyl window product line, its well recognized brand names and enhanced
customer service.
COST REDUCTION INITIATIVES
The Company expects to benefit from more than $5.0 million of annual cost
reductions over the next three years. Approximately $1.2 million of these cost
reductions are associated with previously implemented initiatives that were
completed in the fourth quarter of fiscal year 1997, including the automation of
labor intensive operations and strategic initiatives with key raw material
suppliers. The balance of the annual cost reductions, or approximately $3.8
million, is associated with new initiatives that the Company intends to
implement over the next two years, including: (i) improvements in manufacturing
processes; (ii) materials cost reductions; (iii) continued improvements in
information systems; and (iv) additional factory automation. However, a large
portion of these cost savings will likely not be achieved until fiscal year 1999
and there can be no assurance that any such additional cost savings can be
achieved or, specifically, that they can be achieved within three years.
39
<PAGE>
HOUSTON OPERATIONS
The Houston facility was acquired in April 1995 to penetrate the value
priced segment of the market, further penetrate the multi-family housing market
and provide capacity in support of the Company's marketing initiatives in the
retail channel of distribution. At the time of the acquisition, the facility was
experiencing operating losses and has continued to do so since its acquisition.
As a result, it is currently anticipated that the facility will be closed
and its production will be consolidated into the Company's other operating
facilities. For fiscal year 1997, the Houston facility had net sales of $13.9
million and an EBITDA loss of $1.8 million. The Company's goal is to serve all
the Houston facility's current customers out of its other manufacturing
facilities. The Company believes that the combined operations will better serve
its customers and achieve reductions in operating expenses as overhead expenses
from the Houston facility are consolidated, duplicate functions are eliminated
and other savings are realized. However, there can be no assurance that the
Company will be able to consolidate successfully the Houston facility's
operations into the Company's other operating facilities and achieve such
reductions in operating expenses.
RESULTS OF OPERATIONS
The following table which combines the results of the Predecessor and
Company for the thirteen weeks ended June 27, 1997 sets forth for the periods
indicated certain historical income statement data derived from the Company's
consolidated statements of income expressed in dollars and as a percentage of
net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED
---------------------------------------------------------------- -------------------------------
MARCH 31, 1995 MARCH 29, 1996 MARCH 28, 1997 JUNE 27,
JUNE 28, 1996 1997
-------------------- -------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 137,184 100.0% $ 173,271 100.0% $ 174,401 100.0% $ 49,396 100.0% $ 43,776
Cost of products sold......... 106,760 77.8 133,337 77.0 131,474 75.4 37,580 76.1 33,152
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.................. 30,424 22.2 39,934 23.0 42,927 24.6 11,816 23.9 10,624
Selling, general and
administrative.............. 23,620 17.2 31,498 18.2 32,724 18.8 8,011 16.2 8,266
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from operations........ 6,804 5.0 8,436 4.8 10,203 5.8 3,805 7.7 2,358
Interest expense, net......... 4,843 3.5 6,125 3.5 5,381 3.1 1,474 3.0 1,691
Other expenses................ 359 0.3 753 0.4 577 .3 140 0.3 3,350
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes &
extraordinary items......... 1,602 1.2 1,558 0.9 4,245 2.4 2,191 4.4 (2,683)
Income tax expense
(benefit)................... 833 0.6 753 0.4 1,892 1.1 880 1.8 (971)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income before extraordinary
loss........................ 769 0.6 805 0.5 2,353 1.3 1,311 2.6 (1,712)
Extraordinary loss, net of
tax......................... 552 0.4 -- -- -- -- -- -- 715
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. $ 217 0.2% $ 805 0.5% $ 2,353 1.3% $ 1,311 2.6% $ (2,427)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA............... $ 11,536 8.4% $ 13,160 7.6% $ 15,426 8.8% $ 5,075 10.3% $ 3,839
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
<S> <C>
Net sales..................... 100.0%
Cost of products sold......... 75.7
---------
Gross profit.................. 24.3
Selling, general and
administrative.............. 18.9
---------
Income from operations........ 5.4
Interest expense, net......... 3.9
Other expenses................ 7.7
---------
Income before income taxes &
extraordinary items......... (6.2)
Income tax expense
(benefit)................... (2.2)
---------
Income before extraordinary
loss........................ (4.0)
Extraordinary loss, net of
tax......................... 1.5
---------
Net income (loss)............. (5.5)%
---------
---------
Adjusted EBITDA............... 8.8%
---------
---------
</TABLE>
FIRST QUARTER OF FISCAL YEAR 1998 COMPARED TO FIRST QUARTER OF FISCAL YEAR
1997
The following discussion compares the historical quarter ended June 27, 1997
results to the historical quarter ended June 28, 1996 results.
NET SALES. Net Sales decreased $5.6 million, or 11.4%, from $49.4 million
in the first quarter of fiscal year 1997 to $43.8 million in the first quarter
of fiscal year 1998. As expected, subsequent to the announcement of the closing
of the Company's Houston operations, sales decreased significantly. The planned
closing and consolidation of the Houston operations into Bryan, Texas is on
schedule. During this same period, average single family housing starts weighted
by state sales in the Company's primary market were down 5.6%.
40
<PAGE>
Comparing the first quarter of fiscal year 1997 to the first quarter of
fiscal year 1998, aluminum window sales were down $6.8 million, or 19.9%.
Excluding the effect of the Houston operations, the decline was $4.0 million or
13.8%. Vinyl window sales reflected an increase of $1.2 million, or 15%. The
decrease in aluminum window sales is primarily due to the Living Windows
operations, reduced housing starts, and customer conversion to vinyl windows.
The vinyl window sales growth is primarily due to increased market penetration
in California, Georgia, Missouri, and Kansas, as well as aluminum customers'
converting to vinyl windows.
COST OF PRODUCTS SOLD. Cost of products sold decreased $4.4 million from
$37.6 million for the first three months of fiscal year 1997 to $33.2 million
during the comparable period of fiscal year 1998. Expressed as a percentage of
net sales, cost of products sold decreased from 76.1% for the first quarter of
fiscal year 1997 to 75.7% for the comparable period of fiscal year 1998. This
improvement was primarily due to (i) a reduction in material and labor costs
associated with automated glass cutting and insulated glass manufacturing and
(ii) a decrease in other direct manufacturing costs at the Company's Fresno,
California and Houston, Texas operations. These gains were partially offset by
purchase accounting adjustments of $.6 million of amortization of the increase
in the carrying value of inventory and equipment and George Group consulting
fees and expenses of $.1 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $8.0 million in the first quarter of
fiscal year 1997 to $8.3 million for the comparable period of fiscal year 1998.
Expressed as a percentage of net sales, selling, general and administrative
expenses increased from 16.2% in fiscal year 1997 to 18.9% for the comparable
period of fiscal year 1998. This increase primarily reflects the fixed nature of
these expenses compared to lower net sales.
INTEREST EXPENSE. Interest expense increased $.2 million from $1.5 million
in the first quarter of fiscal year 1997 to $1.7 million for the comparable
period of fiscal year 1998. This increase is due to higher average debt levels
during the first quarter of fiscal year 1998 when compared to the first quarter
of fiscal year 1997.
INCOME TAX EXPENSE. The Company's effective income tax rate was 40.2% for
the first three months of fiscal year 1997 as compared to an effective income
tax rate of 36.2% for the comparable period of fiscal year 1998.
FISCAL YEAR ENDED MARCH 28, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 29,
1996
NET SALES. Net sales increased $1.1 million, or .7%, from $173.3 in fiscal
year 1996 to $174.4 in fiscal year 1997. This increase resulted primarily from a
$1.8 million increase in window sales partially offset by a decrease in
third-party extrusion sales. Aluminum window sales reflected a decrease of $4.2
million, or 3.2%, from $130.3 million in fiscal year 1996 to $126.1 in fiscal
1997, primarily the result of customers' converting to vinyl windows at the
Company's Gallatin facility and the loss of single glazed business at Living
Windows. Vinyl window sales increased $6.2 million, or 27.1%, from $22.9 in
fiscal year 1996 to $29.1 million in fiscal year 1997. This increase in vinyl
window sales was primarily the result of improved market penetration in the
Company's existing markets, including California, Georgia, Tennessee and
Alabama, expansion in new geographic markets and aluminum customers' converting
to vinyl windows.
COST OF PRODUCTS SOLD. Cost of products sold decreased $1.9 million from
$133.3 million in fiscal year 1996 to $131.5 million in fiscal year 1997.
Expressed as a percentage of net sales, cost of products sold decreased from
77.0% in fiscal year 1996 to 75.4% in fiscal year 1997. This improvement was
primarily due to the (i) reduction in aluminum costs and (ii) reduction in
material and labor costs associated with automated glass cutting and insulated
glass manufacturing at certain of the Company's manufacturing facilities. In
addition, fiscal year 1996 included an inventory write-down of approximately
41
<PAGE>
$1.1 million, which was the result of spoilage in excess of standard at the
Company's Fresno, California plant that occurred during fiscal year 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million from $31.5 million in fiscal year
1996 to $32.7 million in fiscal year 1997. Expressed as a percentage of net
sales, selling, general and administrative expenses increased from 18.2% in
fiscal year 1996 to 18.8% in fiscal year 1997. This increase was primarily
related to health and medical insurance expenses of $1.1 million due to
increased enrollment and large claims associated with a few employees, and
expenses associated with the on-going program to upgrade and fully integrate the
Company's information system at all its facilities. These increases were
partially offset by a reduction in workers' compensation expense.
INTEREST EXPENSE. Net interest expense decreased $0.7 million from $6.1
million for fiscal year 1996 to $5.4 million in fiscal year 1997 as a result of
a lower debt level and lower interest rates under the Old Credit Facility.
INCOME TAX EXPENSE. The Company's effective income tax rate was 48.3% for
fiscal year 1996 compared to 44.6% in fiscal year 1997. This decrease reflects a
decrease in non-deductible expenses (primarily amortization of goodwill) as a
percentage of taxable income.
FISCAL YEAR ENDED MARCH 29, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31,
1995
NET SALES. Net sales increased $36.1 million, or 26.3%, from $137.2 million
in fiscal year 1995 to $173.3 million in fiscal year 1996. This increase
resulted from a $36.9 million increase in window sales, which was partially
offset by a decline in sales of custom aluminum extrusion to third parties due
to an increase in internal demand. Of the $36.9 million increase, $5.0 million
was due to increased price. Aluminum window sales increased $29.3 million, or
29.0%, from $101.0 million in fiscal year 1995 to $130.3 million in fiscal year
1996 primarily as a result of the acquisition of Living Windows in April 1995,
an increase in sales at the Company's Fresno, California facility (which began
operations in April 1994) and an increase in the price of aluminum windows
charged by the Company. Vinyl window sales increased $7.6 million, or 49.7%,
from $15.3 million in fiscal year 1995 to $22.9 million in fiscal year 1996.
This increase was primarily related to an increase in demand for the Company's
GAPCO vinyl windows and a full year of operations at the Company's Fresno
facility.
COST OF PRODUCTS SOLD. Cost of products sold increased $26.5 million from
$106.8 million during fiscal year 1995 to $133.3 million in fiscal year 1996.
Expressed as a percentage of sales, cost of products sold decreased from 77.8%
in fiscal year 1995 to 77.0% in fiscal year 1996. This improvement was primarily
the result of (i) a decrease in labor costs resulting from efficiency
improvements at two of the Company's manufacturing facilities, (ii) a reduction
in material and labor costs associated with the Company's automation of glass
cutting and insulated glass manufacturing at certain of the Company's
manufacturing facilities, and (iii) a decrease in workers' compensation costs
after the initiation of a safety program in late fiscal year 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $7.9 million from $23.6 million in fiscal year
1995 to $31.5 million in fiscal year 1996. Expressed as a percentage of net
sales, selling, general and administrative expenses increased from 17.2% in
fiscal year 1995 to 18.2% in fiscal year 1996. This increase primarily reflects
the April 1995 acquisition of Living Windows, which had higher distribution
costs as a percentage of net sales than the Company as a whole in fiscal year
1996, and losses incurred in connection with the expansion of operations at the
Company's Fresno facility. In addition, fiscal year 1996 included a charge of
$0.5 million consisting of settlement costs associated with a product liability
case and expenses related to the Company's ongoing program to upgrade and fully
integrate the Company's information systems in all its manufacturing facilities.
42
<PAGE>
INTEREST EXPENSE. Net interest expense increased $1.3 million from $4.8
million in fiscal year 1995 to $6.1 million in fiscal year 1996 as a result of a
higher debt level and higher interest rates under the Old Credit Facility.
INCOME TAX EXPENSE. The Company's effective income tax rate was 52.0% in
fiscal year 1995 compared to 48.3% in fiscal year 1996. The decrease in the
effective tax rate reflects lower state taxes and a decrease in nondeductible
expenses (primarily amortization of goodwill) as a percentage of taxable income
in fiscal year 1996.
CYCLICALITY
Demand for the Company's products is based on the level of new home
construction activity. Factors that impact the housing sector of the economy,
especially those that impact the level of housing start activity in the
Company's Primary Market, may have a direct effect on the financial performance
of the Company. The overall strength of the United States economy, interest
rates, rate of job formation, consumer confidence and availability of consumer
credit, as well as demographic factors such as the rate of household formation
and population shifts, have direct bearing on the Company. Housing start
declines can adversely impact the Company and no assurance can be given that any
such adverse impact would not be material.
SEASONALITY
Markets for the Company's products are seasonal, with peak activity in the
second and third quarters of the year due to increased construction during those
periods. The Company expects to use the Senior Credit Facility to meet seasonal
variations in its working capital requirements. There can be no assurance,
however, that the Senior Credit Facility will be sufficient under all
circumstances to meet seasonal variations in the Company's working capital
requirements.
RAW MATERIAL COSTS AND INFLATION
The rate of inflation over recent years has been relatively low and has not
had a significant effect on the Company's results. The Company purchases
aluminum, vinyl, glass and other raw materials from various suppliers. While all
such materials are available from numerous independent suppliers, commodity raw
materials are subject to fluctuations in price. There have been historical
periods of rapid and significant movements in the price of aluminum, both upward
and downward. Historically, the Company has been successful in passing on these
increases to its customers after a period of 60 to 90 days. However, there can
be no assurance that the Company will continue to be able to do so in the
future.
LIQUIDITY AND CAPITAL RESOURCES
Interest payments on the Notes represent significant obligations of the
Company. The Notes require semiannual interest payments commencing November 1,
1997.
In addition to its debt service obligations, the Company's remaining
liquidity demands relate to capital expenditures and working capital needs. For
the fiscal year ended March 28, 1997, the Company spent $3.6 million relating to
manufacturing automation, vinyl manufacturing equipment, computer systems and
maintenance projects. In fiscal year 1998, the Company anticipates that
maintenance capital expenditures will total approximately $2.0 million. In
addition, expenditures primarily for vinyl manufacturing capacity expansion and
manufacturing automation will likely total $2.5 million. The Company's working
capital needs are seasonal, and historically have peaked during the second and
third quarters. See "--Seasonality."
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Company's Senior Credit Facility. The Senior Credit
Facility provides the Company with a $25.0
43
<PAGE>
million revolving credit loan facility, subject to availability under the
borrowing base. At May 30, 1997, the Company was able to borrow $20.9 million
under the Senior Credit Facility. See "Description of the Senior Credit
Facility." No borrowings under the Senior Credit Facility were outstanding at
June 27, 1997. The Company believes that, based on current and anticipated
financial performance, cash flow from operations and borrowings under the Senior
Credit Facility will be adequate to meet anticipated requirements for capital
expenditures, working capital and scheduled interest payments (including
interest payments on the Notes and any amounts outstanding under the Senior
Credit Facility). However, certain capital expenditure requirements may change,
particularly if the Company should complete any acquisitions. The ability of the
Company to satisfy its capital requirements will be dependent upon the future
financial performance of the Company, which in turn will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond the Company's control.
The Company's future operating performance and ability to repay or refinance
the Notes will also be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control. See
"Risk Factors--Ability to Service Debt; Refinancing of Indebtedness."
ENVIRONMENTAL
The Company has been named as a potentially responsible party ("PRP") in two
superfund sites pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA") (the Chemical
Recycling, Inc. site in Wylie, Texas, and the SAAD Trousdale Road Site in
Nashville, Tennessee). See "Business--Government Regulation and Environmental
Matters." The Company believes that based on the information currently
available, including the substantial number of other PRPs and relatively small
share allocated to it at such sites, its liability, if any, associated with
either of these sites will not have a material adverse effect on the Company's
financial condition or its results of operations.
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which the Company adopted in
1997. SFAS No. 123 establishes optional alternative accounting methods for
stock-based compensation as well as new required disclosures. The Company
intends to account for stock-based compensation under previously existing
accounting guidance. As such, SFAS No. 123 was adopted for disclosure purposes
only and does not impact the Company's financial position, operating results or
cash flows.
In March 1995 the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed. As required,
the Company adopted Statement 121 in fiscal year 1997 and such adoption did not
impact the Company's financial position, operating results or cash flows.
44
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is one of the nation's largest manufacturers of aluminum and
vinyl, or non-wood, framed windows for the residential new construction market.
The Company believes that it is the largest competitor in the Non-Wood Segment
of its Primary Market and that it is the largest or second largest such
competitor in each state within its Primary Market. The Company's products are
marketed under well recognized brand names, including ALENCO and GAPCO, across
all major price points. Sales in the Company's Primary Market represented 84.8%
of the Company's fiscal year 1997 window net sales. The Company estimates that
it has a 23% market share in the Non-Wood Segment of its Primary Market. The
Company's Primary Market includes some of the fastest growing residential
housing markets in the United States with a CAGR in housing starts of 7.9% for
the five-year period ended December 31, 1996, compared to 5.3% nationally for
the same period. The Company's net sales increased at a CAGR of 11.6% from
$112.0 million in fiscal year 1993 to $174.4 million in fiscal year 1997.
Historically, the Company has emphasized the sale of aluminum windows, which
are the product of choice in the Company's Primary Market. The Company
attributes the preference for aluminum windows in its Primary Market primarily
to aluminum's lower cost and the reduced need for thermal efficiency in homes in
moderate southern climates. The Company estimates that its market share in the
Aluminum Segment of its Primary Market has increased from approximately 23% in
fiscal year 1993 to 29% in fiscal year 1997.
Over the past four years, the Company has increased its focus on the sale of
vinyl windows. The Vinyl Segment is the fastest growing segment of the new
construction window market, growing at a 39.4% CAGR from 1992 to 1996 on a
national basis and at a 63.0% CAGR in the Company's Primary Market over the same
period. Demand for vinyl windows increased during this period as manufacturers
such as the Company offered more thermally efficient vinyl windows of higher
quality and improved appearance at more competitive prices. Over the 1993 to
1995 period, the Company implemented the first phase of a comprehensive vinyl
market penetration program, which enabled the Company to manufacture
vinyl-framed windows at four of its five residential window manufacturing
facilities. The Company increased its vinyl sales from $2.2 million in fiscal
year 1992 to $29.1 million in fiscal year 1997. The Company believes that it is
well positioned to continue to increase its sales of vinyl windows due to its
broad product line, well established distribution base and strategically located
manufacturing facilities.
COMPETITIVE STRENGTHS
The Company believes that it benefits from the following competitive
advantages, which have contributed to an increase in net sales and operating
income and to the Company's maintenance of its leading market position in the
Non-Wood Segment:
INDUSTRY LEADERSHIP. The Company believes that it is the largest competitor
in the Non-Wood Segment of its Primary Market and that it is the largest or
second largest such competitor in each state within its Primary Market. The
Company believes that its market leadership position, broad product line across
all major price points and reputation for high quality provide it with several
competitive advantages, including: (i) the ability to attract and retain many of
the strongest distributors within its markets; (ii) the ability to serve a
customer base on a broad geographic basis; and (iii) economies of scale related
to the Company's manufacturing, purchasing and distribution operations. The
Company believes that its industry leadership position may also allow it to
benefit from the consolidation currently occurring within the Non-Wood Segment.
WELL RECOGNIZED BRAND NAMES. The Company's ALENCO and GAPCO brand names
have been well established in the industry for over 40 years. ALENCO has
consistently ranked as the nation's most recognized non-wood window brand name
according to BUILDER and PROFESSIONAL BUILDER magazines, two of the leading
industry trade publications. The GAPCO brand is regionally focused in the
Midwest, Mid-Atlantic and Southeast regions and has achieved a high degree of
recognition in those markets. The
45
<PAGE>
Company has established well recognized brand names primarily by providing
high-quality products and strong customer service. The Company has successfully
leveraged the strength of its brands to expand its product offerings,
particularly with regard to vinyl products, and to expand its geographic market
coverage. The Company intends to utilize the strength of its brand names to
increase its penetration in its existing markets and pursue expansion into new
markets.
STRONG MANUFACTURING AND DISTRIBUTION NETWORK. The Company's strategically
located manufacturing facilities allow it to provide its customers with one-stop
shopping across all major price points on a cost-effective and timely basis. The
Company operates five residential window manufacturing facilities serving over
200 distributors who generally distribute the Company's products on an exclusive
basis. The Company attributes its ability to establish exclusive relationships
with many of the strongest distributors in its markets to its: (i) broad product
offerings across all major price points; (ii) well recognized brand names; (iii)
reputation for high quality; and (iv) high level of customer service. These
factors have resulted in a loyal distributor base characterized by low turnover.
Although the Company does not have any contractual relationships with its
distributors, the average tenure of the Company's relationships with its
distributors is in excess of 24 years.
LOW-COST MANUFACTURING. The Company believes that it is one of the lowest
cost manufacturers of vinyl and aluminum windows. This advantage is primarily
attributable to: (i) centralized purchasing of major raw materials and
equipment; (ii) automation of manufacturing processes such as glass cutting and
the manufacture of insulated glass; and (iii) vertical integration. The Company
believes that it is one of the industry's most vertically integrated non-wood
window manufacturers. In addition to extruding and recycling aluminum, the
Company produces processed glass and window components, which provide it with a
reliable source of high-quality materials.
CUSTOMER SERVICE. The Company's systems, processes and organization are
designed specifically to provide a high level of customer service. The Company
believes that it offers its distributors high-quality, competitively priced
products and short lead times while maintaining high order-fill rates. The
Company's lead time is generally between five to ten working days on a
make-to-order basis. Furthermore, on-time delivery and order-fill rates
typically run in the 95-98% range, which the Company believes are among the best
in the industry.
EXPERIENCED MANAGEMENT. The Company has assembled a strong and experienced
management team at the corporate and operating levels. At the corporate level,
the top three members of the senior management team have an average of 15 years
of experience with the Company. The Company's operational managers, who manage
the Company's six window manufacturing facilities, have an average of ten years
of experience with the Company and 25 years of industry experience. Senior
executives of the Company own approximately 4% of the outstanding common stock
of Holdings.
BUSINESS STRATEGY
The Company's strategy for enhancing its market leadership position and
maximizing profitability and cash flow includes: (i) expanding market
penetration in the Vinyl Segment; (ii) expanding into attractive geographic
markets; (iii) achieving cost reductions; (iv) expanding into the repair and
remodel market; and (v) pursuing selected strategic acquisitions.
EXPAND PENETRATION IN THE VINYL SEGMENT. The Company believes that it is
among the largest manufacturers of residential new construction vinyl windows in
the United States, and that no single competitor holds a dominant position in
this market. The Vinyl Segment is the fastest growing segment of the window
market, growing at a 39.4% CAGR from 1992 to 1996 on a national basis, and a
63.0% CAGR in the Company's Primary Market. The Company recognized the potential
for growth in sales of vinyl windows early in the product life cycle and, over
the 1993 to 1995 period, established vinyl manufacturing capabilities at four of
its five residential window manufacturing facilities. As a result, the Company's
sales of vinyl windows increased from $2.2 million in fiscal year 1992 to $29.1
million in fiscal year 1997. The Company believes it is well positioned to
continue its expansion in the Vinyl Segment and
46
<PAGE>
intends to leverage its well recognized brand names, broad product line and
established distribution network in an effort to increase its vinyl window
sales. The Company intends to achieve this growth by increasing sales to
existing distributors and by entering new geographic markets.
EXPAND INTO ATTRACTIVE GEOGRAPHIC MARKETS. The Company intends to continue
to expand its business by entering geographic areas contiguous to the Company's
existing markets, as well as by targeting new markets with attractive growth
characteristics. The Company is actively pursuing expansion opportunities in
regions that exhibit favorable demographic trends, particularly with respect to
population growth, concentration of population base and housing starts. The
Company believes that it has advantages in penetrating new markets due to its
ability to offer customers well recognized brand name windows, a high level of
customer service and one-stop shopping for non-wood windows.
ACHIEVE COST REDUCTIONS. The Company expects to benefit from more than $5.0
million of annual cost reductions over the next three years. Approximately $1.2
million of these cost reductions are associated with previously implemented
initiatives that were completed in the fourth quarter of fiscal year 1997,
including the automation of labor intensive operations and strategic initiatives
with key raw material suppliers. The balance of the annual cost reductions, or
approximately $3.8 million, is associated with new initiatives that the Company
intends to implement over the next two years, including: (i) improvements in
manufacturing processes; (ii) materials cost reductions; (iii) continued
improvements in information systems; and (iv) additional factory automation.
However, a large portion of these cost savings will likely not be achieved until
fiscal year 1999 and there can be no assurance that any such cost savings can be
achieved or, specifically, that they can be achieved within three years.
EXPAND INTO THE REPAIR AND REMODEL MARKET. The Company believes that the
highly fragmented $2.8 billion non-wood repair and remodel market represents a
significant opportunity. The repair and remodel market is generally
counter-cyclical and provides the Company with the ability to diversify its
product mix as well as increase sales. The Company intends to increase its
presence in this market by leveraging its well recognized brand names and
utilizing its existing strong manufacturing and distribution network to
penetrate existing geographic markets and to expand into new markets through
selected acquisitions.
PURSUE SELECTED STRATEGIC ACQUISITIONS. The Company intends to pursue
opportunities to make acquisitions that complement and expand its core business
or enable the Company to enter new markets for its products. The non-wood new
construction and repair and remodel markets are highly fragmented with over 350
manufacturers, the majority of which are small regional manufacturers. The
Company believes that significant opportunities exist to make selected strategic
acquisitions at attractive valuations. Strategic acquisitions could allow the
Company to (i) leverage its well recognized brand names; (ii) achieve cost
reductions through purchasing economies and the application of the Company's
best manufacturing practices; and (iii) further diversify the Company's
geographic, product and market focus, including expansion into the repair and
remodel market. However, no assurance can be given that the Company will be able
to complete strategic acquisitions at attractive valuations.
INDUSTRY
The U.S. window industry consists of two segments, residential and
commercial. The residential window segment consists of both the new construction
and the repair and remodel markets. Total residential window sales in the United
States in 1996 were estimated at $7.5 billion, consisting of $1.6 billion in the
new construction market and $5.9 billion in the repair and remodel market. The
Company primarily competes in the residential new construction market.
The residential new construction window market is divided into three primary
segments according to type of frame material: aluminum, vinyl and wood. The
Company primarily competes in the $875 million aluminum and vinyl, or Non-Wood
Segment, of the residential new construction window market. The Non-Wood Segment
is highly fragmented and historically has consisted of a large number of
relatively small, independent businesses serving discrete local markets and a
small number of multi-
47
<PAGE>
regional operators. Relative to smaller competitors, larger multi-regional
operators such as the Company benefit from several competitive advantages,
including economies of scale in purchasing, manufacturing and distribution and
the ability to attract and retain strong distributors. The Company believes that
larger operators such as the Company are less impacted by cyclical downturns in
the industry. For example, in its Primary Market, the Company believes it has
historically experienced increases in market share during periods of declining
market demand.
The market share of wood, aluminum and vinyl windows in the new construction
market varies by region. A homebuilder's or homeowner's choice of frame material
is often based upon such considerations as cost, thermal efficiency,
maintenance, aesthetic preferences and regional norms. Wood windows are
generally the most expensive and are more popular in the colder climates of the
northern states. Aluminum windows are generally the least expensive and
thermally efficient and are the product of choice in the southern half of the
United States. Vinyl windows are generally less expensive and slightly less
thermally efficient than wood and more expensive and thermally efficient than
aluminum, and compete with low-end wood products and high-end aluminum products.
Over the past five years, the new construction and repair and remodel vinyl
segment has grown significantly at the expense of both wood and aluminum. The
Company attributes this growth primarily to the improvement in the quality of
vinyl windows during this time.
The chart below outlines certain principal characteristics of aluminum,
vinyl and wood windows:
U.S. RESIDENTIAL WINDOW MARKET
<TABLE>
<CAPTION>
% OF 1996 RESIDENTIAL WINDOW UNITS
ILLUSTRATIVE ------------------------------------------
PRICE TOTAL NEW
RANGE(A) RESIDENTIAL(B) CONSTRUCTION(B) STRENGTHS WEAKNESSES
--------------- ----------------- ----------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Aluminum............ $30-$100 32.4% 43.7% -Low cost -Low perceived
-Strong builder value
acceptance -Low thermal
-High durability efficiency
-Low maintenance
Vinyl............... $70-$125 36.6% 23.4% -High perceived -Moderate
value builder
-Low maintenance acceptance
-High thermal
efficiency
Wood................ $150-$250 28.7% 32.7% -Strong builder -High cost
acceptance -High maintenance
-High perceived -Long delivery
appearance lead time
-High thermal
efficiency
</TABLE>
- ---------------------
SOURCE: F.W. DODGE AND MANAGEMENT ESTIMATES
(a) Illustrative prices for a standard size window (3'x5') sold to the new
construction market.
(b) Totals do not add to 100% due to the exclusion of windows of other material
types.
The U.S. residential window industry segment as a whole has experienced
stable growth over the 1992 to 1996 period. Over this period, sales of vinyl
units grew at a 12.9% CAGR, compared to CAGRs of (0.7%) for aluminum, 8.0% for
wood and 6.0% for the U.S. residential window segment as a whole. Unit volume in
the new construction market has increased at a 4.7% CAGR compared to a 6.6% CAGR
for the repair and remodel market and a 6.0% CAGR for the U.S. residential
window segment as a whole over this period.
48
<PAGE>
The following chart sets forth the unit data for the aluminum, vinyl and
wood segments of the U.S. residential window segment:
UNITED STATES RESIDENTIAL WINDOW SALES(A)
<TABLE>
<CAPTION>
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
(UNITS IN MILLIONS)
Aluminum
Aluminum new construction...................................................... 8.3 7.4 8.0
Aluminum repair and remodel.................................................... 11.1 10.4 11.2
Total aluminum................................................................. 19.3 17.9 19.2
Aluminum share of total market................................................. 42.1% 37.5% 35.9%
Vinyl
Vinyl new construction......................................................... 1.1 1.7 3.2
Vinyl repair and remodel....................................................... 12.0 14.4 11.6
Total vinyl.................................................................... 13.1 16.1 14.8
Vinyl share of total market.................................................... 28.5% 33.7% 27.7%
Wood
Wood new construction.......................................................... 5.0 5.6 6.0
Wood repair and remodel........................................................ 7.3 7.0 12.0
Total wood..................................................................... 12.3 12.6 18.0
Wood share of total market..................................................... 26.7% 26.5% 33.6%
Total new construction(b)........................................................ 14.4 14.7 17.2
Total repair and remodel(b)...................................................... 31.6 33.0 36.3
--- --- ---
Total United States(b)..................................................... 46.0 47.7 53.5
--- --- ---
--- --- ---
<CAPTION>
1992-1996
1995 1996 CAGR
----- ----- -----------
<S> <C> <C> <C>
Aluminum
Aluminum new construction...................................................... 6.7 7.6 (2.3%)
Aluminum repair and remodel.................................................... 11.0 11.3 0.5%
Total aluminum................................................................. 17.8 18.8 (0.7%)
Aluminum share of total market................................................. 33.5% 32.4% --
Vinyl
Vinyl new construction......................................................... 3.8 4.0 39.4%
Vinyl repair and remodel....................................................... 12.4 17.2 9.4%
Total vinyl.................................................................... 16.1 21.3 12.9%
Vinyl share of total market.................................................... 30.4% 36.6% --
Wood
Wood new construction.......................................................... 5.9 5.7 3.0%
Wood repair and remodel........................................................ 12.4 11.0 11.0%
Total wood..................................................................... 18.3 16.7 8.0%
Wood share of total market..................................................... 34.5% 28.7% --
Total new construction(b)........................................................ 16.5 17.3 4.7%
Total repair and remodel(b)...................................................... 36.6 40.8 6.6%
--- --- -----------
Total United States(b)..................................................... 53.1 58.1 6.0%
--- --- -----------
--- --- -----------
</TABLE>
- ---------------------
SOURCE: F.W. DODGE
(a) Calculations based on actual data.
(b) Totals may be higher than the sum of the above due to the exclusion of
windows of other material types.
Unit growth rates in the Company's Primary Market exceeded the growth rates
for the nation as a whole for residential aluminum, vinyl and wood windows for
the 1992 to 1996 period. Residential new construction vinyl and aluminum CAGRs
were 63.0% and 0.5%, respectively, in the Company's Primary Market compared to
39.4% and (2.3%), respectively, for the nation as a whole over the same period.
Overall, residential new construction units in the Company's Primary Market grew
at a CAGR of 7.5%, compared to 4.7% for the nation as a whole. In the Company's
Primary Market, aluminum is the window material of choice, with an estimated
44.7% market share in 1996.
The following chart sets forth the unit data for the aluminum, vinyl and
wood segments of the residential window segment in the Company's Primary Market:
PRIMARY MARKET RESIDENTIAL WINDOW SALES(A)
<TABLE>
<CAPTION>
1992 1993 1994 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
(UNITS IN MILLIONS)
Aluminum
Aluminum new construction..................................................... 5.6 5.0 5.7 5.0
Aluminum repair and remodel................................................... 4.9 5.2 4.7 4.8
Total aluminum................................................................ 10.6 10.2 10.4 9.8
Aluminum share of Primary Market.............................................. 58.6% 53.8% 47.1% 43.8%
Vinyl
Vinyl new construction........................................................ 0.3 0.7 1.5 2.0
Vinyl repair and remodel...................................................... 3.2 3.6 3.8 3.9
Total vinyl................................................................... 3.6 4.3 5.2 5.9
Vinyl share of Primary Market................................................. 19.7% 22.6% 23.8% 26.5%
Wood
Wood new construction......................................................... 1.8 2.3 2.5 2.5
Wood repair and remodel....................................................... 1.7 1.7 3.4 3.9
Total wood.................................................................... 3.4 4.1 6.0 6.3
Wood share of Primary Market.................................................. 19.1% 21.5% 27.0% 28.3%
Total new construction(b)....................................................... 7.7 8.0 9.7 9.5
Total repair and remodel(b)..................................................... 10.3 10.9 12.4 12.9
--- --- --- ---
Total Primary Market(b)................................................... 18.0 18.9 22.1 22.4
--- --- --- ---
--- --- --- ---
<CAPTION>
1992-1996
1996 CAGR
--------- -----------
<S> <C> <C>
Aluminum
Aluminum new construction..................................................... 5.7 0.5%
Aluminum repair and remodel................................................... 5.5 2.9%
Total aluminum................................................................ 11.3 1.6%
Aluminum share of Primary Market.............................................. 44.7% --
Vinyl
Vinyl new construction........................................................ 2.1 63.0%
Vinyl repair and remodel...................................................... 5.6 14.5%
Total vinyl................................................................... 7.7 21.4%
Vinyl share of Primary Market................................................. 30.6% --
Wood
Wood new construction......................................................... 2.4 7.9%
Wood repair and remodel....................................................... 3.3 18.3%
Total wood.................................................................... 5.7 13.3%
Wood share of Primary Market.................................................. 22.5% --
Total new construction(b)....................................................... 10.3 7.5%
Total repair and remodel(b)..................................................... 14.9 9.6%
--------- -----------
Total Primary Market(b)................................................... 25.2 8.7%
--------- -----------
--------- -----------
</TABLE>
- ---------------------
SOURCE: F.W. DODGE AND MANAGEMENT ESTIMATES
(a) Calculations based on actual data.
(b) Totals may be higher than the sum of the above due to the exclusion of
windows of other material types.
49
<PAGE>
Over the 1992 to 1996 period, housing starts in the Company's Primary Market
grew at an 7.9% CAGR compared to 5.3% for the nation as a whole. These higher
levels of housing starts contributed to the stronger growth in window unit
volumes in the Primary Market compared to the nation as a whole. Furthermore,
the Company's Primary Market represented 58.2% of the total U.S. housing starts
in 1996 compared to 52.7% in 1992.
HOUSING STARTS
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNITS IN THOUSANDS)
Total United States....................................................... 1,201 1,288 1,457 1,354 1,476
% Growth................................................................ -- 7.2% 13.1% (7.1%) 9.0%
Primary Market............................................................ 633 699 812 786 859
% Growth................................................................ -- 10.5% 16.1% (3.2%) 9.3%
<CAPTION>
1992-1996
CAGR
-------------
<S> <C>
Total United States....................................................... 5.3%
% Growth................................................................ --
Primary Market............................................................ 7.9%
% Growth................................................................ --
</TABLE>
- ---------------------
SOURCE: U.S. CENSUS BUREAU
PRODUCTS
WINDOWS. The Company manufactures and distributes a broad line of both
aluminum and vinyl window products, including insulated and thermal break
windows, garden windows, storm windows and doors, single- and double-hung
windows, casement windows and sliding doors primarily for use in the new single-
and multi-family residential housing market. The Company's products are
primarily sold under the ALENCO and GAPCO brand names through a network of
independent distributors. ALENCO has consistently ranked as the nation's most
recognized non-wood window brand name, according to BUILDER and PROFESSIONAL
BUILDER magazines. The GAPCO brand is regionally focused in the Midwest,
Mid-Atlantic and Southeast regions and has achieved a high degree of recognition
in those markets. In addition to ALENCO and GAPCO, the Company also offers the
Living Windows brand to the value-priced segment and the Builders View brand to
the retail home center market. The Company provides its customers with a broad
range of vinyl and aluminum windows across all major price points.
The following chart summarizes the Company's window products:
<TABLE>
<CAPTION>
MAJOR BRAND PRICE RANGE BRAND STRATEGY
- ------------------ ----------------------- -------------------------------------------
<S> <C> <C>
ALENCO Aluminum $35-$80 Offer aluminum and vinyl products across
Vinyl $70-$95 good, better and best price points on a
multi-regional basis.
GAPCO Aluminum $60-$100 Offer aluminum and vinyl products across
Vinyl $85-$125 the better and best price points in
selected Midwestern, Mid-Atlantic and
Southeastern regional markets.
Living Windows Aluminum $30-$65 Offer aluminum windows to the value-priced
market segment.
Builders View Aluminum $50-$80 Offer aluminum and vinyl windows to the
Vinyl $70-$95 retail home center market.
</TABLE>
ALUMINUM EXTRUSION. The Company produces aluminum extrusion to satisfy
virtually all its manufacturing needs. To optimize manufacturing efficiency at
the Company's aluminum extrusion operation, the Company also sells excess
production to third parties. The Company sold approximately 17.1% of its
aluminum extrusion output to third parties in fiscal year 1997.
50
<PAGE>
PROCESSED GLASS. The Company purchases glass from independent suppliers and
processes custom glass for its three manufacturing facilities in Texas and for
sale to third parties. The Company sells cut, beveled, grooved and tempered
glass to manufacturers, glass shops, glazing contractors and retailers,
primarily in Texas. The Company sold approximately 80.4% of its processed glass
output to third parties in fiscal year 1997.
OTHER PRODUCTS. The Company also manufactures and sells hinged doors and
skylights. These products complement the Company's broad vinyl and aluminum
window product lines.
DISTRIBUTION
The Company's extensive distribution network includes over 200 distributors
who generally distribute the Company's products on an exclusive basis. The
Company believes it has established relationships with many of the strongest
distributors in its markets as a result of its broad product offerings across
all major price points, well recognized brand names, reputation for high quality
products and commitment to providing the highest levels of service in the
industry. These factors have resulted in a loyal distributor base characterized
by low turnover. The average tenure of the Company's relationships with its
distributors is in excess of 24 years. No single distributor accounted for more
than 5% of the Company's total net sales during fiscal year 1997. The Company
also owns and operates four distribution facilities, which accounted for
approximately 3.6% of the Company's net sales in fiscal year 1997.
Orders are generally filled within five to ten days of order receipt, with
the exception of commercial orders, which have lead times of 90-150 days.
Generally, customer orders are delivered to contractors and independent building
supply distributors by the Company's fleet of over 85 tractors and 200 trailers.
The ALENCO line is typically shipped in truck-load quantities to larger
distributors. GAPCO products are typically shipped in smaller lots to local
building supply companies and lumber yards.
SALES AND MARKETING
The Company's highly experienced, commissioned sales force consists of 35
factory sales representatives who provide distributors with ongoing technical,
marketing and sales support. These sales representatives have an average of ten
years of experience with the Company and generally have long-standing
relationships with customers, which the Company believes contributes to customer
loyalty. These sales representatives are regionally focused and report to five
regional managers in California, Texas, Georgia and Tennessee and a national
accounts manager.
The Company's advertising and promotional efforts consist of a national
advertising program in recognized industry publications such as BUILDER,
PROFESSIONAL BUILDER and BUILDING PRODUCTS, as well as regional, cooperative
advertising with its distributors in local, state and regional publications. The
Company also participates in national trade shows, such as the National
Association of Home Builders and National Sash and Door Jobbers Association
shows. Additionally, the Company participates in prominent regional trade shows
such as the Pacific Coast Builder's Congress, as well as other regional shows on
a cooperative basis with its distributors.
MANUFACTURING
The Company is a vertically integrated manufacturer of aluminum and vinyl
windows, with six window manufacturing facilities (including the Company's
Houston facility) located in four states. The Company believes that its ability
to satisfy many of its manufacturing needs, including extruded aluminum, vinyl
component parts, screen frames, muntin bars and tempered glass, provides it with
an enhanced ability to serve its customers, significant manufacturing
flexibility and a reliable supply of low-cost components. The Company also
operates an aluminum scrap recasting facility on a joint venture basis,
providing approximately one-third of the Company's aluminum billet requirements.
51
<PAGE>
The Company produces aluminum extrusion to meet virtually all its
manufacturing needs. The Company sold approximately 17.1% of its aluminum
extrusion to third parties in fiscal year 1997. In the extrusion process,
aluminum billets are hydraulically pressed through tooling dies to form the
shapes necessary to build window products. The extruded length is then cooled
and cut to stock length, tempered and painted, and is then ready to be used in
window manufacturing. The extrusion used in the Company's vinyl windows is
purchased from a third-party extruder.
The extrusions (aluminum or vinyl) are then cut down from the stock lengths
to shorter lengths for the exterior frame and sash parts of the window products.
These parts are fabricated or processed in order to assemble the window.
Aluminum window parts are mechanically fastened together for the rectangular
frame and sash components. Vinyl window parts are heat-fusion welded to form the
comparable frame and sash components.
While the stock lengths of aluminum and vinyl extrusion are being cut down
and processed, glass is cut with the aid of computer controlled glass cutting
optimizers and is assembled into the insulating glass units necessary to glaze
the window sashes. The insulating glass units are adhered to the sash frames,
and hardware and other components are added. The window unit is then complete
and ready for shipment.
COMPETITION
The non-wood new construction and repair and remodel markets are highly
fragmented with over 350 manufacturers, the majority of which are small regional
manufacturers. No one company holds a dominant position on a national basis. The
Company's competitors include Caradon/Better Bilt and Metal Industries, as well
as numerous other smaller regional competitors. Competition is generally
regional and is based on price, product quality, brand name reputation and
customer service.
RAW MATERIALS
The Company purchases aluminum, vinyl, glass and other raw materials from
various suppliers. While all such materials are available from numerous
independent suppliers, commodity raw materials are subject to fluctuations in
price. There have been historical periods of rapid and significant movements in
the price of aluminum, both upward and downward. Historically, the Company has
been successful in passing on these increases to its customers after a period of
60 to 90 days. However, there can be no assurance that the Company will continue
to be able to do so in the future.
EMPLOYEES
As of June 27, 1997, the Company employed approximately 2,141 full-time
employees, of which approximately 146 were represented by a union (all of whom
are employed at the Company's Bryan, Texas facilities). The contract covering
the Company's unionized employees expires in December 1998. The Company also
hires approximately 300 seasonal employees during the peak season, which lasts
from April to October. The Company believes its relationship with its employees
is good.
52
<PAGE>
PROPERTIES
The Company's operations are principally conducted at nine owned or leased
facilities. The Company believes that its plants and equipment are modern and
well-maintained and provide adequate production capacity to meet the expected
demand for its products.
Listed below are the principal manufacturing facilities operated by the
Company.
<TABLE>
<CAPTION>
LOCATION PRINCIPAL PRODUCT OWNED/LEASED
- --------------------------------------------- --------------------------------------------- --------------------
<S> <C> <C>
Bryan, Texas................................. Residential windows Owned/leased(a)
Bryan, Texas................................. Commercial windows Owned
Dallas, Texas................................ Residential doors Leased
Dallas, Texas................................ Processed glass Leased
Fresno, California........................... Residential windows Leased
Gallatin, Tennessee.......................... Residential windows Owned
Houston, Texas(b)............................ Residential windows Leased
Peachtree City, Georgia...................... Residential windows Owned
Peachtree City, Georgia...................... Window components Owned
</TABLE>
- ---------------------------
(a) A portion of the facility is owned and a portion of the facility is leased.
(b) The Company anticipates closing this facility. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Houston
Operations."
In addition, the Company leases space in New Orleans, Louisiana and Phoenix,
Arizona for use as distribution facilities and maintains its corporate
headquarters in a leased facility in Dallas, Texas.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company.
INTELLECTUAL PROPERTY
The Company holds no licenses, patents or copyrights. However, ALENCO is a
registered trademark of the Company, and GAPCO, ALENCO, Living Windows, and
Builders View are trade names used in and associated with the Company's
business. The Company believes that its ALENCO trademark is important to the
Company because it is well recognized and associated with quality and value in
the Non-Wood Segment. The Company aggressively protects this trademark.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing environmental laws and
regulations pertaining to the discharge of certain materials into the
environment, the handling and disposal of wastes (including solid and hazardous
wastes) or otherwise relating to health, safety and protection of the
environment. As such, the nature of the Company's operations and previous
operations by others at real property currently or formerly owned or operated by
the Company expose the Company to the risk of claims under environmental, health
and safety laws and regulations. Based on its experience to date, the Company
does not expect such claims, or the costs of compliance with environmental,
health and safety laws and regulations, to have a material impact on its capital
expenditures, earnings or competitive position. The Company believes it is in
compliance in all material respects with such environmental laws and
regulations. Capital expenditures for environmental matters were not material
for fiscal year 1997 and are not expected to be material for fiscal year 1998.
The Company is associated with two Superfund sites that are being investigated
or undergoing remediation pursuant to CERCLA. The Company is a PRP at the
Chemical Recycling, Inc. or "CRI" Superfund site in Wylie, Texas. The Company is
a very small contributor at the CRI site, being assigned less than 1.275% of the
damages based on its waste volume at the site. The site was a solvent
reclamation facility, and the Company sent paint sludges and waste xylene to the
site for recycling. The site has soil and groundwater contamination, with the
53
<PAGE>
contaminants of concern being solvents such as vinyl chloride, acetone,
dichloroethene, toluene, and xylene. Some areas of soil have metal
contamination. Major removal actions have occurred; however, the final
remediation action plan has not been prepared. According to the studies
performed by the site's steering committee, affected groundwater has not
migrated off-site. According to the EPA general counsel in charge of the site,
the site is low priority compared to other sites in the region. There are 115
PRPs at this site with approximately 85 that are members of the site's steering
committee. Two main PRPs, Glidden and Sherwin Williams, account for 50% of all
liability. The Company's costs to date associated with this site have been
approximately $39,800, with an approximate $20,000 current credit.
The second site is the SAAD Trousdale Road landfill in Nashville, Tennessee.
There is no documentation linking the Company to the site, and costs paid to the
generator group to date have been $55,000. Because of the lack of documentation
linking the Company to the site, it is not expected that the costs will increase
materially in the future. Records indicate that, through agreements with the
site's steering committee and EPA, the Company will not receive any orders from
EPA or be allocated further costs for continuing work because the Company does
not have a volume contribution assigned to it (because of the lack of records
showing it used the site). There are 49 PRPs who have received orders from EPA
for remediation. Soil contaminants of concern at the site are benzene, ethyl
benzene, tetrachloroethane, toluene, trichloroethane, and vinyl chloride. The
facility was a waste oil disposal facility from the 1970s to the 1980s,
resulting in impacted soil and groundwater. In 1995, the EPA determined that
groundwater remediation would not be required but indicated that further soil
remediation was necessary as well as a study of the potential impact to a nearby
stream. Additional removal actions were completed in 1996; no further activities
have occurred since then.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David G. Fiore....................................... 49 Chairman, President and Chief Executive Officer
Virgil D. Lowe....................................... 54 Chief Financial Officer, Vice President, Director
Charles E. Still..................................... 55 Vice President
Bradford E. Bernstein................................ 30 Director
Michael L. George.................................... 56 Director
Steven B. Gruber..................................... 39 Director
Robert B. Henske..................................... 35 Director
</TABLE>
DAVID G. FIORE is Chairman of the Board of Directors and has served as
President and Chief Executive Officer of the Company since January 1994. From
when he joined the Company in October 1992 until January 1994, he served as
Executive Vice President responsible for the Company's operating divisions in
the western United States. Prior to joining the Company, Mr. Fiore served two
years as President of Cal-Tex Industries, the parent company of three aluminum
window manufacturers based in San Diego, California, as well as three years as
President of General Aluminum, a Cal-Tex Industries subsidiary. Mr. Fiore
received a Bachelor of Science degree from the State University of New York at
Buffalo and a Master of Business Administration degree from Syracuse University.
CHARLES E. STILL has served as the Company's Vice President of Engineering
since June 1982. During his 34-year career with the Company, Mr. Still has held
positions including Designer, Graphics Supervisor, Design Engineer, Manager and
Design Engineer and Director of Product Engineering. Mr. Still received a
Bachelor of Science degree in Architecture from Texas A&M University.
VIRGIL D. LOWE has served as Secretary and Treasurer of the Company since
November 1994 and became a director of the Company in 1997. Mr. Lowe joined the
Company as Controller in June 1988. Prior to joining the Company, Mr. Lowe was
employed by Continental Can Company for 17 years. During his employment with
Continental Can Company, he progressed from Cost Accountant to Director of
Accounting for Beverage Operations. Mr. Lowe received a Bachelor of Science
degree in Accounting from East Texas Baptist University.
BRADFORD E. BERNSTEIN became a director of the Company in 1997. Mr.
Bernstein has served as a Principal, Vice President and Associate of Oak Hill
Partners, Inc., a private investment company, since 1992. From 1991 until 1992,
Mr. Bernstein worked at Patricof & Co. Ventures. Prior to that, from 1989 to
1991, he worked at Merrill Lynch & Co. Mr. Bernstein is a director of Pinnacle
Brands, Inc., Payroll Transfers, Inc., Caliber Collision Centers, Inc. and
CapStar Hotel Company.
MICHAEL L. GEORGE became a director of the Company in 1997. Since 1984, Mr.
George has been Chairman of the Board of the George Group, an acquisition and
management consulting firm based in Dallas, Texas. Mr. George holds a Bachelor
of Science degree in Physics from the University of California and a Master of
Science degree in Physics from the University of Illinois.
STEVEN B. GRUBER became a director of the Company in 1997. From March 1992
to the present, Mr. Gruber has been a Managing Director of Oak Hill Partners,
Inc. From May 1990 to March 1992, he was a Managing Director of Rosecliff, Inc.
Since February 1994, Mr. Gruber has also been an officer of Insurance Partners
Advisors, L.P., an investment advisor to Insurance Partners, L.P. Since October
1992, he has been a Vice President of Keystone. From 1981 to 1990, Mr. Gruber
was a managing director and co-head of High Yield Securities and held various
other positions at Lehman Brothers, Inc. He is also a
55
<PAGE>
director of Superior National Insurance Group, Inc., Unionamerica Holdings, plc,
MVE HOLDINGS, INC., and several private companies related to Keystone, Insurance
Partners and Oak Hill Partners.
ROBERT B. HENSKE became a director of the Company in 1997. From January 1997
to the present, Mr. Henske has been a Vice President of Keystone and a principal
at Arbor Investors, L.L.C., a private investment firm. From January 1996 to
December 1996, he was Executive Vice President and Chief Financial Officer of
American Savings Bank, F.A., a federally-chartered thrift. From 1986 to January
1996, he was a partner and held various other positions with Bain & Company, a
management consulting firm.
BOARD COMMITTEES AND FEES
The Board of Directors of the Company has an executive committee, an audit
committee, a compensation committee, a finance and acquisition committee, and an
operating committee. None of such committees have held any meetings in fiscal
year 1997. The Directors of the Company are not compensated for their services
as such nor for their participation on any Board committees.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid during
fiscal year 1997 for services rendered in all capacities to the Company and its
subsidiaries by certain of the Company's executive officers (collectively, the
"Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND FISCAL -------------------------- -------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(A) SARS(B) COMPENSATION
- -------------------------------------------- ----------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
David G. Fiore.............................. 1997 $ 175,000 $ 166,873 $ 265,600 $ 6,626(c)
President and Chief Executive Officer 1996 162,500 118,621 531,200 15,983(c)
1995 150,833 177,759 -- 5,004(c)
Virgil D. Lowe.............................. 1997 87,750 83,437 53,120 7,184(d)
Secretary, Treasurer and Controller 1996 82,500 59,311 -- 16,157(d)
1995 73,645 88,879 -- 8,786(d)
Charles E. Still............................ 1997 71,583 58,962 -- 7,042(e)
Vice President 1996 68,500 37,959 -- 14,017(e)
1995 67,911 71,103 -- 4,339(e)
</TABLE>
- ------------------------
(a) Bonuses are based on operating performance. For corporate employees with
Company-wide responsibility, the bonus is based on the operating income of
the entire Company.
(b) Based on a value of $26,560 per unit, which is the value of the Units upon
consummation of the Transaction. See note(a) to the table entitled "SAR
Grants in the Last Fiscal Year."
(c) Consists of $3,126 paid by the Company for health and life insurance and
$3,500 in contributions to the Company's 401(k) plans in 1997; $2,770 paid
by the Company for health and life insurance, $7,189 in reimbursements for
taxes attributable to such health and life insurance payments and $6,024 in
contributions to the Company's 401(k) plans in 1996; and $5,004 in
contributions to the Company's 401(k) plans in 1995.
(d) Consists of $4,301 paid by the Company for health and life insurance, $250
in reimbursements for taxes attributable to such health and life insurance
payments and $2,633 in contributions to the Company's 401(k) plans in 1997;
$8,456 paid by the Company for health and life insurance, $3,145 in
reimbursements for taxes attributable to such health and life insurance
payments and $4,556 in contributions to the Company's 401(k) plans in 1996;
and $6,295 in contributions to the Company's 401(k) plans and $2,491 under
the Company's merit plan in 1995.
(e) Consists of $4,894 paid by the Company for health and life insurance and
$2,148 in contributions to the Company's 401(k) plans in 1997; $8,456 paid
by the Company for health and life insurance, $3,145 in reimbursements for
taxes attributable to such health and life insurance payments and $4,556 in
contributions to the Company's 401(k) plans in 1996; and $3,406 in
contributions to the Company's 401(k) plans and $933 under the Company's
merit plan in 1995.
56
<PAGE>
SAR GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information relating to stock appreciation
rights ("SARs") granted during fiscal year 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
% OF TOTAL SARS
GRANTED TO EMPLOYEES
NAME NUMBER OF SARS GRANTED(A) IN FISCAL YEAR
- ------------------------------------------------------------ ------------------------------- -------------------------
<S> <C> <C>
David G. Fiore.............................................. 10 84%
Virgil D. Lowe.............................................. 2 16
Charles E. Still............................................ -- --
</TABLE>
- ------------------------
(a) Certain employees of the Company and Holdings were granted Incentive Units
(the "Units") giving them the right to receive incentive compensation in
connection with certain defined events. The Acquisition was such an event
and triggered the redemption of the Units. The value of the ten Units
granted to Mr. Fiore in fiscal year 1997 and the value of the two Units
granted to Mr. Lowe in fiscal year 1997 is unascertainable as of March 28,
1997, because the Units were not exercisable until a merger, consolidation,
sale, transfer or disposition of 50% or more of the Company's outstanding
common stock or assets, and the value of the Units was based upon the
consideration received in such transaction. However, the value of Mr.
Fiore's ten Units upon closing of the Transaction on May 9, 1997 was
$265,600, and the value of Mr. Lowe's two Units upon closing of the
Transaction on May 9, 1997 was $53,120.
AGGREGATED SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END SAR VALUES
The following table provides information relating to the number and value of
unexercisable SARs held by the Named Executive Officers at March 28, 1997. No
SARs were exercised during fiscal year 1997 and none were exercisable as of
March 28, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SARS IN-THE-MONEY SARS
NAME AT FISCAL YEAR-END AT FISCAL YEAR-END
- ----------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
David G. Fiore......................................................... 40 $ 1,062,400(a)
Virgil D. Lowe......................................................... 7 185,920(a)
Charles E. Still....................................................... 2.5 66,400(a)
</TABLE>
- ------------------------
(a) The value of the Units (which are more fully described in note (a) to the
table above entitled "SAR Grants in the Last Fiscal Year") as of March 28,
1997 is unascertainable, because the Units were not exercisable until a
merger, consolidation, sale, transfer or disposition of 50% or more of the
Company's outstanding common stock or assets, and the value of the Units was
based upon the consideration received in such transaction. However, the
value of Mr. Fiore's Units upon closing of the Transaction on May 9, 1997
was $1,062,400, the value of Mr. Lowe's Units upon closing of the
Transaction was $185,920 and the value of Mr. Still's Units upon closing of
the Transaction was $66,400.
BONUS PLAN AND OTHER BENEFIT PROGRAMS
The Company maintains a bonus plan providing for annual bonus awards to
executives and certain other key general managers. Such bonus amounts are based
on meeting Company-wide and divisional performance goals established by the
Company's Board of Directors. These employees also participate in employee
benefit programs including health insurance, group life insurance and a savings
and supplemental retirement plan (401(k) plan) on the same basis as other
employees of the Company.
NONQUALIFIED STOCK OPTION PLAN
Upon consummation of the Acquisition, Holdings adopted a Nonqualified Stock
Option Plan (the "Plan") in order to provide incentives to certain officers and
employees of Holdings and the Company by granting them options to purchase
common stock of Holdings. The Plan is administered by the Board of Directors of
Holdings, which has broad authority in administering and interpreting the Plan.
Options
57
<PAGE>
granted under the Plan ("Options") are nonqualified stock options which do not
qualify under Section 422A of the Code. Unless the award granting an Option
provides otherwise, upon the termination of an employee for other than Cause (as
defined in the Plan), vested options may be exercised at any time until three
months after the date of termination (one year if due to death or disability of
the employee). In the event the employee is terminated for Cause, all Options
terminate immediately. In addition, for a period of one year after an employee's
termination of employment for any reason, Holdings has the option to purchase
such Options at a price equal to the difference between the fair market value of
the shares of common stock for which such Options are exercisable by such
employee and the exercise price of such Options.
The Options vest upon such terms as the Board of Directors determines,
provided that in the event of a change of control of Holdings, Options which are
not exercisable at such time become immediately exercisable. The exercise price
for each Option is the fair market value of the common stock of Holdings on the
date of grant. Subsequent to the Agreement, Holdings granted options to purchase
33,261 shares of its common stock to certain members of the Company's senior
management. Holdings may issue options to purchase an additional 15,408 of its
shares of common stock under the Plan.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The Company currently has employment agreements with David G. Fiore and
Virgil D. Lowe. Mr. Fiore's agreement is for a three-year term, provided,
however, that each year after the end of the first year of the agreement, the
term will be extended for an additional year unless either the Company or Mr.
Fiore gives notice of its or his intention to terminate the agreement as of the
then effective termination date. Mr. Fiore is to receive an annual base salary
of at least $175,000 and standard benefits available to other executives of the
Company. If his employment is terminated for cause, Mr. Fiore is entitled to
receive his salary and benefits through the date of termination. In the event of
a termination other than for cause, Mr. Fiore is entitled to his full base
salary during the remainder of the term plus the bonus, if any, earned by, but
not paid to, Mr. Fiore prior to the termination date. The Company must also
maintain in effect for the remainder of the term all employee benefit plans
relating to hospitalization, medical, life insurance and disability programs in
which Mr. Fiore was enrolled immediately prior to termination. Mr. Fiore is also
subject to a non-competition agreement during the term of the agreement and for
a period of one year after termination.
Under Mr. Lowe's agreement, he is to receive an annual base salary of at
least $77,500 and standard benefits available to other executives of the
Company. Upon termination of his employment by the Company for cause, Mr. Lowe
is to receive his salary and benefits through the date of termination. In the
event of a termination other than for cause Mr. Lowe is entitled to 12 months of
base pay, plus a pro rata share of the bonus, if any, which he otherwise would
have been entitled to for the then current fiscal year. The Company must also
maintain in effect for a period of 12 months after termination all employee
benefit plans relating to hospitalization, medical, life insurance and
disability programs in which Mr. Lowe was enrolled immediately prior to
termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors had no compensation committee or other
committee performing similar functions during the last fiscal year. The
Company's President, Mr. Fiore, is the only executive officer of the Company or
its subsidiaries or former officer of the same, who has participated in
deliberations of the Board during the last fiscal year concerning executive
compensation.
The Company's Board of Directors formed a compensation committee during
fiscal year 1998, which consists of Messrs. Bernstein, George and Henske.
58
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The Company is a wholly owned subsidiary of Holdings. Holdings' address is
3030 LBJ Freeway, Suite 300, Dallas, Texas 75234. The following table sets forth
certain information regarding the beneficial ownership of the shares of common
stock of Holdings by each person who owns more than five percent of the
outstanding shares of common stock of Holdings and by the directors and
executive officers of the Company, individually and as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF SHARES OF SHARES
----------- -------------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Reliant Partners, L.P.(a)........................................................ 286,921 47.8%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
Reliant Partners II, L.P. (b).................................................... 286,921 47.8%
201 Main Street, Suite 3100
Forth Worth, Texas 76102
OFFICERS AND DIRECTORS:
David G. Fiore................................................................... 12,905 2.2%
Virgil D. Lowe................................................................... 3,001 0.5%
Charles E. Still................................................................. 1,501 0.3%
All executive officers and directors as a group (3 persons)........................ 17,407 2.9%
</TABLE>
- ---------------------
(a) The general partner of Reliant Partners is Group 31, Inc. ("Group 31"). J.
Taylor Crandall is the sole stockholder of Group 31. Accordingly, Mr.
Crandall may be deemed to be the beneficial owner of these shares. Mr.
Crandall disclaims beneficial ownership of these shares.
(b) The general partner of Reliant Partners II is FW Group Genpar, Inc. ("Group
Genpar"). David G. Brown is the sole stockholder of Group Genpar.
Accordingly, Mr. Brown may be deemed to be the beneficial owner of these
shares. Mr. Brown disclaims beneficial ownership of these shares.
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
In connection with the Transaction, Holdings entered into an agreement (the
"Stockholders Agreement") with Reliant Partners, Reliant Partners II, and the
employees of the Company who own shares of common stock of Holdings (the
"Management Investors"). Holdings also entered into a Registration Rights
Agreement (the "Registration Rights Agreement") with the Management Investors.
The following is a summary description of the principal terms of the
Stockholders Agreement and the Registration Rights Agreement, and is subject to
and qualified in its entirety by reference to the Stockholders Agreement and
Registration Rights Agreement, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part.
GENERAL PROHIBITION ON TRANSFERS. The Stockholders Agreement prohibits
transfers of common stock of Holdings, except for transfers in compliance with
the Stockholders Agreement.
RIGHT OF FIRST REFUSAL. Sales of shares of common stock of Holdings by a
Management Investor are subject to a right of first refusal in favor of
Holdings, Reliant Partners, Reliant Partners II, and the other Management
Investors.
TAG-ALONG AND DRAG-ALONG RIGHTS. If Reliant Partners and Reliant Partners II
propose to transfer common stock of Holdings representing more than 50% of the
aggregate number of shares of common stock of Holdings owned by them, other than
in a registered public offering or other permitted transaction, the Management
Investors will, under certain circumstances, have the option to sell to the same
offeree their common stock on the same terms on a pro rata basis. If Reliant
Partners and Reliant Partners II propose to sell or otherwise transfer for value
to an unaffiliated third party 85% or more of the common stock of Holdings owned
by them, they will have the right under certain circumstance to require
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<PAGE>
the Management Investors to sell or transfer a pro rata portion of their common
stock to such party on the same terms.
MANAGEMENT REPURCHASE. All shares of common stock of Holdings held by a
Management Investor are subject to repurchase by Holdings, Reliant Partners and
Reliant Partners II for a specified period of time following the termination of
employment of such Management Investor for any reason.
REGISTRATION RIGHTS. The Management Investors are each entitled to an
unlimited number of "piggyback" registration rights at any time following any
initial public offering by Holdings of its common stock. In addition, at such
time as Holdings becomes eligible to register securities on Form S-3 under the
Securities Act, Management Investors holding at least 50% of the shares of
common stock then held by all Management Investors will be entitled to make one
demand to require Holdings to register under the Securities Act their shares of
common stock of Holdings. The exercise of the demand and piggyback rights are
subject to other limitations and conditions that are customary in registration
rights agreements.
CERTAIN TRANSACTIONS
AGREEMENTS WITH GEORGE GROUP
Reliant Partners and Reliant Partners II were formed by, among others,
employees of George Group for the purpose of effecting the Transaction. See
"Summary--Ownership and Management." The Company paid George Group an advisory
fee of approximately $1.0 million at the closing of the Transaction as
compensation for its services as an advisor in connection with the Transaction.
The Company has entered into a consulting agreement with George Group
whereby George Group will provide consulting services to the Company, including
services with respect to strategic planning, operations and financial matters.
For such services, George Group will be paid a cash fee in an amount of $1.2
million and will be reimbursed for its out-of-pocket expenses. George Group has
advised the Company that it estimates its engagement will be completed within 18
months from the date of closing of the Transaction. In addition, upon the
Company's meeting certain performance targets agreed upon between Reliant
Partners, Reliant Partners II and George Group, certain employees of George
Group will receive an increased limited partnership interest in each of Reliant
Partners and Reliant Partners II. The Company has agreed to indemnify George
Group, its owners, employees and agents from liabilities and claims relating to
or arising from the engagement of George Group, other than those resulting from
negligence or willful misconduct of George Group. Michael L. George, a director
of the Company, is the Chairman of the Board of George Group.
CHANGE OF CONTROL ARRANGEMENT WITH MR. FIORE
Upon consummation of the Transaction, Mr. Fiore, pursuant to a Transaction
Incentive Agreement dated as of January 1, 1997 with the Company, received a
transaction bonus of $250,000 in cash and will also receive $200,000 payable on
a deferred basis over five years.
PAYMENTS TO WINGATE PARTNERS, L.P.
In fiscal years 1996 and 1997, the Company paid $350,000 to Wingate
Partners, L.P. for management services. Prior to the Transaction, Wingate
Partners, L.P. was the Company's controlling stockholder. The arrangement with
Wingate Partners, L.P. was terminated upon consummation of the Transaction.
DESCRIPTION OF THE SENIOR CREDIT FACILITY
The Company entered into a credit agreement dated as of May 9, 1997 (the
"Senior Credit Facility") among the Company, the several lenders from time to
time parties thereto (collectively, the "Lenders"), and The Chase Manhattan
Bank, as administrative agent (the "Agent"). Chase Securities Inc. acted as
advisor and arranger for the Senior Credit Facility. The following is a summary
description of the principal
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<PAGE>
terms of the Senior Credit Facility. The description set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Senior Credit Facility, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
STRUCTURE. The Lenders have committed, subject to compliance with borrowing
base limitations and customary conditions, to provide the Company with revolving
credit loans of up to $25.0 million, of which $5.0 million is available for the
issuance of letters of credit.
No amounts were borrowed on the closing date of the Transaction under the
Senior Credit Facility. At August 1, 1997, no borrowings were outstanding under
the Senior Credit Facility and $2,427,576 of letters of credit were outstanding.
The Senior Credit Facility may be utilized to fund the Company's working capital
requirements, including issuance of stand-by and trade letters of credit, to
fund acquisitions (subject to compliance with certain covenants) and for other
general corporate purposes.
The Senior Credit Facility is a senior secured revolving credit facility
providing for revolving loans to the Company and the issuance of U.S.
dollar-denominated letters of credit for the account of the Company in an
aggregate principal amount and an amount in respect of letters of credit
(including the aggregate stated amount thereof and the aggregate reimbursement
and other obligations in respect thereof) at any time not to exceed the lesser
of (i) $25.0 million and (ii) the Company's borrowing base, which is the sum of
up to 85% of the Company's eligible domestic accounts receivable plus the lesser
of $10.0 million and up to 50% of the Company's eligible raw materials and
finished goods inventory. Eligible accounts receivable include substantially all
the Company's accounts receivable after deducting accounts outstanding for more
than 90 days after the invoice date, certain foreign accounts, and accounts of
certain other obligors. Eligible raw materials and finished goods inventory do
not include obsolete or slow-moving inventory, foreign inventory and certain
other items. At March 28, 1997, on a pro forma basis after giving effect to the
Transaction and the Initial Offering and the application of the net proceeds
therefrom, the Company's borrowing base would have been approximately $20.5
million, and at June 27, 1997 the borrowing base was $22.2 million.
The availability of the Senior Credit Facility will be subject to certain
conditions. Loans and letters of credit will be available at any time during the
five-year term of the Senior Credit Facility subject to the fulfillment of
customary conditions precedent including the absence of a material adverse
change in the condition of the Company, the absence of a default under the
Senior Credit Facility and compliance with the borrowing base limitation
described above.
SECURITY; GUARANTY. The Company's obligations under the Senior Credit
Facility are guaranteed by each existing and subsequently acquired or organized
subsidiary of the Company. The Senior Credit Facility and the guarantees thereof
are secured by a perfected first priority security interest in substantially all
accounts receivable, inventory and other property included in the borrowing base
and proceeds of the foregoing of the Company and the guarantors.
INTEREST; MATURITY. Borrowings under the Senior Credit Facility bear
interest at a rate per annum equal (at the Company's option) to: (i) the Agent's
Eurodollar rate plus an applicable margin or (ii) an alternate base rate (equal
to the highest of the Agent's prime rate, a certificate of deposit rate plus 1%,
or the Federal Funds effective rate plus 1/2 of 1%) plus an applicable margin.
Initially, the applicable margin was 2.5% per annum for Eurodollar rate loans
and 1.5% per annum for alternate base rate loans. After fiscal year 1997, the
applicable margin may reduce to 1.5% per annum for Eurodollar rate loans and
0.5% per annum for alternate base rate loans depending upon the Company's
interest coverage ratio. The Senior Credit Facility will mature on May 9, 2002.
FEES. The Company is required to pay the Lenders, on a quarterly basis, a
commitment fee equal to 1/2 of 1% per annum (which may be reduced to 0.375% per
annum after fiscal year 1998 based on the Company's interest coverage ratio) on
the undrawn portion of the Senior Credit Facility. The Company is also obligated
to pay (i) a per annum letter of credit fee equal to the applicable margin for
Eurodollar rate loans on the aggregate amount of outstanding letters of credit;
(ii) a fronting bank fee for the letter of credit issuing bank equal to 1/4 of
1% per annum; and (iii) agent, arrangement and other similar fees.
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<PAGE>
COVENANTS. The Senor Credit Facility contains a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, prepay other indebtedness
(including the Notes) or amend certain debt instruments (including the
Indenture), pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, change the business conducted by the Company or its
subsidiaries, make capital expenditures or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. In addition,
under the Senior Credit Facility, the Company is required to maintain specified
financial ratios and tests, including minimum interest coverage ratios (defined
as the ratio of (a) EBITDA less capital expenditures for the Company and its
Subsidiaries, on a consolidated basis, for the applicable calculation period to
(b) interest expense of the Company and its Subsidiaries, on a consolidated
basis, for such calculation period) and maximum leverage ratios (defined as the
ratio of (a) aggregate indebtedness of the Company and its Subsidiaries, on a
consolidated basis, as of such date to (b) EBITDA of the Company and its
Subsidiaries, on a consolidated basis, for the applicable calculation period).
The minimum interest coverage ratios are: (i) 1.25x for 1998 and 1999; and (ii)
1.75x for 2000, 2001 and 2002. The maximum leverage ratios are: (i) 5.50x for
the initial two (2) fiscal quarters of 1998; (ii) 5.00x for the last two (2)
fiscal quarters of 1998; (iii) 5.00 for 1999; (iv) 4.75x for 2000; (v) 4.5x for
2001; and (vi) 4.25x for 2002.
EVENTS OF DEFAULT. The Senior Credit Facility contains customary events of
default, including non-payment of principal, interest or fees, material
inaccuracy of representations and warranties, violation of covenants,
cross-default and cross-acceleration to certain other indebtedness, certain
events of bankruptcy and insolvency, certain events under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), material
judgments, actual or asserted invalidity of any guarantee or security interest,
the occurrence of a material adverse change and a change of control in certain
circumstances as set forth therein.
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<PAGE>
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Senior Subordinated Notes were
issued, under an Indenture (the "INDENTURE") dated as of May 9, 1997 among the
Company, the Guarantors and Bank One, N.A. (formerly known as Bank One,
Columbus, NA) as trustee (the "TRUSTEE"). The following summary of certain
provisions of the Indenture and the Registration Rights Agreement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE
ACT"), and to all of the provisions of the Indenture, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part, including the definitions of certain terms therein and those terms made a
part of the Indenture by reference to the Trust Indenture Act, as in effect on
the date of the Indenture. The definitions of certain capitalized terms used in
the following summary are set forth below under "--Certain Definitions."
References in this "Description of the Notes" section to "the Company" mean only
Reliant Building Products, Inc. and not any of its Subsidiaries.
GENERAL
The Exchange Notes will be issued, and the Senior Subordinated Notes were
issued, only in registered form, without coupons, in denominations of $1,000 and
integral multiples of $1,000. The Company appointed the Trustee to serve as
registrar and paying agent under the Indenture at its offices in the Borough of
Manhattan, the City of New York. No service charge was made, or will be made,
for any registration of transfer or exchange of Senior Subordinated Notes or
Exchange Notes, as the case may be, except for any tax or other governmental
charge that may be imposed in connection therewith.
RANKING
The Notes rank junior to, and are subordinated in right of payment to, all
existing and future Senior Indebtedness of the Company, PARI PASSU in right of
payment with all senior subordinated Indebtedness of the Company and senior in
right of payment to all Subordinated Indebtedness of the Company. At August 1,
1997, the Company had $2,427,576 of Senior Indebtedness outstanding. See
"Summary-- The Transaction" and "Use of Proceeds." All debt incurred under the
Senior Credit Facility is Senior Indebtedness of the Company, is guaranteed by
each of the Guarantors on a senior basis and is secured by substantially all of
the assets of the Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes are limited to $70.0 million aggregate principal amount and mature
on May 1, 2004. Cash interest on the Notes accrues at a rate of 10 7/8% PER
ANNUM and is payable semi-annually in arrears on each May 1 and November 1,
commencing November 1, 1997, to the holders of record of Notes at the close of
business on April 15 and October 15, respectively, immediately preceding such
interest payment date. Cash interest accrues from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from May 9, 1997. Interest is computed on the basis of a 360-day year of twelve
30-day months.
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<PAGE>
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after May 1, 2001, at the redemption prices (expressed as a
percentage of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
beginning on May 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
2001................................................................................................ 105.438%
2002................................................................................................ 102.719%
2003 and thereafter................................................................................. 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to May 1, 2000,
the Company may redeem in the aggregate up to 35% of the originally issued
aggregate principal amount of the Notes with the net cash proceeds of one or
more Public Equity Offerings by Holdings (to the extent that the net cash
proceeds thereof are contributed to the equity capital of the Company) or the
Company after which there is a Public Market, at a redemption price in cash
equal to 110.875% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); PROVIDED, HOWEVER, that at least 65% of the
originally issued aggregate principal amount of the Notes must remain
outstanding immediately after giving effect to each such redemption (excluding
any Notes held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of Holdings or the Company.
At any time on or prior to May 1, 2001, the Notes may also be redeemed as a
whole at the option of the Company upon the occurrence of a Change of Control
(but in no event more than 90 days after the occurrence of such Change of
Control) at a redemption price equal to 100% of the principal amount thereof,
plus the Applicable Premium as of, and accrued but unpaid interest, if any, to,
the date of redemption (the "REDEMPTION DATE") (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such 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 then listed on a national securities exchange, on a PRO RATA
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; PROVIDED, FURTHER, HOWEVER, that if a partial redemption is
made with the net cash proceeds of a Public Equity Offering by Holdings or the
Company, selection of the Notes or portions thereof for redemption shall be made
by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. 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 a 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, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
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SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from the trust described under "--Satisfaction and Discharge of Indenture;
Defeasance" (a "DEFEASANCE TRUST PAYMENT")), upon any dissolution or winding-up
or total liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness shall first be paid in full in cash before the Holders of
the Notes or the Trustee on behalf of such Holders shall be entitled to receive
any payment by the Company of the principal of, premium, if any, or interest on
the Notes, or any payment by the Company to acquire any of the Notes for cash,
property or securities, or any distribution by the Company with respect to the
Notes of any cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment).
Before any payment may be made by, or on behalf of, the Company of the principal
of, premium, if any, or interest on the Notes upon any such dissolution or
winding-up or total liquidation or reorganization, any payment or distribution
of assets or securities of the Company of any kind or character, whether in
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment), to which the
Holders of the Notes or the Trustee on their behalf would be entitled, but for
the subordination provisions of the Indenture, shall be made by the Company or
by any receiver, trustee in bankruptcy, liquidation trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Senior Indebtedness (PRO RATA to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives or
to the trustee or trustees or agent or agents under any agreement or indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Company of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be immediately accelerated, and upon receipt by the Trustee
of written notice (a "PAYMENT BLOCKAGE NOTICE") from the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf of
the holders of such Designated Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by or on behalf of the Company of
principal of, premium, if any, or interest on the Notes, to such Holders, during
a period (a "PAYMENT BLOCKAGE PERIOD") commencing on the date of receipt of such
notice by the Trustee and ending 179 days thereafter. Notwithstanding anything
in the subordination provisions of the Indenture or the Notes to the contrary,
(x) in no event will a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was given, (y) there shall
be a period of at least 181 consecutive days in each 360-day period when no
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Payment Blockage Period is in effect and (z) not more than one Payment Blockage
Period may be commenced with respect to the Notes during any period of 360
consecutive days. No event of default that existed or was continuing on the date
of commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period (to the extent the
holder of Designated Senior Indebtedness, or trustee or agent, giving notice
commencing such Payment blockage Period had knowledge of such existing or
continuing event of default) may be, or be made, the basis for the commencement
of any other Payment Blockage Period by the holder or holders of such Designated
Senior Indebtedness or the trustee or agent acting on behalf of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "-- Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may be
unable to meet fully its obligations with respect to the Notes.
At the time of the issuance of the Exchange Notes, the Senior Credit
Facility is expected to be the only outstanding Senior Indebtedness. Subject to
the restrictions set forth in the Indenture, in the future the Company may issue
additional Senior Indebtedness to refinance existing Indebtedness or for other
corporate purposes.
GUARANTIES OF THE NOTES
The Indenture provides that each of the Guarantors fully and unconditionally
guarantees on a joint and several basis (the "GUARANTIES") all of the Company's
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. The Guarantors also
guarantee all obligations of the Company under the Senior Credit Facility, and
each Guarantor has granted a security interest in all or substantially all of
its assets to secure the obligations under the Senior Credit Facility. The
obligations of each Guarantor are limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guaranty or pursuant to its contribution obligations under the
Indenture, results in the obligations of such Guarantor under its Guaranty not
constituting a fraudulent conveyance or fraudulent transfer under Federal or
state law. Each Guarantor that makes a payment or distribution under a Guaranty
is entitled to a contribution from each other Guarantor in a PRO RATA amount,
based on the net assets of each Guarantor determined in accordance with GAAP.
Except as provided in "--Certain Covenants" below, the Company is not restricted
from selling or otherwise disposing of any of the Equity Interests of the
Guarantors.
The Indenture provides that each of the Company's Subsidiaries on the Issue
Date and each of the Company's Subsidiaries (excluding Unrestricted
Subsidiaries) formed or acquired thereafter are required to be Guarantors. The
Company shall cause each Restricted Subsidiary issuing a Guaranty after the
Issue Date to (i) execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall become a party to the Indenture and thereby unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms set forth therein and (ii) deliver to the Trustee an opinion of
counsel that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary (which opinion may be
subject to customary assumptions and qualifications). Thereafter, such
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Restricted Subsidiary shall (unless released in accordance with the terms of
this Indenture) be a Guarantor for all purposes of the Indenture. Separate
financial statements of the Guarantors and other disclosures are not included
herein because management has determined that they are not material to
investors.
The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, or if, subject to the requirements
of the first paragraph under "Certain Covenants-- Merger, Sale of Assets, etc.,"
all or substantially all of the assets of any Guarantor or all of the Equity
Interests of any Guarantor are sold (including by issuance or otherwise) by the
Company in a transaction constituting an Asset Sale, and if (x) the Net Cash
Proceeds from such Asset Sale are used in accordance with the covenant described
under "--Certain Covenants--Disposition of Proceeds of Asset Sales" or (y) the
Company delivers to the Trustee an Officers' Certificate to the effect that the
Net Cash Proceeds from such Asset Sale shall be used in accordance with the
covenant described under "-- Certain Covenants--Disposition of Proceeds of Asset
Sales" and within the time limits specified by such covenant, then such
Guarantor (in the event of a sale or other disposition of all of the Equity
Interests of such Guarantor) or the corporation acquiring such assets (in the
event of a sale or other disposition of all or substantially all of the assets
of such Guarantor) shall be released and discharged of its Guaranty obligations
in respect of the Indenture and the Notes.
The Guaranties are general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guaranty is subordinated and junior in
right of payment to the prior payment in full of all existing and future
Guarantor Senior Indebtedness of such Guarantor to substantially the same extent
as the Notes are subordinated to all existing and future Senior Indebtedness of
the Company.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "--Designation of Unrestricted Subsidiaries" below shall upon
such Designation be released and discharged of its Guaranty obligations in
respect of the Indenture and the Notes and any Unrestricted Subsidiary whose
Designation is revoked pursuant to "--Designation of Unrestricted Subsidiaries"
below will be required to become a Guarantor in accordance with the procedure
described in the third preceeding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "CHANGE OF CONTROL DATE"), the Company shall notify the Holders of the
Notes of such occurrence in the manner prescribed by the Indenture and shall,
unless the Company shall have elected to redeem the Notes prior to May 1, 2001
upon a Change of Control as permitted by the third paragraph "--Optional
Redemption" above, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
If a Change of Control occurs which also constitutes an event of default
under the Senior Credit Facility, the lenders under the Senior Credit Facility
would be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Senior Credit Facility.
Accordingly, any claims of such lenders with respect to the assets of the
Company will be prior to any claim of the Holders of the Notes with respect to
such assets.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders of Notes seeking to accept the Offer to Purchase. If the
Company fails to repurchase all of the Notes tendered for purchase, such failure
will constitute an Event of Default under the Indenture. See "--Events of
Default" below. If the Company makes an Offer to Purchase, the Company will
comply with all applicable tender offer laws and regulations, including, to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act,
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and any other applicable Federal or state securities laws and regulations and
any applicable requirements of any securities exchange on which the Notes are
listed, and any violation of the provisions of the Indenture relating to such
Offer to Purchase occurring as a result of such compliance shall not be deemed
an Event of Default or an event that, with the passing of time or giving of
notice, or both, would constitute an Event of Default.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Restricted Subsidiary or make any payment or
distribution to the direct or indirect holders (in their capacities as such)
of Equity Interests of the Company or any Restricted Subsidiary (other than
any dividends, distributions and payments made to the Company or any
Restricted Subsidiary and dividends or distributions payable to any Person
solely in Qualified Equity Interests of the Company or in options, warrants
or other rights to purchase Qualified Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than any
such Equity Interests owned by the Company or any Restricted Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other than
any Subordinated Indebtedness held by the Company or any Wholly Owned
Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in any
Person (other than in the Company, any Restricted Subsidiary or a Person
that becomes a Restricted Subsidiary, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary (provided the
Company or a Restricted Subsidiary is the survivor), as a result of or in
connection with such Investment)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "RESTRICTED PAYMENT"), unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of "-- Limitation on Indebtedness" below; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the beginning of the first fiscal quarter commencing after the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available (or if such
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss), PLUS (2) the aggregate net cash proceeds received by the Company
either (x) as capital contributions to the Company after the Issue Date or
(y) from the issue and sale (other than to a Restricted Subsidiary) of its
Qualified Equity Interests after the Issue Date (excluding the net proceeds
from any issuance and sale of Qualified Equity Interests financed, directly
or indirectly, using funds borrowed from the
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Company or any Restricted Subsidiary until and to the extent such borrowing
is repaid), PLUS (3) the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of any Indebtedness of the Company or any
Restricted Subsidiary Incurred after the Issue Date which has been converted
into or exchanged for Qualified Equity Interests of the Company, PLUS (4) in
the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date, an amount (to the extent not
included in the computation of Consolidated Net Income) equal to the lesser
of: (x) the return of capital with respect to such Investment and (y) the
amount of such Investment which was treated as a Restricted Payment, in
either case, less the cost of the disposition of such Investment and net of
taxes, PLUS (5) so long as the Designation thereof was treated as a
Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with "--Designation of
Unrestricted Subsidiaries" below, the Company's proportionate interest in
the net worth of such Subsidiary in an amount equal to the excess of (x) the
total assets of such Subsidiary, valued on an aggregate basis at Fair Market
Value, over (y) the total liabilities of such Subsidiary, determined in
accordance with GAAP (and provided that such amount shall not in any case
exceed the Designation Amount with respect to such Restricted Subsidiary
upon its Designation), PLUS (6) (to the extent not included in the
computation of Consolidated Net Income) the amount of cash dividends or cash
distributions (other than to pay taxes) received from any Unrestricted
Subsidiary since the Issue Date, MINUS (7) the greater of (x) $0 and (y) the
Designation Amount (measured as of the date of Designation) with respect to
any Subsidiary of the Company which has been designated as an Unrestricted
Subsidiary after the Issue Date in accordance with "--Designation of
Unrestricted Subsidiaries" below.
The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, Qualified Equity Interests of the Company; PROVIDED, HOWEVER,
that any such net cash proceeds and the value of any Qualified Equity Interests
issued in exchange for such retired Equity Interests are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time);
(iii) the purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness, or any other payment thereon, made in exchange for,
or out of the net cash proceeds of, a substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of (x) Qualified Equity Interests of the
Company; PROVIDED, HOWEVER, that any such net cash proceeds and the value of any
Qualified Equity Interests issued in exchange for Subordinated Indebtedness are
excluded from clauses (c)(2) and (c)(3) of the preceding paragraph (and were not
included therein at any time) or (y) other Subordinated Indebtedness having no
stated maturity for the payment of principal thereof prior to the final stated
maturity of the Notes; (iv) any Investment to the extent that the consideration
therefor consists of the net cash proceeds of the substantially concurrent issue
and sale (other than to a Restricted Subsidiary) of Qualified Equity Interests
of the Company; PROVIDED, HOWEVER, that any such net cash proceeds are excluded
from clause (c)(2) of the preceding paragraph (and were not included therein at
any time); (v) the purchase, redemption or other acquisition, cancellation or
retirement for value of Equity Interests, or options, warrants, equity
appreciation rights or other rights to purchase or acquire Equity Interests, of
the Company or any Restricted Subsidiary, or similar securities, held by
officers or employees or former officers or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates),
upon death, disability, retirement or termination of employment, or dividends by
the Company to Holdings to effect the same in respect of its Equity Interests,
not to exceed $3.0 million in the aggregate since the Issue Date; (vi)
Restricted Payments not to exceed $2.0 million in the aggregate since the Issue
Date; (vii) payments to Holdings to pay general and administrative expenses of
Holdings not to exceed $500,000 in any fiscal year; or (viii) dividends by
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the Company to Holdings in an amount not to exceed $16.1 million to effect the
Transaction; PROVIDED, HOWEVER, that in the case of each of clauses (ii), (iii),
(iv), (v), (vi) and (vii) no Default or Event of Default shall have occurred and
be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (v), (vi) and (vii) of the
immediately preceding paragraph shall be included as Restricted Payments and
amounts expended pursuant to clauses (ii), (iii), (iv) and (viii) shall be
excluded. The amount of any non-cash Restricted Payment shall be deemed to be
equal to the Fair Market Value thereof at the date of the making of such
Restricted Payment.
LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any Disqualified Equity
Interests, except for Permitted Indebtedness; PROVIDED, HOWEVER, that the
Company and any Restricted Subsidiary that is a Guarantor may Incur Indebtedness
and the Company may issue Disqualified Equity Interests if, at the time of and
immediately after giving PRO FORMA effect to such Incurrence of Indebtedness or
issuance of Disqualified Equity Interests and the application of the proceeds
therefrom, the Consolidated Coverage Ratio would be greater than 2.0 to 1.0.
The foregoing limitations will not apply to the Incurrence by the Company or
any Restricted Subsidiary that is a Guarantor of any of the following
(collectively, "PERMITTED INDEBTEDNESS"), each of which shall be given
independent effect:
(a) Indebtedness under the Notes;
(b) Existing Indebtedness;
(c) Indebtedness pursuant to the Senior Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the sum of (A)
the greater of (i) $25.0 million and (ii) the sum of (a) 85% of Net Amount
of Eligible Receivables (as defined in the Senior Credit Facility as in
effect on the Issue Date whether or not the Senior Credit Facility is in
effect on the date of determination), PLUS (b) 50% of Eligible Inventory (as
defined in the Senior Credit Facility as in effect on the Issue Date whether
or not the Senior Credit Facility is in effect on the date of
determination), PLUS (B) any amounts outstanding under the Senior Credit
Facility that utilize subparagraph (i) of this paragraph of this covenant;
(d) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Wholly Owned Restricted Subsidiary, and Indebtedness of the
Company owed to and held by any Wholly Owned Restricted Subsidiary which is
unsecured and subordinated in right of payment to the payment and
performance of the Company's obligations under any Senior Indebtedness, the
Indenture and the Notes; PROVIDED, HOWEVER, that an Incurrence of
Indebtedness that is not permitted by this clause (d) shall be deemed to
have occurred upon (i) any sale or other disposition of any Indebtedness of
the Company or any Restricted Subsidiary referred to in this clause (d) to a
Person (other than the Company or any Wholly Owned Restricted Subsidiary),
(ii) any sale or other disposition of Equity Interests of any Wholly Owned
Restricted Subsidiary which holds Indebtedness of the Company or another
Restricted Subsidiary such that such Wholly Owned Restricted Subsidiary
ceases to be a Wholly Owned Restricted Subsidiary and (iii) the designation
of a Wholly Owned Restricted Subsidiary which holds Indebtedness of the
Company or any other Restricted Subsidiary as an Unrestricted Subsidiary;
(e) the Guaranties and guarantees by any Guarantor of Indebtedness of
the Company; PROVIDED, HOWEVER, that if such guarantee is of Subordinated
Indebtedness, then the Guaranty of such Guarantor shall be senior to such
Guarantor's guarantee of Subordinated Indebtedness;
(f) Interest Rate Protection Obligations of the Company relating to
Indebtedness of the Company (which Indebtedness (i) bears interest at
fluctuating interest rates and (ii) is otherwise permitted to be Incurred
under this covenant); PROVIDED, HOWEVER, that the notional principal amount
of such Interest Rate Protection Obligations does not exceed the principal
amount of the Indebtedness to which such Interest Rate Protection
Obligations relate;
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(g) Purchase Money Indebtedness and Capitalized Lease Obligations which
do not exceed $10.0 million in the aggregate at any one time outstanding;
(h) Indebtedness or Disqualified Equity Interests to the extent
representing a replacement, renewal, refinancing or extension (collectively,
a "REFINANCING") of outstanding Indebtedness or Disqualified Equity
Interests Incurred in compliance with the Consolidated Coverage Ratio of the
first paragraph of this covenant or clause (a) or (b) of this paragraph of
this covenant; PROVIDED, HOWEVER, that (i) any such refinancing shall not
exceed the sum of the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of the Indebtedness or Disqualified Equity
Interests being refinanced, PLUS the amount of accrued interest or dividends
thereon, PLUS the amount of any reasonably determined prepayment premium
necessary to accomplish such refinancing and such reasonable fees and
expenses incurred in connection therewith, (ii) Indebtedness representing a
refinancing of Indebtedness other than Senior Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced; (iii)
Indebtedness that is PARI PASSU with the Notes may only be refinanced with
Indebtedness that is made PARI PASSU with or subordinate in right of payment
to the Notes and Subordinated Indebtedness or Disqualified Equity Interests
may only be refinanced with Subordinated Indebtedness or Disqualified Equity
Interests and (iv) no Restricted Subsidiary that is not a Guarantor may
Incur Indebtedness to refinance Indebtedness of the Company; and
(i) in addition to the items referred to in clauses (a) through (h)
above, Indebtedness of the Company (including any Indebtedness under the
Senior Credit Facility that utilizes this subparagraph (i)) having an
aggregate principal amount not to exceed $15.0 million at any time
outstanding.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company shall not,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Notes and expressly rank subordinate in
right of payment to any Senior Indebtedness.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guaranty of such Guarantor and expressly
rank subordinate in right of payment to any Guarantor Senior Indebtedness of
such Guarantor.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Senior Credit Facility, or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; PROVIDED, HOWEVER,
that any such amendment, restatement, renewal, replacement or refinancing is no
more restrictive in the aggregate with respect to such encumbrances or
restrictions than those contained in the Senior Credit Facility on the Issue
Date; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity
Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was Incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); PROVIDED, HOWEVER, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the
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properties or assets of the Company or any Restricted Subsidiary, other than the
Acquired Person; (iv) customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices; (v)
Purchase Money Indebtedness for property acquired in the ordinary course of
business that only imposes encumbrances and restrictions on the property so
acquired; (vi) any agreement for the sale or disposition of the Equity Interests
or assets of any Restricted Subsidiary; PROVIDED, HOWEVER, that such
encumbrances and restrictions described in this clause (vi) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "--Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto; (vii) refinancing Indebtedness
permitted under clause (h) of the second paragraph of "-- Limitation on
Indebtedness" above; PROVIDED, HOWEVER, that such encumbrances and restrictions
contained in the agreements governing such Indebtedness are no more restrictive
in the aggregate than those contained in the agreements governing the
Indebtedness being refinanced immediately prior to such refinancing; (viii) the
Indenture; or (ix) any such customary encumbrance or restriction existing under
any other security agreement, instrument or document hereafter in effect;
PROVIDED, HOWEVER, that the terms and conditions of any such encumbrance or
restriction are not more restrictive than those contained in the Senior Credit
Facility as in effect on the Issue Date.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Company may designate any
Subsidiary of the Company as an "Unrestricted Subsidiary" under the Indenture (a
"DESIGNATION") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph
of "--Limitation on Indebtedness" above; and
(iii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the effectiveness
of such Designation) pursuant to the first paragraph of "--Limitation on
Restricted Payments" above in an amount (the "DESIGNATION AMOUNT") equal to
the Fair Market Value of the Company's proportionate interest in the net
worth of such Subsidiary on such date in an amount equal to the excess of
(x) the total assets of such Subsidiary, valued on an aggregate basis at
Fair Market Value, over (y) the total liabilities of such Subsidiary,
determined in accordance with GAAP.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for any
non-recourse guarantee given solely to support the pledge by the Company or any
Restricted Subsidiary of the capital stock of any Unrestricted Subsidiary. All
subsidiaries of Unrestricted Subsidiaries shall be automatically deemed to be
Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "REVOCATION") if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation;
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(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at such
time, have been permitted to be Incurred for all purposes of the Indenture;
and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary was
an Unrestricted Subsidiary would be permitted by "--Transactions with
Affiliates" below as if such transaction (or series of related transactions)
had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
LIMITATION ON LIENS. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made, in the case of the Company, to secure the Notes and
all other amounts due under the Indenture, and in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's Guaranty
of the Notes and all other amounts due under the Indenture, equally and ratably
with such Indebtedness (or, in the event that such Indebtedness is subordinated
in right of payment to the Notes or such Restricted Subsidiary's Guaranty, prior
to such Indebtedness) with a Lien on the same properties and assets securing
such Indebtedness for so long as such Indebtedness is secured by such Lien,
except for (i) Liens securing any Senior Indebtedness or any guarantee of Senior
Indebtedness by any Restricted Subsidiary that is a Guarantor and (ii) Permitted
Liens.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
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 of the assets sold or otherwise disposed of and
(ii) at least 75% of such consideration consists of (A) cash or Cash
Equivalents, (B) properties and capital assets to be owned by the Company or any
Restricted Subsidiary and to be used in a Related Business or (C) Equity
Interests in any Person which thereby becomes a Wholly Owned Restricted
Subsidiary whose assets consist primarily of properties and capital assets used
in a Related Business. The amount of any (i) Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary that is
actually assumed by the transferee in such Asset Sale and from which the Company
and the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or the Restricted Subsidiaries from such
transferee that are immediately converted, sold or exchanged (or are converted,
sold or exchanged within thirty days of the related Asset Sale) by the Company
or the Restricted Subsidiaries into cash shall be deemed to be cash, in an
amount equal to the net cash proceeds realized upon such conversion, sale or
exchange for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i) apply
the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof to
repay Senior Indebtedness and permanently reduce any related commitment, or (ii)
commit in writing to acquire, construct or improve properties and capital assets
to be owned by the Company or any Restricted Subsidiary and to be used in a
Related Business and so apply such Net Cash Proceeds within 365 days after the
receipt thereof.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied within 365 days of such Asset Sale as described in clause (i) or (ii) of
the immediately preceding paragraph (such Net Cash Proceeds, the "UNUTILIZED NET
CASH PROCEEDS"), the Company shall, within 20 days after such 365th day, make an
Offer to Purchase all outstanding Notes up to a maximum principal amount
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(expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
PROVIDED, HOWEVER, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $5.0 million, at
which time the entire amount of such Unutilized Net Cash Proceeds, and not just
the amount in excess of $5.0 million, shall be applied as required pursuant to
this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased PRO RATA
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not applied to repurchase the Notes for any purpose consistent with the
other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.
MERGER, SALE OF ASSETS, ETC. The Company shall not consolidate with or
merge with or into (whether or not the Company is the Surviving Person) any
other entity and the Company shall not and shall not cause or permit any
Restricted Subsidiary to, sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Company's and the Restricted
Subsidiaries' properties and assets (determined on a consolidated basis for the
Company and the Restricted Subsidiaries) to any entity in a single transaction
or series of related transactions, unless: (i) either (x) the Company shall be
the Surviving Person or (y) the Surviving Person (if other than the Company)
shall be a corporation organized and validly existing under the laws of the
United States of America or any State thereof or the District of Columbia, and
shall, in any such case, expressly assume by a supplemental indenture, the due
and punctual payment of the principal of, premium, if any, and interest on all
the Notes and the performance and observance of every covenant of the Indenture
and the Registration Rights Agreement to be performed or observed on the part of
the Company; (ii) immediately thereafter, no Default or Event of Default shall
have occurred and be continuing; and (iii) immediately after giving effect to
any such transaction involving the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a PRO FORMA basis after giving effect to such transaction as if it had occurred
at the beginning of the four quarter period immediately preceding such
transaction for which consolidated financial statements of the Company are
available, at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
"--Limitation on Indebtedness" above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guaranty is to be released in
accordance with the terms of its Guaranty and the Indenture as provided in the
third paragraph under "--Guaranties of the Notes" above) shall consolidate with
or merge with or into another Person, whether or not such Person is affiliated
with such Guarantor and whether or not such Guarantor is the Surviving Person,
unless (i) the Surviving Person (if other than such Guarantor) is a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia; (ii) the Surviving Person (if other than
such Guarantor) expressly assumes by a supplemental indenture all the
obligations of such Guarantor under its Guaranty of the Notes and the
performance and observance of every covenant of the Indenture and the
Registration Right Agreement to be performed or observed by such Guarantor,
(iii) at the time of and immediately after such Disposition, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to any such transaction involving the Incurrence by such
Guarantor, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of such Guarantor in connection with
or as a result of such transaction as having been Incurred at the time of such
transaction), the Company could Incur, on a PRO FORMA basis after giving effect
to such transaction as if it had occurred at the beginning of the four quarter
period immediately following such transaction for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Consolidated Coverage
Ratio of the first paragraph of "--Limitation of Indebtedness" above; PROVIDED,
HOWEVER, that clause (iv) of this paragraph shall not be a condition to a merger
or consolidation of a Guarantor if such merger or consolidation only involves
the Company and/or one or more other Guarantors.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the Company
under the Notes, the Indenture and the Registration Rights Agreement or of such
Guarantor under its Guaranty, the Indenture and the Registration Rights
Agreement, as the case may be, pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company shall be discharged from its Obligations under the Indenture and the
Notes or such Guarantor shall be discharged from its Obligations under the
Indenture and its Guaranty, as the case may be.
TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates or any officer,
director or employee of the Company or any Restricted Subsidiary (each an
"AFFILIATE TRANSACTION"), unless (i) such Affiliate Transaction is on terms
which are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than would be available in a comparable transaction with an
unaffiliated third party and (ii) if such Affiliate Transaction (or series of
related Affiliate Transactions) involves aggregate payments or other
consideration having a Fair Market Value in excess of $1.0 million, such
Affiliate Transaction is in writing and a majority of the disinterested members
of the Board of Directors of the Company shall have approved such Affiliate
Transaction and determined that such Affiliate Transaction complies with the
foregoing provisions. In addition, any Affiliate Transaction involving aggregate
payments or other consideration having a Fair Market Value in excess of $5.0
million will also require a written opinion from an Independent Financial
Advisor (filed with the Trustee) stating that the terms of
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such Affiliate Transaction are fair, from a financial point of view, to the
Company or the Restricted Subsidiary involved in such Affiliate Transaction, as
the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Wholly
Owned Restricted Subsidiary or between or among Wholly Owned Restricted
Subsidiaries; (ii) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries, bonuses or employment
agreements, compensation or employee benefit arrangements and incentive
arrangements with any officer, director or employee of the Company or any
Restricted Subsidiary entered into in the ordinary course of business (including
customary benefits thereunder) and payments under any indemnification
arrangements permitted by applicable law; (iii) any transactions undertaken
pursuant to any contractual obligations in existence on the Issue Date (as in
effect on the Issue Date); (iv) the issue and sale by the Company to its
stockholders of Qualified Equity Interests; (v) any Restricted Payments made in
compliance with "--Limitation on Restricted Payments" above; (vi) loans and
advances to officers, directors and employees of the Company or any Restricted
Subsidiary for travel, entertainment, moving and other relocation expenses, in
each case made in the ordinary course of business; (vii) the Incurrence of
intercompany Indebtedness permitted pursuant to clause (d) of the second
paragraph of "--Limitation on Indebtedness" above; (viii) the pledge of Equity
Interests of Unrestricted Subsidiaries to support the Indebtedness thereof; (ix)
the Tax Sharing Agreement, as in effect on the Issue Date; and (x) any
transaction with the George Group pursuant to the Consulting Agreement, as in
effect on the Issue Date, not to exceed $2.0 million in any fiscal year
(exclusive of reimbursement of expenses).
LIMITATION ON THE SALE OR ISSUANCE OF EQUITY INTERESTS OF RESTRICTED
SUBSIDIARIES. The Company shall not sell any Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any Equity Interests, except: (i) to the Company or
a Wholly Owned Restricted Subsidiary; or (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary. Notwithstanding the foregoing, the Company
is permitted to sell all the Equity Interests of a Restricted Subsidiary as long
as the Company is in compliance with the terms of the covenant described under
"--Disposition of Proceeds of Asset Sales" above.
LIMITATION ON LINES OF BUSINESS. The Company shall not, and shall not cause
or permit any Restricted Subsidiary, directly or indirectly to, engage in any
business outside the building products business other than a Related Business.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so subject, such documents to be filed with the SEC on or prior
to the respective dates (the "REQUIRED FILING DATES") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) (i) transmit (or
cause to be transmitted) by mail to all Holders, as their names and addresses
appear in the Note register, without cost to such Holders, and (ii) file with
the Trustee copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the SEC pursuant to the preceding
sentence, or, if such filing is not so permitted, information and data of a
similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Company with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder. In addition, for so long as any Notes remain
outstanding, the Company will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the SEC, information of the
type that would be filed with the SEC pursuant to the foregoing provisions, upon
the request of any such holder.
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PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries may,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of a Note for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Notes, the Indenture or the Registration Rights Agreement unless such
consideration is offered to be paid or agreed to be paid to all Holders of the
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT
The occurrence of any of the following is defined as an "EVENT OF DEFAULT"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the Indenture
described under "--Subordination of the Notes" above); (b) failure to pay any
interest on any Note when due, continued for 30 days or more (whether or not
prohibited by the provisions of the Indenture described under "-- Subordination
of the Notes" above); (c) default in the payment of principal of or interest on
any Note required to be purchased pursuant to any Offer to Purchase required by
the Indenture when due and payable or failure to pay on the Purchase Date the
Purchase Price for any Note validly tendered pursuant to any Offer to Purchase
(whether or not prohibited by the provisions of the Indenture described under
"--Subordination of the Notes" above); (d) failure to perform or comply with any
of the provisions described under "--Certain Covenants -- Merger, Sale of
Assets, etc." above; (e) failure to perform any other covenant, warranty or
agreement of the Company under the Indenture or in the Notes or of the
Guarantors under the Indenture or in the Guaranties continued for 30 days or
more after written notice to the Company by the Trustee or Holders of at least
25% in aggregate principal amount of the outstanding Notes; (f) default or
defaults under the terms of one or more instruments evidencing or securing
Indebtedness of the Company or any of its Significant Restricted Subsidiaries
having an outstanding principal amount of $5.0 million or more individually or
in the aggregate that has resulted in the acceleration of the payment of such
Indebtedness or failure by the Company or any of its Significant Restricted
Subsidiaries to pay principal when due at the stated maturity of any such
Indebtedness; PROVIDED, HOWEVER, that it shall not be an Event of Default if
such Indebtedness shall have been repaid in full or such acceleration shall have
been rescinded within 20 days of the payment default in respect thereof or such
acceleration, as the case may be; (g) the rendering of a final judgment or
judgments (not subject to appeal) against the Company or any of its Significant
Restricted Subsidiaries in an amount of $5.0 million or more (net of any amounts
covered by reputable and creditworthy insurance companies) which remains
undischarged or unstayed for a period of 60 days after the date on which the
right to appeal has expired; (h) certain events of bankruptcy, insolvency or
reorganization affecting the Company or any of its Significant Restricted
Subsidiaries; or (i) other than as provided in or pursuant to any Guaranty or
the Indenture, any Guaranty ceases to be in full force and effect or is declared
null and void and unenforceable or found to be invalid or any Guarantor denies
its liability under its Guaranty (other than by reason of a release of such
Guarantor from its Guaranty in accordance with the terms of the Indenture and
such Guaranty). Subject to the provisions of the Indenture relating to the
duties of the Trustee, in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders of Notes, unless such Holders shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such
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declaration, such principal amount (and premium, if any) and accrued interest,
notwithstanding anything contained in the Indenture or the Notes to the contrary
will become immediately due and payable; PROVIDED, HOWEVER, that so long as the
Senior Credit Facility shall be in full force and effect, if an Event of Default
shall have occurred and be continuing (other than an Event of Default with
respect to the Company described in clause (h) of the preceding paragraph), the
Notes shall not become due and payable until the earlier to occur of (x) five
Business Days following delivery of written notice of such acceleration of the
Notes to the agent under the Senior Credit Facility and (y) the acceleration
(IPSO FACTO or otherwise) of any Indebtedness under the Senior Credit Facility.
If an Event or Default specified in clause (h) of the preceding paragraph with
respect to the Company occurs under the Indenture, the Notes will IPSO FACTO
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "--Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; PROVIDED, HOWEVER, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "--Certain
Covenants-- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as to
the performance by it of certain of its obligations under the Indenture and as
to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its and the Guarantors' substantive obligations in
respect of the Notes by delivering all outstanding Notes to the Trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all Notes or otherwise. In addition to the
foregoing, the Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (h) of "--
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Events of Default" above, occurs at any time on or prior to the 91st calendar
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until after such 91st day)) under the Indenture
and provided that no default under any Senior Indebtedness would result
therefrom, terminate the applicability of the covenants under "--Certain
Covenants" or any Event of Default under clauses (d) and (e) of "--Events of
Default" by (i) depositing with the Trustee, under the terms of an irrevocable
trust agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining Indebtedness on such Notes; (ii)
delivering to the Trustee either an Opinion of Counsel or a ruling directed to
the Trustee from the Internal Revenue Service to the effect that the Holders of
the Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and termination of obligations; (iii)
delivering to the Trustee an Opinion of Counsel to the effect that the Company's
exercise of its option under this paragraph will not result in any of the
Company, the Trustee or the trust created by the Company's deposit of funds
pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended (the "INVESTMENT
ACT"); and (iv) complying with certain other requirements set forth in the
Indenture. In addition, the Company may, provided that no Default or Event of
Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in clause (h) of "--Events of
Default" above, occurs at any time on or prior to the 91st calendar day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 91st day)) under the Indenture and provided
that no default under any Senior Indebtedness would result therefrom, terminate
all of its and the Guarantors' substantive obligations in respect of the Notes
(including its obligations to pay the principal of (and premium, if any, on) and
interest on the Notes and the Guarantors' Guaranty thereof) by (i) depositing
with the Trustee, under the terms of an irrevocable trust agreement, money or
United States Government Obligations sufficient (without reinvestment) to pay
all remaining Indebtedness on the Notes; (ii) delivering to the Trustee either a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and termination of
obligations or an Opinion of Counsel addressed to the Trustee based upon such a
ruling or based on a change in the applicable Federal tax law since the date of
the Indenture to such effect; (iii) delivering to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Act; and (iv)
complying with certain other requirements set forth in the Indenture.
The Company may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the Senior Indebtedness and
the Company has delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.
GOVERNING LAW
The Indenture, the Notes and the Guaranties are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors, and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); PROVIDED,
HOWEVER, that no such modification or amendment to the Indenture may, without
the consent of the Holder of each Note affected thereby, (a) change the maturity
of the principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of the Notes; (b) reduce the principal
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amount of (or the premium) of any such Note; (c) reduce the rate of or extend
the time for payment of interest on any such Note; (d) change the place or
currency of payment of principal of (or premium) or interest on any such Note;
(e) modify any provisions of the Indenture relating to the waiver of past
defaults (other than to add sections of the Indenture or the Notes subject
thereto) or the right of the Holders of Notes to institute suit for the
enforcement of any payment on or with respect to any such Note or any Guaranty
in respect thereof or the modification and amendment provisions of the Indenture
and the Notes (other than to add sections of the Indenture or the Notes which
may not be amended, supplemented or waived without the consent of each Holder
therein affected); (f) reduce the percentage of the principal amount of
outstanding Notes necessary for amendment to or waiver of compliance with any
provision of the Indenture or the Notes or for waiver of any Default in respect
thereof; (g) waive a default in the payment of principal of, interest on, or
redemption payment with respect to, the Notes (except a rescission of
acceleration of the Notes by the Holders thereof as provided in the Indenture
and a waiver of the payment default that resulted from such acceleration); (h)
modify the ranking or priority of any Note or the Guaranty in respect thereof of
any Guarantor or modify the definition of Senior Indebtedness or Guarantor
Senior Indebtedness or amend or modify the subordination provisions of the
Indenture in any manner adverse to the Holders of the Notes; (i) modify the
provisions of any covenant (or the related definitions) in the Indenture
requiring the Company to make an Offer to Purchase in a manner materially
adverse to the Holders of Notes affected thereby otherwise than in accordance
with the Indenture; or (j) release any Guarantor from any of its obligations
under its Guaranty or the Indenture otherwise than in accordance with the
Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Guarantors with certain restrictive provisions of the Indenture. Subject
to certain rights of the Trustee, as provided in the Indenture, the Holders of a
majority in aggregate principal amount of the Notes, on behalf of all Holders,
may waive any past Default under the Indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the Notes),
except a Default in the payment of principal, premium or interest or a Default
arising from failure to purchase any Notes tendered pursuant to an Offer to
Purchase or a Default in respect of a provision that under the Indenture cannot
be modified or amended without the consent of the Holder of each Note that is
affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; PROVIDED, HOWEVER, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"ACQUIRED PERSON" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"ACQUISITION" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged with or into the Company or any
Restricted Subsidiary or (ii) any acquisition by the Company or any Restricted
Subsidiary of the assets of any Person which constitute substantially all of an
operating unit or line of business of such Person or which is otherwise outside
of the ordinary course of business.
"ADDITIONAL INTEREST" has the meaning provided in Section 4(a) of the
Registration Rights Agreement.
"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 (i) beneficial ownership of 10.0% or more of the then outstanding Equity
Interests of a Person shall be deemed to be control for purposes of compliance
with the covenant described under "--Certain Covenants--Transactions with
Affiliates"; and (ii) no individual, other than a director of the Company or an
officer of the Company with a policy making function, shall be deemed an
Affiliate of the Company or any of its Subsidiaries, solely by reason of such
individual's employment, position or responsibilities by or with respect to the
Company or any of its Subsidiaries.
"APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at May 1, 2001 (such redemption price being described under "--Optional
Redemption"), PLUS (2) all required interest payments (excluding accrued but
unpaid interest) due on such Note through May 1, 2001, computed using a discount
rate equal to the Treasury Rate plus 75 basis points, over (B) the
then-outstanding principal amount of such Note.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary; (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary; (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business of the Company or any Restricted
Subsidiary; or (iv) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business (including the receipt of
proceeds paid on account of the loss of or damage to any property or asset and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceedings). For the purposes of this definition, the term "Asset Sale"
shall not include (a) any transaction consummated in compliance with "-- Certain
Covenants--Merger, Sale of Assets, etc." above and the creation of any Lien not
prohibited by "--Certain Covenants--Limitation on Liens" above; PROVIDED,
HOWEVER, that any transaction consummated in compliance with "---Certain
Covenants--Merger, Sale of Assets,
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etc." above involving a sale, conveyance, assignment, transfer, lease or other
disposition of less than all of the properties or assets of the Company shall be
deemed to be an Asset Sale with respect to the properties or assets of the
Company and the Restricted Subsidiaries that are not so sold, conveyed,
assigned, transferred, leased or otherwise disposed of in such transaction; (b)
sales of property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be; (c) any transaction consummated
in compliance with "--Certain Covenants--Limitation on Restricted Payments"
above; and (d) sales of accounts receivable for cash at fair market value. In
addition, solely for purposes of "-- Certain Covenants --Disposition of Proceeds
of Asset Sales" above, any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series of
related transactions, involving assets with a Fair Market Value not in excess of
$1.0 million in any fiscal year shall be deemed not to be an Asset Sale.
"ATEMCO" means the joint venture created by the ATEMCO Joint Venture
Agreement.
"ATEMCO JOINT VENTURE AGREEMENT" means the Joint Venture Agreement of
ATEMCO dated March 3, 1982 among the Company, Tower Extrusions, Inc. and MEB
Enterprises, Inc., as amended and in effect from time to time.
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person, 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 of such Person in accordance with GAAP.
"CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; (c) 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; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
qualifications specified in clause (c) above; and (e) commercial paper rated
P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, and in each case maturing within
six months after the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company or Holdings):
(i) prior to the first public offering of Voting Equity Interests of Holdings or
the Company, either (x) the Permitted Holders cease to be the "beneficial owner"
or "beneficial owners" (as defined in Rule 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of at least a majority of the total voting power
of the then outstanding Voting Equity Interests of Holdings or of the Company,
or (y) the Permitted Holders cease to be entitled by voting power, contract or
otherwise to elect or cause the election of directors of Holdings or the Company
having a majority of the total voting power of the Board of Directors of
Holdings or the Company, as the case may be, in each case, whether as a result
of issuance of securities of Holdings or the Company, as the case may be, any
merger, consolidation, liquidation or dissolution of Holdings or the Company, as
the case may be, any direct or indirect transfer of securities by any Permitted
Holder or otherwise; (ii) following the first public offering of Voting Equity
Interests of Holdings or the Company, any Person (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, including any group acting for the
purpose of acquiring, holding or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (i) above,
except that a Person shall be deemed to have "beneficial ownership" of all
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shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 35% of the total
voting power of the then outstanding Voting Equity Interests of Holdings or the
Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as
defined in clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the then outstanding Voting Equity
Interests of Holdings or the Company, as the case may be, than such other Person
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors of Holdings
or the Company, as the case may be; (iii) Holdings or the Company consolidates
with, or merges with or into, another Person (other than the Company or any
Wholly Owned Restricted Subsidiary) or Holdings or any of its Subsidiaries
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of Holdings and its Subsidiaries (determined on
a consolidated basis) to any Person (other than the Company or any Wholly Owned
Restricted Subsidiary) or the Company or the Restricted Subsidiaries sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the assets of the Company and the Restricted Subsidiaries (determined on a
consolidated basis) to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary), other than any such transaction where immediately after
such transaction the Person or Persons that beneficially owned (as defined in
clause (i) above, except that a Person shall be deemed to have beneficial
ownership of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise) immediately prior to such transaction,
directly or indirectly, the then outstanding Voting Equity Interests of Holdings
or the Company, as the case may be, "beneficially own" (as so determined),
directly or indirectly, a majority of the total voting power of the then
outstanding Voting Equity Interests of the surviving or transferee Person; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings or the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Holdings or
the Company, as the case may be, was approved by a vote of a majority of the
directors of Holdings or the Company, as the case may be, then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Holdings or the Company, as
the case may be, then in office. For purposes of clause (i) and clause (ii)
above, Permitted Holders shall be deemed to beneficially own any Voting Equity
Interests of an entity (the "specified entity") held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially own, directly or
indirectly, a majority of the voting power of the then outstanding Voting Equity
Interests of the parent entity.
"CHANGE OF CONTROL DATE" has the meaning set forth under "--Offer to
Purchase upon Change of Control" above.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "FOUR QUARTER PERIOD") to (ii) Consolidated
Interest Expense for such Four Quarter Period; PROVIDED, HOWEVER, that (1) if
the Company or any Restricted Subsidiary has incurred any Indebtedness since the
beginning of such Four Quarter Period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be
calculated after giving effect on a PRO FORMA basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such Four Quarter Period
and the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
shall have made any Asset Sale, the Consolidated EBITDA for such Four Quarter
Period shall be reduced by an amount equal to the Consolidated EBITDA (if
positive) directly
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attributable to the assets that are the subject of such Asset Sale for such Four
Quarter Period or increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such Four Quarter Period and
Consolidated Interest Expense for such Four Quarter Period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased
or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Sale for such Four Quarter
Period (or, if the Equity Interests of any Restricted Subsidiary are sold, the
Consolidated Interest Expense for such Four Quarter Period directly attributable
to the Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such Four Quarter
Period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that becomes
a Restricted Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, Consolidated EBITDA and Consolidated Interest Expense for such
Four Quarter Period shall be calculated after giving PRO FORMA effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period, and (4) if
since the beginning of such Four Quarter Period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such Four Quarter Period, Consolidated
EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be
calculated after giving PRO FORMA effect thereto as if such Asset Sale,
Investment or acquisition of assets occurred on, with respect to any Investment
or acquisition, the first day of such Four Quarter Period and, with respect to
any Asset Sale, the day prior to the first day of such Four Quarter Period. For
purposes of this definition, whenever PRO FORMA effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given PRO
FORMA effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any agreement under which Interest
Rate Protection Obligations are outstanding applicable to such Indebtedness if
such agreement under which such Interest Rate Protection Obligations are
outstanding has a remaining term as at the date of determination in excess of 12
months).
"CONSOLIDATED EBITDA" means, for any period, the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; (iii) depreciation and
depletion expense for such period; (iv) amortization expense for such period;
and (v) all other non-cash items reducing Consolidated Net Income for such
period (other than any non-cash item requiring an accrual or a reserve for cash
disbursements in any future period).
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all
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commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and (e) all capitalized interest and
all accrued interest, (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by the Company
and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP and (iii) dividends and distributions
in respect of Disqualified Equity Interests actually paid in cash by the Company
during such period as determined on a consolidated basis in accordance with
GAAP; PROVIDED, HOWEVER, that there shall be excluded therefrom the amortization
of deferred financing costs in connection with the Transaction.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; PROVIDED, HOWEVER,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Restricted Subsidiary,
except that (A) the Company's equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in a net loss of any such Person (other than an Unrestricted
Subsidiary) for such period shall be included in determining such Consolidated
Net Income; (ii) any net income (loss) of any person acquired by the Company or
a Restricted Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income (loss) of any
Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company except that (A) the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain or loss realized upon the sale or other
disposition of any asset of the Company or the Restricted Subsidiaries
(including pursuant to any sale/leaseback transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Equity Interests of any
Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a
change in accounting principles.
"CONSULTING AGREEMENT" means the Consulting Agreement dated as of May 9,
1997 by and between the Company and George Group, as amended and in effect from
time to time.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding
under the Senior Credit Facility and (b) any other Senior Indebtedness which, at
the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $15.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Designation of Unrestricted Subsidiaries" above.
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Designation of Unrestricted Subsidiaries" above.
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"DISPOSITION" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"DISQUALIFIED EQUITY INTEREST" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Notes or the date on which no Notes remain
outstanding.
"EQUITY INTEREST" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"EXISTING INDEBTEDNESS" means any Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid.
"EXPIRATION DATE" has the meaning set forth in the definition of "Offer to
Purchase" below.
"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 and able buyer, neither of which is under any
compulsion to complete the transaction; PROVIDED, HOWEVER, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"FOUR QUARTER PERIOD" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"GEORGE GROUP" means George Group Inc., a Texas corporation, and its
successors.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"GUARANTOR" means (i) each of RBP of Arizona, Inc., a Delaware corporation,
RBP Custom Glass, Inc., a Delaware corporation, Timber Tech, Inc., a Mississippi
corporation, RBP Trans, Inc., a Delaware corporation, RBP Fenesco, Inc., a
Delaware corporation, LeVan Builders Supply Company, Inc., an Oklahoma
corporation, and RBP of Texas, Inc., a Delaware corporation, and their
respective successors,
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and (ii) each other Restricted Subsidiary, formed, created or acquired before or
after the Issue Date, required to become a Guarantor after the Issue Date
pursuant to "--Guaranties of the Notes" above.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to any Guarantor, at
any date, (a) all Obligations of such Guarantor under the Senior Credit
Facility; (b) all Interest Rate Protection Obligations of such Guarantor; (c)
all Obligations of such Guarantor under stand-by letters of credit; and (d) all
other Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness unless the instrument under which such Indebtedness of such
Guarantor for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment to
such Guarantor's Guaranty of the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Guarantor Senior Indebtedness shall not include (a) to the extent
that it may constitute Indebtedness, any Obligation for Federal, state, local or
other taxes; (b) any Indebtedness among or between such Guarantor and any
Subsidiary of the Company; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) that portion of any Indebtedness that is Incurred in violation
of the Indenture; PROVIDED, HOWEVER, that such Indebtedness shall be deemed not
to have been Incurred in violation of the Indenture for purposes of this clause
(d) if (I) the holder(s) of such Indebtedness or their representative or the
Company shall have furnished to the Trustee an opinion of independent legal
counsel unqualified in all material respects, addressed to the Trustee (which
legal counsel may, as to matters of fact, rely upon an Officers' Certificate of
the Company) to the effect that the Incurrence of such Indebtedness does not
violate the provisions of the Indenture or (II) in the case of any Obligations
under the Senior Credit Facility, the holder(s) of such Obligations or their
agent or representative shall have received a representation from the Company to
the effect that the Incurrence of such Indebtedness does not violate the
provisions of the Indenture; (e) Indebtedness evidenced by such Guarantor's
Guaranty of the Notes; (f) Indebtedness of such Guarantor that is expressly
subordinate or junior in right of payment to any other Indebtedness of such
Guarantor; (g) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations) or management
agreements; (h) any obligation that by operation of law is subordinate to any
general unsecured obligations of such Guarantor; and (i) any Existing
Indebtedness.
"GUARANTY" means the full and unconditional guarantee of the Notes by each
Guarantor on a joint and several basis under the Indenture.
"HOLDERS" means the registered holder of any Note.
"HOLDINGS" means RBPI Holding Corporation, a Delaware corporation, and its
successors.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "INCURRENCE," "INCURRED" and "INCURRING" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"INDEBTEDNESS" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such
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Person for money borrowed; (b) every obligation of such Person evidenced by
bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(c) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person; (d) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable incurred in the ordinary course of business and payable in accordance
with industry practices, or other accrued liabilities arising in the ordinary
course of business which are not overdue or which are being contested in good
faith); (e) every Capital Lease Obligation of such Person; (f) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person; (g) every obligation of
the type referred to in clauses (a) through (f) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise; and (h) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a) through
(g) above. Indebtedness (a) shall never be calculated taking into account any
cash and cash equivalents held by such Person; (b) shall not include obligations
of any Person (x) arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business, provided that such
obligations are extinguished within two Business Days of their incurrence, (y)
resulting from the endorsement of negotiable instruments for collection in the
ordinary course of business and consistent with past business practices and (z)
under stand-by letters of credit to the extent collateralized by cash or cash
equivalents; (c) which provides that an amount less than the principal amount
thereof shall be due upon any declaration of acceleration thereof shall be
deemed to be incurred or outstanding in an amount equal to the accreted value
thereof at the date of determination; (d) shall include the liquidation
preference and any mandatory redemption payment obligations in respect of any
Disqualified Equity Interests of the Company or any Restricted Subsidiary; and
(e) shall not include obligations under performance bonds, performance
guarantees, surety bonds and appeal bonds, letters of credit or similar
obligations, incurred in the ordinary course of business.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized, accounting,
appraisal, investment banking firm or consultant that is, in the judgment of the
Company's Board of Directors, qualified to perform the task for which it has
been engaged (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"INTEREST" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"INVESTMENT" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. The amount
of any Investment shall be the original cost of
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such Investment, PLUS the cost of all additions thereto, and MINUS the amount of
any portion of such Investment repaid to such Person in cash as a repayment of
principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any property or asset other than cash, such
property shall be valued at its fair market value at the time of such transfer,
as determined in good faith by the Board of Directors (or comparable body) of
the Person making such transfer.
"ISSUE DATE" means the original issue date of the Notes.
"LIEN" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"MATURITY DATE" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) 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; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"OBLIGATIONS" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"OFFER" has the meaning set forth in the definition of "Offer to Purchase"
below.
"OFFER TO PURCHASE" means a written offer (the "OFFER") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "EXPIRATION DATE") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 60 days after the date of such
Offer, and a settlement date (the "PURCHASE DATE") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall also contain information
concerning the business of the Company and its Subsidiaries which the Company in
good faith believes will enable such Holders to make an informed decision with
respect to the Offer to
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Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase) and (iii) if applicable, appropriate PRO FORMA financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase is
being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "PURCHASE AMOUNT");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "PURCHASE PRICE");
(5) that the Holder may tender all or any portion of the Notes registered in
the name of such Holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased by
the Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and payable
upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its Paying Agent) receives, not later than
the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note
the Holder tendered, the certificate number of the Note the Holder
tendered and a statement that such Holder is withdrawing all or a portion
of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to Purchase,
the Company shall purchase Notes having an aggregate principal amount
equal to the Purchase
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Amount on a PRO RATA basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 principal
amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part,
the Company shall execute and the Trustee shall authenticate and deliver
to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"PERMITTED HOLDER" means (i) any of Keystone, Inc., Oak Hill Partners,
Inc., Arbor Investors, L.L.C., Group 31, Inc. and their respective Affiliates on
the Issue Date; (ii) any of the Permitted Transferees of the persons referred to
in clause (i); and (iii) any person or group controlled by each or any of the
Persons referred to in clauses (i) and (ii).
"PERMITTED INDEBTEDNESS" has the meaning set forth in the second paragraph
of "--Certain Covenants--Limitation on Indebtedness" above.
"PERMITTED INVESTMENTS" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed $1.0
million in the aggregate at any one time outstanding; (d) Interest Rate
Protection Obligations; (e) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under "-- Certain Covenants--
Disposition of Proceeds of Asset Sales" above not to exceed 25% of the total
consideration for such Asset Sales; (f) transactions with officers, directors
and employees of the Company or any Restricted Subsidiary entered into in
ordinary course of business (including compensation or employee benefit
arrangements with any such director or employee) and consistent with past
business practices; (g) Investments existing as of the Issue Date and any
amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (h) any Investment to the
extent that the consideration therefor consists of Qualified Equity Interests of
the Company; (i) any Investment consisting of a guarantee permitted under clause
(e) of the second paragraph of "--Limitation on Indebtedness" above; and (j) any
Investment in ATEMCO required pursuant to the ATEMCO Joint Venture Agreement not
to exceed the Company's PRO RATA share of capital contributions based on its
ownership of Equity Interests in ATEMCO and in any event not to exceed $100,000
in any fiscal year (provided that all other holders of Equity Interests in
ATEMCO are also simultaneously making Investments in ATEMCO pursuant to the
ATEMCO Joint Venture Agreement based on their PRO RATA share of required capital
contributions based on their ownership of Equity Interests in ATEMCO).
"PERMITTED JUNIOR SECURITIES" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in the Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of the Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Notes on the date of
the Indenture and (c) such securities shall not provide for
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amortization (including sinking fund and mandatory prepayment provisions)
commencing prior to the date six months following the final scheduled maturity
date of the Senior Indebtedness (as modified by the plan of reorganization of
readjustment pursuant to which such securities are issued).
"PERMITTED LIENS" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; PROVIDED, HOWEVER, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or which are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Notes; (e) Liens in favor of the
Company or any Restricted Subsidiary; (f) 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, HOWEVER, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (g) easements, reservation of rights of way, restrictions and other
similar easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes
in connection with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation when required
by law and public and statutory obligations or obligations under franchise
arrangements entered into in the ordinary course of business; (i) Liens securing
Indebtedness consisting of Capitalized Lease Obligations, Purchase Money
Indebtedness, mortgage financings, industrial revenue bonds or other monetary
obligations, in each case incurred solely for the purpose of financing all or
any part of the purchase price or cost of construction or installation of assets
used in the business of the Company or the Restricted Subsidiaries, or repairs,
additions or improvements to such assets, PROVIDED, HOWEVER, that (I) such Liens
secure Indebtedness in an amount not in excess of the original purchase price or
the original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by "--Certain
Covenants--Limitation on Indebtedness" above and (IV) such Liens attach within
90 days of such purchase, construction, installation, repair, addition or
improvement; (j) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (k) Liens securing letters of
credit entered into in the ordinary course of business and consistent with past
business practice; and (l) Liens on and pledges of the Equity Interests of any
Unrestricted Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary.
"PERMITTED TRANSFEREE" means, with respect to any Person: (a) in the case
of any Person who is a natural person, such individual's spouse or children, any
trust for such individual's benefit or the benefit of such individual's spouse
or children, or any corporation or partnership in which the direct and
beneficial owner of all of the equity interest is such Person or such
individual's spouse or children or any trust for the benefit of such persons;
and (b) in the case of any Person who is a natural person, the heirs, executors,
administrators or personal representatives upon the death of such Person or upon
the incompetency or disability of such Person for purposes of the protection and
management of such individual's assets.
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"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"POST-PETITION INTEREST" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"PREFERRED EQUITY INTEREST," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"PRINCIPAL" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"PUBLIC EQUITY OFFERING" means, with respect to the Company or Holdings, an
underwritten public offering of Qualified Equity Interest of the Company or
Holdings, as the case may be, pursuant to an effective registration statement
filed under the Securities Act (excluding registration statements filed on Form
S-8).
"PUBLIC MARKET" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding Qualified
Equity Interests of the Company or Holdings, as the case may be, has been
distributed by means of an effective registration statement under the Securities
Act.
"PURCHASE AMOUNT" has the meaning set forth in the definition of "Offer to
Purchase" above.
"PURCHASE DATE" has the meaning set forth in the definition of "Offer to
Purchase" above.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"PURCHASE PRICE" has the meaning set forth in the definition of "Offer to
Purchase" above.
"QUALIFIED EQUITY INTEREST" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"REDEMPTION DATE" has the meaning set forth in the third paragraph of
"--Optional Redemption" above.
"RELATED BUSINESS" means those businesses in which the Company or any of
the Restricted Subsidiaries is engaged on the date of the Indenture, or that are
reasonably related or incidental thereto.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "--Certain Covenants--Designation
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of Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"SENIOR CREDIT FACILITY" means the Credit Agreement, dated as of May 9,
1997, between the Company, the lenders named therein, and The Chase Manhattan
Bank, as Administrative Agent, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor, whether by or with
the same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantee and note agreements and other instruments
and agreements executed in connection therewith.
"SENIOR INDEBTEDNESS" means, at any date, (a) all Obligations of the
Company under the Senior Credit Facility; (b) all Interest Rate Protection
Obligations of the Company; (c) all Obligations of the Company under stand-by
letters of credit; and (d) all other Indebtedness of the Company for borrowed
money, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness, unless the instrument under which
such Indebtedness of the Company for money borrowed is Incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to the Notes, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Senior
Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for Federal, state, local or other taxes; (b) any
Indebtedness among or between the Company and any Subsidiary of the Company; (c)
to the extent that it may constitute Indebtedness, any Obligation in respect of
any trade payable Incurred for the purchase of goods or materials, or for
services obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the Indenture; PROVIDED, HOWEVER,
that such Indebtedness shall be deemed not to have been Incurred in violation of
the Indenture for purposes of this clause (d) if (I) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of independent legal counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an Officers' Certificate of the Company) to the effect that the
Incurrence of such Indebtedness does not violate the provisions of the Indenture
or (II) in the case of any Obligations under the Senior Credit Facility, the
holder(s) of such Obligations or their agent or representative shall have
received a representation from the Company to the effect that the Incurrence of
such Indebtedness does not violate the provisions of this Indenture; (e)
Indebtedness evidenced by the Notes; (f) Indebtedness of the Company that is
expressly subordinate or junior in right of payment to any other Indebtedness of
the Company; (g) to the extent that it may constitute Indebtedness, any
obligation owing under leases (other than Capitalized Lease Obligations) or
management agreements; (h) any obligation that by operation of law is
subordinate to any general unsecured obligations of the Company; and (i) any
Existing Indebtedness.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of the
Company accounted for more than 5.0% of the consolidated revenues of the Company
and the Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned
more than 5.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (b) any Restricted Subsidiary which, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (f), (g) or (h) of
"--Events of Default" above has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
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"STATED MATURITY," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"SUBORDINATED INDEBTEDNESS" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guaranty, as the case may be.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"SURVIVING PERSON" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"TAX SHARING AGREEMENT" means the Tax Sharing Agreement dated as of May 9,
1997 by and between Holdings, the Company and certain of the Company's
Subsidiaries, as amended and in effect from time to time.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to May 1, 2001; PROVIDED, HOWEVER, that if the period from
the Redemption Date to May 1, 2001 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Redemption Date to May 1, 2001 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"UNITED STATES GOVERNMENT OBLIGATIONS" means direct non-callable
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as
such pursuant to "--Certain Covenants--Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"UNUTILIZED NET CASH PROCEEDS" has the meaning set forth in the third
paragraph under "--Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
"VOTING EQUITY INTERESTS" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to
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the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (b) the then outstanding aggregate principal amount of such
Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes initially will be represented by one or more permanent
global certificates in definitive, fully registered form (the "Global Notes").
The Global Notes will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of a nominee of DTC.
THE GLOBAL NOTES. The Company expects that pursuant to procedures
established by DTC (a) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Exchange
Notes of the individual beneficial interests represented by the Global Notes to
the respective accounts of persons who have accounts with DTC and (b) ownership
of beneficial interests in the Global Notes will be shown on, and the transfer
of such ownership will be effected only through, records maintained by DTC or
its nominee (with respect to interests of Participants (as defined herein)) and
the records of Participants (with respect to interests of persons other than
Participants). Ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("Participants") or persons who
hold interests through Participants. Interests in the Global Notes may be held
directly through DTC, by Participants, or indirectly through organizations which
are Participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Notes for
all purposes under the Indenture. No beneficial owner of an interest in the
Global Notes will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Notes, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global Notes
held through such Participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Participants.
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
Holder requires physical delivery of a Certificated Note for any reason,
including to sell Exchange Notes to persons in states which require physical
delivery of the Exchange Notes, or to pledge such securities, such Holder must
transfer its interest in a Global Note in accordance with the normal procedures
of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes (including the presentation of Exchange
Notes for exchange) only at the direction of one or more Participants to whose
account the DTC interests in the Global Notes are credited and only in
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respect of such portion of the aggregate principal amount of Exchange Notes as
to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Notes in whole for Certificated Notes (as defined below), which it
will distribute to the Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among Participants, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC or the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES. If DTC is at any time unwilling or unable to continue
as a depositary for the Global Notes and a successor depositary is not appointed
by the Company within 90 days, certificated notes in definitive, fully
registered form will be issued in exchange for the Global Notes.
SENIOR SUBORDINATED NOTES REGISTRATION RIGHTS
DEFINITIONS. As used in this section, the following terms shall have the
following meanings:
CLOSING DATE: The closing date of the offering of the Senior Subordinated
Notes (May 9, 1997).
EFFECTIVENESS DATE: The 120th day after the Closing Date; PROVIDED,
HOWEVER, that, with respect to the Initial Shelf Registration Statement, (i) if
the Filing Date in respect thereof is fewer than 60 days prior to the 120th day
after the Closing Date, then the Effectiveness Date in respect thereof shall be
the 60th day after such Filing Date and (ii) if the Filing Date is after the
filing of the Exchange Offer Registration Statement with the SEC, then the
Effectiveness Date in respect thereof shall be the 60th day after such Filing
Date.
EXPIRATION DATE: The 30th day after the Effectiveness Date; PROVIDED,
HOWEVER, that if the Exchange Offer is required by applicable law to be open for
a period of more than 30 days, the Expiration Date shall mean the last date of
such period.
FILING DATE: The 60th day after the Closing Date; PROVIDED, HOWEVER, that,
with respect to the Initial Shelf Registration Statement, (i) if a Shelf
Registration Event shall have occurred fewer than 30 days prior to the 60th day
after the Closing Date, then the Filing Date in respect thereof shall be the
30th day after such Shelf Registration Event and (ii) if a Shelf Registration
Event shall have occurred after the filing of the Exchange Offer Registration
Statement with the SEC, then the Filing Date in respect thereof shall be the
30th day after such Shelf Registration Event.
REGISTRABLE SECURITIES: The Senior Subordinated Notes upon original
issuance thereof and at all times subsequent thereto, each Exchange Note (as
defined below) as to which clause (v) of paragraph (b) of "--Exchange Offer"
below is applicable upon original issuance and at all times subsequent thereto
and, if issued, the Private Exchange Notes (as defined in the Registration
Rights Agreement),
97
<PAGE>
until in the case of any such Notes, Exchange Notes or Private Exchange Notes,
as the case may be, (i) a Registration Statement (other than, with respect to
any Exchange Note as to which clause (v) of paragraph (b) of "--Exchange Offer"
below is applicable, the Exchange Offer Registration Statement) covering such
Notes, Exchange Notes or Private Exchange Notes has been declared effective by
the SEC and such Senior Subordinated Notes, Exchange Notes or Private Exchange
Notes, as the case may be, have been disposed of in accordance with such
effective Registration Statement, (ii) such Senior Subordinated Notes, Exchange
Notes or Private Exchange Notes, as the case may be, are sold in compliance with
Rule 144 under the Securities Act, (iii) such Senior Subordinated Note has been
exchanged for an Exchange Note pursuant to the Exchange Offer and clause (v) of
paragraph (b) of "-- Exchange Offer" below is not applicable thereto, or (iv)
such Senior Subordinated Notes, Exchange Notes or Private Exchange Notes, as the
case may be, cease to be outstanding.
EXCHANGE OFFER. The Company, each of the Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement on the Closing Date
pursuant to which the Company and each of the Guarantors (a) agreed to file with
the SEC, on or before the Filing Date, the Exchange Offer. The Exchange Offer
will be registered under the Securities Act on the appropriate form (the
"EXCHANGE OFFER REGISTRATION STATEMENT") and will comply with all applicable
tender offer rules and regulations under the Exchange Act. The Company and each
of the Guarantors agreed to use their respective best efforts to (i) cause the
Exchange Offer Registration Statement to become effective and commence the
Exchange Offer on or prior to the Effectiveness Date, (ii) keep the Exchange
Offer open until the Expiration Date and (iii) exchange Exchange Notes for all
Senior Subordinated Notes validly tendered and not withdrawn pursuant to the
Exchange Offer on or prior to the fifth day following the Expiration Date.
The Company and each of the Guarantors shall use their respective best
efforts to keep the Exchange Offer Registration Statement effective and to amend
and supplement the prospectus contained therein in order to permit such
prospectus to be lawfully delivered by all persons subject to the prospectus
delivery requirements of the Securities Act for at least 180 days (or such
shorter time as such persons must comply with such requirements in order to
resell the Exchange Notes) (the "APPLICABLE PERIOD").
(b) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not commenced on or prior to the
Effectiveness Date, (iii) the Exchange Offer is not, for any reason, consummated
on or prior to the fifth day after the Expiration Date, (iv) any Holder of
Private Exchange Notes so requests, or (v) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange Notes
on the date of the exchange that may be sold without restriction under state and
Federal securities laws (the occurrence of any such event, a "SHELF REGISTRATION
EVENT"), then, in the case of each of clauses (i) through (v) of this sentence,
the Company shall promptly deliver to the Holders and the Trustee notice thereof
(the "SHELF NOTICE") and thereafter the Company and each of the Guarantors shall
file an Initial Shelf Registration Statement pursuant to the terms of the
Registration Rights Agreement.
SHELF REGISTRATION. If a Shelf Registration Event has occurred (and whether
or not an Exchange Offer Registration Statement has been filed with the SEC or
has become effective, or the Exchange Offer has been consummated), then:
(a) INITIAL SHELF REGISTRATION STATEMENT. The Company and each of the
Guarantors shall promptly prepare and file with the SEC a Registration Statement
for an offering to be made on a continuous basis pursuant to Rule 415 covering
all of the Registrable Securities (the "INITIAL SHELF REGISTRATION STATEMENT").
The Company and each of the Guarantors shall file with the SEC the Initial Shelf
Registration Statement on or prior to the Filing Date. The Initial Shelf
Registration Statement shall be on Form S-1 or another appropriate form if
available, permitting registration of such Registrable Securities for resale by
such holders in the manner designated by them (including, without limitation, in
one or more underwritten
98
<PAGE>
offerings). The Company and each of the Guarantors shall not permit any
securities other than the Registrable Securities to be included in the Initial
Shelf Registration Statement or any Subsequent Shelf Registration Statement. The
Company and each of the Guarantors shall use their respective best efforts to
cause the Initial Shelf Registration Statement to be declared effective under
the Securities Act on or prior to the Effectiveness Date, and to keep the
Initial Shelf Registration Statement continuously effective under the Securities
Act until the date which is 24 months from the Closing Date or such shorter
period ending when (i) all Registrable Securities covered by the Initial Shelf
Registration Statement have been sold in the manner set forth and as
contemplated in the Initial Shelf Registration Statement or (ii) a Subsequent
Shelf Registration Statement covering all of the Registrable Securities has been
declared effective under the Securities Act (such 24 month or shorter period,
the "EFFECTIVENESS PERIOD").
(b) SUBSEQUENT SHELF REGISTRATION STATEMENTS. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), the
Company and each of the Guarantors shall use their respective best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event the Company and each of the Guarantors shall within 45 days of
such cessation of effectiveness amend the Shelf Registration Statement in a
manner reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional "shelf" Registration Statement
pursuant to Rule 415 covering all of the Registrable Securities (a "SUBSEQUENT
SHELF REGISTRATION STATEMENT"). If a Subsequent Shelf Registration Statement is
filed, the Company and each of the Guarantors shall use their respective best
efforts to cause the Subsequent Shelf Registration Statement to be declared
effective as soon as reasonably practicable after such filing and to keep such
Registration Statement continuously effective until the end of the Effectiveness
Period. As used herein the term "Shelf Registration Statement" means the Initial
Shelf Registration Statement and any Subsequent Shelf Registration Statement.
(c) SUPPLEMENTS AND AMENDMENTS. The Company and each of the Guarantors shall
promptly supplement and amend the Shelf Registration Statement if required by
the rules, regulations or instructions applicable to the registration form used
for such Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Registrable Securities covered by such Registration Statement or by any
underwriter of such Registrable Securities.
ADDITIONAL INTEREST. The Company has agreed to pay, as liquidated damages,
additional interest on the Senior Subordinated Notes ("ADDITIONAL INTEREST")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement has not been filed on or prior to the Filing
Date (unless, with respect to the Exchange Offer Registration Statement, a
Shelf Event described in clause (i) of paragraph (b) of "--Exchange Offer"
above shall have occurred prior to the Filing Date), Additional Interest
shall accrue on the Senior Subordinated Notes over and above the stated
interest in an amount equal to $0.05 per week (or any part thereof) per
$1,000 principal amount of the Senior Subordinated Notes for the first 90
days immediately following such date, such Additional Interest increasing by
an additional $0.05 per week (or any part thereof) per $1,000 principal
amount of the Notes at the beginning of each subsequent 90-day period;
(ii) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the SEC on or
prior to the Effectiveness Date (unless, with respect to the Exchange Offer
Registration Statement, a Shelf Event described in clause (i) of paragraph
(b) of "--Exchange Offer" above shall have occurred), Additional Interest
shall accrue on the Senior Subordinated Notes over and above the stated
interest in an amount equal to $0.05 per week (or any part thereof) per
$1,000 principal amount of Senior Subordinated Notes for the first 90 days
99
<PAGE>
immediately following such date, such Additional Interest increasing by an
additional $0.05 per week (or any part thereof) per $1,000 principal amount
of the Senior Subordinated Notes at the beginning of each subsequent 90-day
period; and
(iii) if (A) the Company has not exchanged Exchange Notes for all Senior
Subordinated Notes validly tendered and not withdrawn in accordance with the
terms of the Exchange Offer on or prior to the fifth day after the
Expiration Date, or (B) the Exchange Offer Registration Statement ceases to
be effective at any time prior to the Expiration Date, or (C) if applicable,
any Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Senior
Subordinated Notes over and above the stated interest in an amount equal to
$0.05 per week (or any part thereof) per $1,000 principal amount of the
Senior Subordinated Notes for the first 90 days commencing on the (x) sixth
day after the Expiration Date, in the case of (A) above, or (y) the day the
Exchange Offer Registration Statement ceases to be effective in the case of
(B) above, or (z) the day such Shelf Registration Statement ceases to be
effective in the case of (C) above, such Additional Interest increasing by
an additional $0.05 per week (or any part thereof) per $1,000 principal
amount of the Senior Subordinated Notes at the beginning of each such
subsequent 90-day period;
PROVIDED, HOWEVER, that the Additional Interest on the Notes may not exceed at
any one time in the aggregate $0.50 per week per $1,000 principal amount of the
Senior Subordinated Notes; PROVIDED, FURTHER, HOWEVER, that (1) upon the filing
of the Exchange Offer Registration Statement or a Shelf Registration Statement
as required hereunder (in the case of clause (i) of this paragraph), (2) upon
the effectiveness of the Exchange Offer Registration Statement or the Shelf
Registration Statement as required hereunder (in the case of clause (ii) of this
paragraph) or (3) upon the exchange of Exchange Notes for all Senior
Subordinated Notes validly tendered and not withdrawn (in the case of clause
(iii)(A) of this paragraph), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) of this paragraph), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of (iii)(C) of
paragraph), Additional Interest on the Senior Subordinated Notes as a result of
such clause (or the relevant subclause thereof), as the case may be, shall cease
to accrue (but any accrued amount shall be payable).
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to all provisions of the Registration Rights Agreement, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
100
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the Staff 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 Senior Subordinated Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "Affiliate," (ii) a broker-dealer who acquired Senior
Subordinated Notes directly from the Company or (iii) broker-dealers who
acquired Senior Subordinated Notes as a result of market-making or other trading
activities) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in a distribution of such Exchange
Notes; provided that broker-dealers receiving Exchange Notes in the Exchange
Offer will be subject to a prospectus delivery requirement with respect to
resales of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Senior
Subordinated Notes where Senior Subordinated Notes were acquired 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, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until September 30, 1997, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such 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
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify such holders (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
The Initial Purchasers may engage in stabilizing transactions in accordance
with Rule 104 under the Exchange Act. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Such stabilization transactions may cause the price of the
Notes to be higher than it would otherwise be in the absence of such
transactions.
101
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Kelly, Hart & Hallman, Fort Worth, Texas.
EXPERTS
The consolidated financial statements of Reliant Building Products, Inc. and
subsidiaries as of March 28, 1997 and March 29, 1996, and for each of the three
years in the period ended March 28, 1997, included in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
102
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of March 29, 1996 and March 28, 1997.................. F-3
Consolidated Statements of Income for each of the three years in the period ended
March 28, 1997..................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for each of the three
years in the period ended March 28, 1997........................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
March 28, 1997..................................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
Unaudited Consolidated Balance Sheet at June 27, 1997................................ F-16
Unaudited Consolidated Statements of Operations for the seven week period ended June
27, 1997, the six week period ended May 9, 1997, and the thirteen week period ended
June 28, 1996...................................................................... F-17
Unaudited Statements of Cash Flows for the seven week period ended June 27, 1997, the
six week period ended May 9, 1997, and the thirteen week period ended June 28,
1996............................................................................... F-18
Notes to Unaudited Financial Statements.............................................. F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Reliant Building Products, Inc.
We have audited the accompanying consolidated balance sheets of Reliant
Building Products, Inc. (formerly Redman Building Products, Inc.) and
subsidiaries as of March 28, 1997 and March 29, 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended March 28, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 consolidated financial position of Reliant
Building Products, Inc. and subsidiaries at March 28, 1997 and March 29, 1996,
and the consolidated results of their operations and cash flows for each of the
three years in the period ended March 28, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
June 19, 1997
F-2
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 133 $ 182
Accounts and notes receivable....................................................... 18,690 17,732
Inventories:
Raw materials..................................................................... 9,941 9,883
Finished products and work-in-process............................................. 4,843 5,107
----------- --------------
14,784 14,990
Deferred tax assets................................................................. 1,369 1,434
Prepaid expenses and other current assets........................................... 1,296 1,008
----------- --------------
Total current assets.................................................................. 36,272 35,346
Property, plant, and equipment, at cost:
Land and buildings.................................................................. 17,245 17,020
Machinery and equipment............................................................. 30,140 33,086
----------- --------------
47,385 50,106
Accumulated depreciation and amortization........................................... (22,354) (26,054)
----------- --------------
25,031 24,052
Intangible assets, less accumulated amortization of $2,888 and $3,502, respectively... 10,557 9,943
Debt issuance costs................................................................... 1,843 1,177
Other assets.......................................................................... 3,066 2,559
----------- --------------
Total assets.......................................................................... $ 76,769 $ 73,077
----------- --------------
----------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 11,187 $ 7,503
Accrued expenses.................................................................... 7,895 6,703
Current portion of long-term debt................................................... 2,475 3,464
Current portion of subordinated debt................................................ 375 375
----------- --------------
Total current liabilities............................................................. 21,932 18,045
Long-term debt........................................................................ 38,986 34,108
Deferred income taxes................................................................. 4,017 3,906
Other liabilities..................................................................... 426 334
Subordinated debt..................................................................... 3,097 5,380
Redeemable securities:
Redeemable preferred stock.......................................................... 5,312 6,119
Redeemable common stock warrants.................................................... 1,046 1,272
----------- --------------
Total redeemable securities........................................................... 6,358 7,391
Contingencies (NOTE 11)
Shareholders' equity
Common stock, $1.00 par value:
Authorized shares--10,000
Issued and outstanding shares--1,000.............................................. 1 1
Additional paid-in capital.......................................................... 7,063 6,670
Accumulated deficit................................................................. (5,111) (2,758)
----------- --------------
Total shareholders' equity............................................................ 1,953 3,913
----------- --------------
Total liabilities and shareholders' equity............................................ $ 76,769 $ 73,077
----------- --------------
----------- --------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................................ $ 137,184 $ 173,271 $ 174,401
Cost of products sold.................................................... 106,760 133,337 131,474
----------- ----------- -----------
Gross profit............................................................. 30,424 39,934 42,927
Selling, general and administrative...................................... 23,620 31,498 32,724
----------- ----------- -----------
Income from operations................................................... 6,804 8,436 10,203
Interest expense, net.................................................... 4,843 6,125 5,381
Other expenses........................................................... 359 753 577
----------- ----------- -----------
Income before income taxes & extraordinary items......................... 1,602 1,558 4,245
Income tax expense....................................................... 833 753 1,892
----------- ----------- -----------
Income before extraordinary loss......................................... 769 805 2,353
Extraordinary loss, net of tax benefit of $297........................... 552 -- --
----------- ----------- -----------
Net income............................................................... $ 217 $ 805 $ 2,353
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Balance at April 1, 1994........................................ $ 1 $ 8,092 $ (6,133) $ 1,960
Net income.................................................... 217 217
Accrual of redeemable preferred stock dividend................ (400) (400)
Other......................................................... (37) (37)
----- ----------- ------------- ---------
Balance at March 31, 1995....................................... 1 7,655 (5,916) 1,740
Net income.................................................... 805 805
Accrual of redeemable preferred stock dividend................ (400) (400)
Other......................................................... (192) (192)
----- ----------- ------------- ---------
Balance at March 29, 1996....................................... 1 7,063 (5,111) 1,953
Net Income.................................................... 2,353 2,353
Accrual of redeemable preferred stock dividend................ (371) (371)
Other......................................................... (22) (22)
----- ----------- ------------- ---------
Balance at March 28, 1997....................................... $ 1 $ 6,670 $ (2,758) $ 3,913
----- ----------- ------------- ---------
----- ----------- ------------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $ 217 $ 805 $ 2,353
Adjustments to reconcile net income to net cash provided by operations:
Extraordinary loss......................................................... 552 -- --
Depreciation and amortization.............................................. 4,251 4,245 4,866
Noncash interest expense................................................... 595 678 666
Deferred income tax expense................................................ (197) (480) (176)
Provision for doubtful accounts............................................ (186) 1,345 331
Other...................................................................... 112 (257) 224
Changes in operating assets and liabilities:
Accounts and notes receivable............................................ (2,787) (2,529) 627
Inventories.............................................................. (5,657) 4,560 (206)
Prepaid expenses and other current assets................................ 181 (701) 49
Accounts payable and accrued expenses.................................... 4,793 697 (4,803)
Other.................................................................... (925) (15) 469
----------- ----------- ------------
Net cash provided by operating activities.................................... 949 8,348 4,400
INVESTING ACTIVITIES
Purchases of property, plant, and equipment.................................. (4,628) (5,631) (3,516)
Proceeds from sales of property, plant, and equipment........................ 206 93 282
Proceeds from sales of warehouse operations.................................. (93) 1,797 --
Acquisitions................................................................. -- (5,544) --
----------- ----------- ------------
Net cash used in investing activities........................................ (4,515) (9,285) (3,234)
FINANCING ACTIVITIES
Proceeds from revolver borrowings............................................ 190,785 189,141 192,059
Principal payments on borrowings............................................. (185,777) (193,242) (196,119)
Payment of debt issue costs.................................................. (1,863) (90) (72)
Proceeds from long-term debt................................................. -- 4,197 2,600
Redemption of preferred stock................................................ -- -- (5,386)
Proceeds from sale of preferred stock by parent.............................. -- -- 5,969
Other borrowings............................................................. 500 1,000 --
Payment of preferred stock dividend.......................................... (200) -- (168)
----------- ----------- ------------
Net cash provided by (used in) financing activities.......................... 3,445 1,006 (1,117)
----------- ----------- ------------
Increase/(decrease) in cash.................................................. (121) 69 49
Cash at beginning of year.................................................... 185 64 133
----------- ----------- ------------
Cash at end of year.......................................................... $ 64 $ 133 $ 182
----------- ----------- ------------
----------- ----------- ------------
SUPPLEMENTARY INFORMATION
Cash payments for interest................................................... $ 3,098 $ 5,767 $ 5,243
----------- ----------- ------------
----------- ----------- ------------
Cash payment for income taxes................................................ $ 1,003 $ 1,594 $ 1,470
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Reliant Building Products, Inc. (formerly Redman Building Products, Inc.) and
its subsidiaries (the Company). In connection with an initial public offering of
Redman Industries, Inc. (Industries) common stock, the Company was spun-off to
previous Industries shareholders as of September 23, 1993. As of that date, the
Company was a wholly owned subsidiary of RBPI Holding Corporation (RBPI
Holding). All significant intercompany accounts and transactions have been
eliminated upon consolidation.
The Company utilizes a 52 or 53 week accounting period which ends on the
Friday closest to March 31. Each of the years in the three years ended March 28,
1997 includes 52 weeks.
ACQUISITION
On April 28, 1995, the Company acquired all the assets and certain
liabilities of Living Windows Corporation, a wholly-owned subsidiary of THJ
Investments, Inc. Living Windows Corporation manufactures and distributes
aluminum framed windows. The Living Windows acquisition was accounted for under
the purchase method of accounting and accordingly, the Company consolidated the
operations of Living Windows from the date of acquisition. The total purchase
price for the Living Windows Acquisition included cash payments of approximately
$4,796,000, a note in the amount of $400,000 and assumed liabilities of
approximately $1,493,000. The Company also recorded $748,000 of goodwill from
the acquisition which is being amortized over 15 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
The Company is principally an aluminum and vinyl window fabricator and
supplier to new residential construction and home remodeling markets throughout
the United States. Credit is extended in the normal course of business under
normal trade terms. The Company has established an allowance for doubtful
accounts of $1,637,000 at March 29, 1996 and $1,309,000 at March 28, 1997, based
upon the expected collectibility of its receivables. The Company wrote off
accounts receivable, net of recoveries, of $666,000, $361,000, and $542,000 in
fiscal years 1995, 1996, and 1997, respectively.
LONG-LIVED ASSETS
In March 1995 the Financial Accounting Standards Board issued Statement No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed. The Company
adopted Statement 121 effective March 30, 1996, and the effect of adoption was
not material.
F-7
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on
the LIFO method, which is essentially the same as using the FIFO method, for 57%
in 1996 and 53% in 1997 of total inventories.
DEPRECIATION AND AMORTIZATION
Buildings and machinery and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets
(buildings--15 to 20 years; machinery and equipment--3 to 10 years). Capital
leases are amortized over the shorter of the useful life of the leased asset or
the lease term. Capital lease amortization is included in depreciation and
amortization expenses.
INTANGIBLE ASSETS
Intangible assets, consisting of goodwill and other intangible assets, are
stated on the basis of cost. Goodwill is being amortized on a straight-line
basis over a 40-year period with the exception of goodwill resulting from the
Living Windows acquisition which is being amortized over 15 years. Other
Intangible assets consisting primarily of a covenant not to compete are being
amortized over 5 years. Recoverability of carrying value of intangible assets is
evaluated on a recurring basis with consideration toward recovery through future
operating results on an undiscounted basis.
REVENUE RECOGNITION
Revenue is recognized upon shipment or when performance has occurred.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform to the 1997 presentation.
F-8
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Secured senior credit facility:
Senior term loan; principal due in quarterly installments through January 2000; interest
at reference rate plus 1.75% (approximately 10% at March 28, 1997).................... $ 20,000 $ 17,327
Capital expenditure loan; principal due January 2000; interest at reference rate plus
2.0% (Approximately 10.25% at March 28, 1997)......................................... 3,766 4,600
Revolving loan; interest payable monthly at reference rate plus 1.75%; due January 2000
(Approximately 10% at March 28, 1997)................................................. 14,066 14,610
Acquisition loan; principal due January 2000; interest at reference rate plus 2.0%
(Approximately 10.25% at March 28, 1997).............................................. 2,200 --
----------- -----------
40,032 36,537
Note payable, net of discount of $80,000, interest monthly at prevailing prime rate less
1%; principal due in quarterly installments of $90,000 through June 1998 (effective rate
13.07%)................................................................................. 1,029 749
Other notes payable....................................................................... 400 286
----------- -----------
$ 41,461 $ 37,572
----------- -----------
----------- -----------
</TABLE>
On September 8, 1994, the Company refinanced its old secured senior credit
facility with Heller Financial, Inc. and other lenders. As a result of the
refinancing, debt issue costs and an original issue discount were written off
which resulted in an extraordinary loss of $552,000, net of tax benefit of
$297,000.
The loans under the secured senior credit facility are collateralized by all
the assets of the Company and are fully, unconditionally, jointly and severally
guaranteed by all of the Company's wholly owned subsidiaries. The secured senior
credit facility is subject to covenants that, among other things, impose
limitations on capital expenditures and investments, restrict certain payments
and distributions and require the Company to maintain certain financial ratios.
Under the credit facility, at March 28, 1997, the Company had additional
borrowing availability, which is limited by the lesser of the maximum revolving
loan or amounts of collateral, of $5.9 million under the revolving loan. The
Company must pay an annual commitment fee of 1/2 of 1% of the unused portion of
the revolving loan. The Company also had letters of credit outstanding totaling
$0.5 million, which generally guarantee various insurance liabilities.
The reference rate on the secured senior credit facility, the capital
expenditure loan, the revolving loan and the acquisition loan is defined as the
higher of the rate published by the Board of Governors of the Federal Reserve
System as the "Bank Prime Loan" rate in Federal Reserve statistical release H.15
(519) or the Federal Funds Effective rate. At March 28, 1997, this reference
rate was 8.25%.
F-9
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT (CONTINUED)
The annual maturities of long-term debt at March 28, 1997, are (in
thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 3,464
1999.............................................................. 4,221
2000.............................................................. 4,580
2001.............................................................. 4,520
2002.............................................................. 20,787
---------
$ 37,572
---------
---------
</TABLE>
The Company's secured senior credit facility is fully, unconditionally,
jointly and severally guaranteed by all of the Company's wholly owned
subsidiaries. The combined summarized information of these subsidiaries is as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- ----------
<S> <C> <C>
Cash..................................................................................... $ 106 $ 44
Receivables, net......................................................................... 7,087 7,121
Raw materials............................................................................ 3,174 3,402
Finished product and work in process..................................................... 1,493 2,200
Other current assets..................................................................... 692 3,169
Property, plant, and equipment, net...................................................... 3,912 3,937
Other assets............................................................................. 1,432 1,101
----------- ----------
Total assets......................................................................... $ 17,896 $ 20,974
----------- ----------
----------- ----------
Accounts payable......................................................................... $ 2,113 $ 1,278
Accrued expenses......................................................................... 913 971
Current portion of long-term debt and capital lease obligation........................... 445 410
Long term debt and capital lease obligation.............................................. 930 566
Other liabilities........................................................................ 327 421
Intercompany payable..................................................................... 17,647 26,567
Contributed capital...................................................................... 6,536 6,536
Retained earnings (deficit).............................................................. (11,015) (15,775)
----------- ----------
Total liabilities and shareholder's equity........................................... $ 17,896 $ 20,974
----------- ----------
----------- ----------
</TABLE>
F-10
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................. $ 30,997 $ 58,700 $ 61,913
Cost of products sold..................................... 26,618 49,986 53,809
Selling, general, and administrative...................... 5,976 13,823 13,889
Interest expense.......................................... 603 1,372 1,413
Income tax benefit........................................ 722 2,276 2,438
--------- ----------- -----------
Net loss.................................................. $ (1,478) $ (4,205) $ (4,760)
--------- ----------- -----------
--------- ----------- -----------
Net cash used in operating activities..................... $ (5,112) $ (2,175) $ (7,917)
Net cash used in investing activities..................... (1,104) (5,042) (922)
Net cash provided by financing activities................. 6,217 7,413 8,776
--------- ----------- -----------
Increase in cash...................................... $ 1 $ 196 $ (63)
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
3. SUBORDINATED DEBT
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Subordinated note payable to shareholder; interest at 11% payable
quarterly; principal due in March, 2002............................. $ 2,000 $ 2,000
Subordinated note payable to shareholder; interest at 12.9% payable
quarterly; principal due March 2002................................. -- 2,600
Promissory note payable to Redman Industries, Inc.; interest at 7%
payable semi-annually; principal due in semi-annual installments of
$125,000............................................................ 1,472 1,155
----------- -----------
$ 3,472 $ 5,755
----------- -----------
----------- -----------
</TABLE>
In connection with the additional subordinated note, RBPI Holding issued
54,259 common stock warrants to the shareholder to purchase additional shares of
RBPI Holding common stock.
In connection with the Transaction (see footnote 12), certain exisitng
indebtedness of the Company was repaid including the senior term loan, capital
expenditure loan, revolving loan, subordinated note payables, and promissory
note payable. The repayment was financed through the offering of $70,000,000
10 7/8 senior subordinated notes.
4. REDEEMABLE PREFERRED STOCK AND COMMON STOCK WARRANTS
At March 29, 1996, the Company had outstanding 4,000 shares (10,000 shares
authorized) of its 10% cumulative, nonvoting, $.01 par value Preferred Stock
recorded at $1,000 per share. The Preferred Stock was mandatorily redeemable 10
years from the date of issuance at a price of $1,000 per share plus accrued and
unpaid dividends. At March 29, 1996, there were $1.3 million of unpaid but
accrued dividends. In connection with the sale of the Preferred Stock, the
Company agreed to purchase from the
F-11
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REDEEMABLE PREFERRED STOCK AND COMMON STOCK WARRANTS (CONTINUED)
holder of the Preferred Stock certain material requirements at competitive
market rates, terms, and conditions. Under certain circumstances, the preferred
shareholder can require the Company to redeem the Preferred Stock at its
liquidation value of $1,000 per share plus unpaid dividends in advance of its
scheduled redemption dates. On May 14, 1996 the Company redeemed all of the
Preferred Stock outstanding at March 29,1996 for approximately $5.3 million
including unpaid dividends.
On April 29, 1996, RBPI Holding entered into a Preferred Stock Purchase
Agreement with an outside glass supplier for the issuance and sale to the
Investor of 6,000 shares of its authorized but unissued 10% cumulative non
voting Preferred Stock (New Preferred Stock), $.01 par value, for a purchase
price of $1,000 per New Preferred Share. The New Preferred Stock is mandatorily
redeemable by RBPI Holding under certain circumstances, including a transaction
that results in a change in control of RBPI Holding. The proceeds from the
purchase were used to redeem its existing Preferred Stock, including all accrued
but unpaid dividends, and provide the Company with additional funds and credit
support for the acquisition of stock and/or assets of other companies engaged in
the window industry. In conjunction with the Preferred Stock Purchase Agreement,
RBPI has entered into an agreement with the outside glass supplier to purchase
not less than 75% of the total dollar amount of all purchases of glass by RBPI
during the two year term of the agreement at prices that are competitive with
other glass suppliers.
The Company accrued dividends under the redeemable preferred stock of
$400,000 in each of the three years ended March 29, 1997, and paid preferred
stock dividends of $200,000 in fiscal year 1995, and none in fiscal years 1996,
and 1997, respectively.
In connection with the issuance of the senior credit facility (See Note 2),
the Company's parent, RBPI Holding, issued redeemable warrants to the senior
lenders to purchase 30,928 shares of RBPI Holding's common stock. The warrants
are exercisable at $1 per share and expire on September 8, 1999. The warrants
contain a put provision that would require RBPI Holding to repurchase the
warrants at a price based upon various formulas. The redeemable warrants have
been recorded at their original stated value of approximately $770,000 plus
accretion from their original stated value.
As RBPI Holding has no source of funds other than the Company, any mandatory
redemption of the New Preferred Stock issued by RBPI Holding, or a put exercise
under the redemable warrants could only be funded from dividends by the Company
to RBPI Holding. As such, the Company has reflected the New Preferred Stock and
the redeemable warrants at the Company level as redeemable securities.
5. LEASES
At March 28, 1997, the Company had noncancelable commitments under operating
leases through fiscal 2001 as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................... $ 3,108
1999............................................................... 2,237
2000............................................................... 1,601
2001............................................................... 895
2002............................................................... 444
Thereafter......................................................... 1,156
---------
Total Minimum Payments............................................. $ 9,441
---------
---------
</TABLE>
F-12
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
Rent expense was $3.1 million, $3.7 million, and $4.1 million for the fiscal
years 1995, 1996, and 1997, respectively.
6. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal................................................ $ 911 $ 1,021 $ 1,668
State.................................................. 119 212 400
----------- ----------- -----------
1,030 1,233 2,068
Deferred:
Federal................................................ (243) (385) (158)
State.................................................. 46 (95) (18)
----------- ----------- -----------
(197) (480) (176)
----------- ----------- -----------
$ 833 $ 753 $ 1,892
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
From April 3, 1993 through September 23, 1993, the Company was part of a
consolidated tax group. Income taxes for that period of time were computed as if
the Company were filing a separate return.
Deferred income taxes are determined using the liability approach, which
considers the future tax consequences of differences between financial
accounting and tax bases of assets and liabilities. The temporary differences
that comprise deferred income tax assets (liabilities) are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
Current:
Book-over-tax basis of inventory........................................................ $ (598) $ (355)
Insurance reserves...................................................................... 489 338
Tax-over-book basis of receivables...................................................... 577 449
Tax credits............................................................................. 36 36
Employee benefits....................................................................... 510 557
Other, net.............................................................................. 355 409
----------- -----------
Total current............................................................................. $ 1,369 $ 1,434
----------- -----------
----------- -----------
Noncurrent:
Book-over-tax basis of fixed assets..................................................... $ (3,651) $ (3,480)
Other, net.............................................................................. (366) (426)
----------- -----------
Total noncurrent.......................................................................... $ (4,017) $ (3,906)
----------- -----------
----------- -----------
</TABLE>
F-13
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Principal reconciling items from income tax computed at the U.S. Statutory
rate of 34% are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Provision at statutory rate.................................................. $ 545 $ 530 $ 1,443
Amortization of goodwill..................................................... 96 96 96
Business meals and entertainment............................................. 63 34 30
State taxes, net of federal benefit.......................................... 109 77 264
Other........................................................................ 20 16 59
----- ----- -----------
Total........................................................................ $ 833 $ 753 $ 1,892
----- ----- -----------
----- ----- -----------
</TABLE>
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Employee compensation and benefits.................................... $ 3,658 $ 3,774
Insurance............................................................. 1,437 995
Interest.............................................................. 1,168 443
Product warranty...................................................... 97 244
Sales incentives...................................................... 367 304
Other................................................................. 1,168 943
----------- -----------
$ 7,895 $ 6,703
----------- -----------
----------- -----------
</TABLE>
8. PENSION PLANS
The Company sponsors a defined contribution retirement plan (401k) and a
supplemental retirement plan covering substantially all its employees. Eligible
employees may contribute up to 10% of their compensation, and the Company
matches 50% of the first 6% deferred by the employees. Employees are eligible to
participate in the 401k plan after one year of employment and vest in the
Company's matching contribution ratably over five years. Defined contribution
expense for the two plans was $473,000, $572,000, and $599,000 for fiscal years
1995, 1996, and 1997, respectively.
9. INCENTIVE STOCK UNITS
The Company and certain officers and key executives of the Company and of
Industries (the Unit Holders) have entered into separate Incentive Stock Units
Agreements (the Units) whereby, upon the occurrence of certain transactions or
events, the Unit Holders are entitled to receive compensation based upon a
prescribed formula. At March 28,1997, there were 16 Unit Holders who had been
granted Units, and all such Unit Holders are fully vested. Until a transaction
or event occurs that would result in the payment of the Units, the compensation
to be recognized cannot be reasonably estimated. (See Note 12).
F-14
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company was charged $285,000, $178,000 and $0 by Industries in fiscal
years 1995, 1996, and 1997, respectively, for various management services
performed by Industries for the benefit of the Company. Until 1993, the Company
was a subsidiary of Industries. After the Company was legally spun off from
Industries, Industries continued to provide certain management services to the
Company during a transition period from 1993 to 1995. The Company was also
charged $262,500, $350,000, and $350,000 by Wingate Partners in fiscal years
1995, 1996, and 1997, respectively, for management services.
The Company purchased $11,250,000, $9,985,000 and $11,037,000 of glass in
fiscal years 1995, 1996 and 1997, respectively, from the preferred stockholders.
11. CONTINGENCIES
Various claims, suits, and complaints have been filed or are pending against
the Company. In the opinion of management, adequate provision has been made for
those matters not covered by insurance.
12. SUBSEQUENT EVENT
On May 9, 1997, Wingate Partners, L.P. and certain selling stockholders sold
the common stock of Holdings to Reliant Partners. The selling stockholders
received $30.1 million cash and $9.8 million of seller notes. In addition, the
$6.0 million of outstanding preferred stock was redeemed. In connection with
this transaction the Company will recognize $2,004,000 of compensation expense
which is net of a tax benefit of approximately $1,177,000 related to the
incentive stock units (See Note 9). In addition, the Company will recognize an
extraordinary charge of approximately $720,000 which is net of a tax benefit of
approximately $423,000 relating to the extinguishment of debt with proceeds of
the Offering.
F-15
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPANY
-----------
JUNE 27,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash............................................................................................... $ 8,638
Accounts and note receivable....................................................................... 19,140
Inventories........................................................................................ 15,611
Deferred tax assets................................................................................ 1,434
Prepaid expenses and other current assets.......................................................... 1,255
-----------
Total current assets................................................................................. 46,078
Property, plant, and equipment, net.................................................................. 29,193
Intangible assets, net............................................................................... 42,816
Other assets......................................................................................... 6,646
-----------
Total assets......................................................................................... $ 124,733
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable................................................................................... $ 8,732
Accrued expenses................................................................................... 9,512
Current portion of long-term debt.................................................................. 894
-----------
Total current liabilities............................................................................ 19,138
Long-term debt....................................................................................... 160
Deferred income taxes................................................................................ 5,866
Other liabilities.................................................................................... 2,100
Subordinated debt.................................................................................... 70,000
Redeemable securities................................................................................ 0
-----------
Total liabilities.................................................................................... 97,264
Shareholders' equity
Common stock, $1.00 par value:
Authorized shares--10,000
Issued and outstanding shares--1,000............................................................. 1
Additional paid-in capital......................................................................... 27,567
Retained earnings.................................................................................. (99)
-----------
Total shareholders' equity........................................................................... 27,469
-----------
Total liabilities and shareholders' equity........................................................... $ 124,733
-----------
-----------
</TABLE>
See accompanying notes.
F-16
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------- -----------------------------------------
SEVEN WEEKS ENDED SIX WEEKS ENDED THIRTEEN WEEKS ENDED
JUNE 27, 1997 MAY 9, 1997 JUNE 28, 1996
-------------------- ----------------- ----------------------
<S> <C> <C> <C>
Net sales....................................... $ 23,681 $ 20,095 $ 49,396
Cost of products sold........................... 18,300 14,852 37,580
-------- -------- --------
Gross profit.................................... 5,381 5,243 11,816
Selling, general and administrative............. 4,501 3,765 8,011
-------- -------- --------
Income from operations.......................... 880 1,478 3,805
Interest expense, net........................... 1,104 587 1,474
Other expenses.................................. 0 3,350 140
-------- -------- --------
Income (loss) before income taxes &
extraordinary items........................... (224) (2,459) 2,191
Income tax expense (benefit).................... (125) (846) 880
-------- -------- --------
Income (loss) before extraordinary loss......... (99) (1,613) 1,311
Extraordinary loss, net of tax benefit.......... 0 715 0
-------- -------- --------
Net income (loss)............................... $ (99) $ (2,328) $ 1,311
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-17
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------- -----------------------------------------
SEVEN WEEKS ENDED SIX WEEKS ENDED THIRTEEN WEEKS ENDED
JUNE 27, 1997 MAY 9, 1997 JUNE 28, 1996
-------------------- ----------------- ----------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ (99) $ (2,328) $ 1,311
Adjustments to reconcile net income (loss) from
operations to net cash used by operations:
Depreciation and amortization..................... 946 535 1,270
Provision for doubtful accounts................... 89 130 (57)
Provision for deferred income taxes............... 272 (175) 1,090
Non-cash interest expense......................... 71 63 228
Gain on sale of assets............................ (1) 0 0
Extraordinary loss from early debt retirement..... 0 715 0
Minority interest................................. 0 (190) 53
Other............................................. (66) (39) 13
Changes in operating assets and liabilities:
Accounts and notes receivable................... (271) (1,436) (3,435)
Inventories..................................... 668 (829) (1,690)
Prepaids & current other assets................. 75 (322) (534)
Accounts payable................................ (2,297) 3,526 1,488
Accrued expenses................................ (1,272) 2,800 (404)
Other........................................... (648) (2) (1)
-------- -------- --------
Net cash provided by (used in) operating activities... (2,533) 2,448 (668)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment.......... (347) (198) (683)
Proceeds from sale of property, plant and
equipment......................................... 16 43 11
-------- -------- --------
Net cash used in investing activities................. (331) (155) (672)
FINANCING ACTIVITIES:
Proceeds from revolver borrowings................... 0 20,202 52,746
Repayments of revolver borrowings................... (38,668) (18,071) (54,301)
Proceeds from subordinated debt offering............ 70,000 0 0
Proceeds from other long-term debt.................. 0 0 2,600
Repayments of borrowings............................ (5,838) (148) (288)
Debt issue costs.................................... (3,373) 0 0
Proceeds from sale of preferred stock by parent..... 0 0 5,976
Redemption of preferred stock....................... (6,187) 0 (5,386)
Dividends paid to Holdings.......................... (8,890) 0 0
-------- -------- --------
Net cash provided by financing activities............. 7,044 1,983 1,347
-------- -------- --------
Increase in cash...................................... 4,180 4,276 7
Cash and cash equivalents at beginning of period...... 4,458 182 133
-------- -------- --------
Cash and cash equivalents at end of period............ $ 8,638 $ 4,458 $ 140
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-18
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The unaudited consolidated results of operations and cash flows of Reliant
Building Products, Inc. (the "Company") and Redman Building Products, Inc. (the
"Predecessor") for the periods ended June 27, 1997 and May 9, 1997 and the
quarter ended June 28, 1996, and financial position as of June 27, 1997 have
been prepared in accordance with generally accepted accounting principles for
interim financial reporting, the instructions to Form 10-Q, and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The Predecessor's financial results represent activity
prior to the closing of the stock purchase agreement (the "Transaction") as
described in note 3.
These consolidated financial statements and footnotes should be read in
conjunction with the Company's audited financial statements for the fiscal years
ended March 28, 1997, March 29, 1996, and March 31, 1995. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the interim financial
information have been included. The results of operations for any interim period
are not necessarily indicative of the results of operations for a full year.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined on
the LIFO method. Inventories consisted of the following at June 27, 1997:
<TABLE>
<S> <C>
Raw materials............................................. $ 9,952
Work-in-process........................................... 839
Finished goods............................................ 4,823
LIFO reserve.............................................. (3)
---------
$ 15,611
</TABLE>
3. INTANGIBLE ASSETS
As a result of the Transaction, goodwill was increased by $33,113. The
Transaction was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations." The purchase price was
allocated first to tangible and indentifiable intangible assets and liabilities
of the Company based upon preliminary estimates of their fair market values,
with the remainder allocated to goodwill.
Intangible assets, consisting of goodwill and other intangible assets, are
stated on the basis of cost. Goodwill is being amortized on a straight-line
basis over a 40 year period. Other intangible assets consisting primarily of a
covenant not to compete are being amortized over 5 years. Recoverability of
carrying value of intangible assets is evaluated on a recurring basis with
consideration toward recovery through future operating results on an
undiscounted basis.
4. LONG-TERM DEBT
In connection with the Transaction and with the proceeds from the Senior
Subordinated notes sold on May 9, 1997 (the "Initial Offering"), $44,300 of
existing long-term debt was repaid.
F-19
<PAGE>
RELIANT BUILDING PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. REDEEMABLE SECURITIES
In connection with the Transaction and with the proceeds from the Initial
Offering, $6,187 of redeemable preferred stock and $1,086 of redeemable common
stock warrants were eliminated.
6. REDEMPTION OF INCENTIVE STOCK UNITS
In connection with the Transaction, $3.5 million was paid to the holders of
incentive stock units. This amount is reflected in other expense on the income
statement.
F-20
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
- -------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary................................ 4
Risk Factors........................... 15
Use of Proceeds........................ 22
The Exchange Offer..................... 22
Capitalization......................... 31
Selected Historical and Pro Forma
Financial Information................ 32
Unaudited Pro Forma Financial
Statements........................... 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 39
Business............................... 45
Management............................. 55
Ownership of Capital Stock............. 59
Certain Transactions................... 60
Description of the Senior Credit
Facility............................. 60
Description of the Notes............... 63
Plan of Distribution................... 101
Legal Matters.......................... 102
Experts................................ 102
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
UNTIL SEPTEMBER 30, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS
$70,000,000
RELIANT BUILDING
PRODUCTS, INC.
10 7/8% SENIOR SUBORDINATED NOTES
DUE 2004
[LOGO]
SEPTEMBER 5, 1997
